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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(mark one)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ____ to ____
Commission file No. 0-17888
SERV-TECH, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-1398757
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5200 CEDAR CREST BOULEVARD
HOUSTON, TEXAS 77087
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 644-9974
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.50 per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 15, 1996, the registrant had 6,656,238 outstanding shares of
Common Stock, par value $.50 per share, and at such date, the aggregate market
value of the shares of Common Stock held by nonaffiliates of the registrant was
approximately $36.1 million.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the fiscal
year ended December 31, 1995, are incorporated by reference into Part II.
Portions of the Registrant's Proxy Statement in connection with its 1995
Annual Meeting of Shareholders are incorporated by reference into Part III.
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SERV-TECH, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
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PART I
Item 1. Business....................................................................................... 3
Item 2. Properties..................................................................................... 11
Item 3. Legal Proceedings.............................................................................. 11
Item 4. Submission of Matters to a Vote of Security Holders............................................ 11
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................................................... 12
Item 6. Selected Financial Data........................................................................ 12
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations............................................... 12
Item 8. Financial Statements and Supplementary Data.................................................... 12
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure...................................................... 12
PART III
Item 10. Directors and Executive Officers of the Registrant............................................. 13
Item 11. Executive Compensation......................................................................... 13
Item 12. Security Ownership of Certain Beneficial
Owners and Management....................................................................... 13
Item 13. Certain Relationships and Related Transactions................................................. 13
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K................................................................................. 14
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PART I
ITEM 1. BUSINESS
GENERAL
Serv-Tech, Inc. (the "Company") is an integrated provider of specialty
services and products to process industries worldwide. Serv-Tech has three
primary operating segments, (i) Serv-Tech Specialty Services ("Specialty
Services"), (ii) Serv-Tech EPC ("EPC"), and (iii) Environmental Services and
Performance Chemicals ("Environmental"). Specialty Services provides total
turnaround project management services including heat exchanger extraction and
cleaning, fabrication, specialty welding, refractory and other specialized
services primarily to the refining, petrochemical, paper, power and cement
industries. EPC provides a full range of engineering, procurement and
construction services primarily to the hydrocarbon processing, petrochemical,
power, pulp and paper, and food processing industries. Additionally, EPC
installs electrical and instrumentation systems for offshore production
platforms, refineries, petrochemical processing plants, food processing plants
and riverboat casinos through SECO Industries, Inc. ("SECO"). The Environmental
business formulates specialty chemicals to meet specific customer needs
primarily in the hydrocarbon processing, pulp and paper, and waste water
industries.
The Company was organized in Texas in 1978 to provide conventional
hydroblasting and chemical cleaning services to the refining, petrochemical and
paper processing industries in Texas and Louisiana. In 1985, the Company
introduced its new heat exchanger extraction and cleaning technologies and sold
its conventional businesses. In 1987, the Company introduced its tower and
vessel maintenance services to complement its heat exchanger services. In
1988, the Company introduced its turnaround management services and its
proprietary tank cleaning services. Specialty pipe welding services were added
in late 1990. Electrical and instrumentation services were added in September,
1991, with the acquisition of SECO. The Company began offering engineering and
design services in May, 1992, with the acquisition of Talbert & Associates, Inc
("TAI"). In 1994, the engineering capabilities of TAI were incorporated into
the newly formed Serv-Tech EPC group, to offer its customers turnkey, single
source responsibilities for engineering, procurement and construction services.
In 1994, the Company introduced refractory services through the acquisition of
Hartney Industrial Services Corporation ("Hartney").
In September, 1991, the Company acquired all of the outstanding common
stock of SECO, a Metairie, Louisiana, based specialty contracting company. SECO
is engaged primarily in electrical and instrumentation projects for offshore
production platforms, petroleum refineries, petrochemical processing plants,
food processing, gaming and other industrial facilities.
During 1991, the Company acquired a 50% interest in Chemisolv Holdings,
Inc. ("Chemisolv"). In November, 1994, the Company acquired the remaining 50%
interest. Chemisolv is an environmental services and specialty chemical
treatment company with operations in the United Kingdom and the United States.
In the fourth quarter of 1991, the Company acquired the assets and
business operations of Terminal Technologies, Inc. ("TTI"), whose business is
cleaning petrochemical product storage tanks using specialized proprietary
equipment.
In May, 1992, the Company acquired all of the outstanding common stock of
TAI, a New Orleans, Louisiana, based engineering firm. TAI provides a full
range of specialized engineering and design services to the petroleum refining
and chemical industries.
In September, 1992, the Company acquired all the outstanding common stock
of Delta Maintenance, Inc., a union contractor providing refinery maintenance
services in Louisiana. In early 1993, a branch of Delta Maintenance was
established in the St. Louis, Missouri, area to provide union based maintenance
services to refineries in the midwestern and eastern United States.
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In June, 1994, the Company acquired all the outstanding common stock of
Hartney, a Houston, Texas, based company. Hartney is a specialty contractor
which provides refractory, acid proofing and other corrosion prevention
services to the petroleum refining, petrochemical, cement, power generation and
waste incineration industries.
In November, 1994, the Company acquired all of the outstanding common
stock of F. C. Schaffer & Associates, Inc. ("Schaffer"). Headquartered in
Baton Rouge, Louisiana, Schaffer is a provider of engineering, consulting and
project management services primarily to sugar refinery, cogeneration and
alcohol production industries.
SERV-TECH SPECIALTY SERVICES
Specialty Service's principal market has been the petroleum industry in
the United States. Its customers include all of the ten largest integrated oil
companies in the United States. To ensure the operability, environmental
compliance, efficiency and safety of their refineries, these companies must
periodically maintain, repair or replace process equipment, operating machinery
and piping systems. Since 1986, increased demand for petroleum products and a
stabilization in refining capacity has led to a substantial increase in
refinery utilization, providing refineries with an incentive to minimize the
duration of maintenance turnarounds. As a consequence, refineries have
increased their reliance on outside contractors who can perform specialized
turnaround services within strict time constraints.
PLANNING AND MANAGEMENT SERVICES. As demand for the Company's specialized
heat exchanger and tower and vessel maintenance services increased, the Company
developed the planning capabilities, operations skills and field supervision
necessary to manage all aspects of a turnaround. When managing a turnaround,
the Company is responsible for scheduling and coordinating the entire
project. Certain aspects of a turnaround, such as heat exchanger and tower
and vessel maintenance, refractory installation, piping repair and fabrication,
inspection and repair of furnaces and heaters, and certain specialized types of
welding typically are provided directly by the Company. The Company intends to
continue to enhance its capabilities in turnaround management by improving its
planning and estimating capabilities, adding additional services as necessary
and hiring experienced, qualified project management.
HEAT EXCHANGER SERVICES. Heat exchangers are essential components in
petroleum refining and petrochemical processing. Crude oil and other
feedstocks must be heated before they are processed. Once processed, finished
or semi-finished products must be cooled before storage. Refineries and
petrochemical plants use heat exchangers to allow hot products, which need
cooling, to give up their heat to crude oil or feedstocks, which need heating.
This results in conservation of energy and reduced operating cost.
Heat exchangers require periodic maintenance and cleaning. Heat
exchangers are usually cleaned in conjunction with a scheduled turnaround,
which may involve the removal and cleaning of up to 300 heat exchangers during
a one- to four-week period. During the turnaround, the heat exchangers are
disassembled and tube bundles are extracted, cleaned and inspected. The tube
bundles are then reinserted and the heat exchangers are reassembled and
pressure tested.
The Company extracts and reinserts heat exchanger bundles using its
patented Fast Draw(R) mobile heat exchanger bundle extractor. The Fast Draw(R)
unit uses a rotating carriage frame, which is aligned with the heat exchanger
centerline and attached to the exchanger shell. A pulling sled, situated on
the carriage frame, is attached to the bundle tubesheet. The pulling sled is
then activated and exerts a pulling force of up to 100 tons to extract the
bundle from the exchanger shell in one continuous, controlled pull. The
carriage can be adjusted to balance the bundle as it is extracted. Once the
heat exchanger bundle is fully extracted, it is lowered to a Company designed
and owned trailer for transportation to an approved cleaning site at the
refinery. After cleaning and inspection, the process is reversed to reinsert
the tube bundle. The Company has received four United States patents regarding
its Fast Draw(R) technology. See "--Patents, Licenses and Permits."
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In 1985, the Company introduced its Fast Clean(R) system, a mobile,
self-contained, remotely controlled, high-pressure hydroblasting unit. By
cleaning multiple tubes at one time and eliminating hand-held hydroblasting
equipment, the Fast Clean(R) system has demonstrated significant improvements
from traditional methods in cleaning time, personnel safety and manpower
requirements. The Fast Clean(R) unit enhances operator safety by distancing
personnel from high pressure streams and replacing flexible hoses with rigid
piping. The units mobility allows the Company to perform jobs at widely
separate locations with a minimum of moving costs. The Company has received
three United States patents regarding its Fast Clean(R) technology. See
"--Patents, Licenses and Permits."
The Company also provides the manpower and tools to disassemble and
reassemble heat exchanger components and shells. The Company has several fully
equipped tool trucks which are used in conjunction with Fast Draw(R) and Fast
Clean(R) equipment. By combining the disassembly, extraction, cleaning,
reassembly and testing of the heat exchanger, the Company is able to control
all phases of heat exchanger maintenance and provide the customer with shorter
turnaround cycles.
TOWER AND VESSEL MAINTENANCE. In 1987, Specialty Services expanded its
turnaround maintenance capabilities by offering tower and vessel maintenance
services. An integral part of all refining units, towers are used to separate
the components of crude oil or other hydrocarbons through distillation. The
distillation process utilizes a series of disc-shaped perforated horizontal
plates called trays, spaced about every two feet inside the tower. Since these
trays are exposed to high temperature and corrosive conditions during the
distillation process, and because these trays are critical to meeting product
specifications, towers are always inspected and repaired during maintenance
turnarounds. Frequently, tower maintenance is critical to completing the
turnaround and returning the unit to operation. Inspection, repair,
modification and replacement of the tower trays require an experienced work
force to complete the work within the strict time limits imposed by the
customer. During the turnaround, other towers, drums and vessels which are
ancillary parts of the refining process are opened, inspected and repaired if
necessary. The Company has assembled the necessary management, planning skills
and labor force to offer its customers a cost effective tower and vessel
maintenance service.
SPECIALTY PIPE WELDING. In late 1990, Specialty Services began offering,
through a newly formed subsidiary, ST Piping, Inc., specialized welding services
to refineries and petrochemical plants. The piping, vessels and heat exchangers
in these plants must be designed to withstand extremes of high temperature,
pressure and corrosive conditions. Many of the newer process designs utilize
high alloy steels and exotic metals. ST Piping has the equipment and highly
skilled personnel necessary to provide the specialized welds needed for these
design conditions. All of ST Piping's work conforms to the American Society of
Mechanical Engineers Boiler and Pressure Vessel Code, the highest standards in
the industry.
REFRACTORY, ACID PROOF AND FIREPROOF CONSTRUCTION. In 1994 Specialty
Services began offering refractory installation and maintenance services
through Hartney which was acquired in June, 1994. Hartney is a leading
provider of refractory services for turnarounds, outages, revamps and
expansions of critical processing units primarily for the petroleum refining,
chemical processing and power industries. Refractory services include the
construction of high temperature, corrosion resistant and fireproof lining
systems for virtually every type of industrial application, in-plant structural
and vessel fireproofing and major refractory installations on Fluid Catalytic
Cracking Units.
ENGINEERING PROCUREMENT AND CONSTRUCTION SERVICES
The Company introduced engineering services in May, 1992, with the
acquisition of TAI, an engineering and design firm primarily serving the
petroleum refining and chemical industries. TAI provides a full range of
engineering, design, project management, drafting and estimating services.
Since the physical plants utilized by the Company's customers are large and
complex, they require specialized engineering services in order to undertake
refurbishment, expansion or new construction projects. TAI is able to perform
such jobs, beginning with field inspection activity, through total project
management which includes mechanical, civil, structural, electrical, process
and instrumentation engineering.
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In 1994, the engineering capabilities of TAI were incorporated into the
newly formed Serv-Tech EPC group, to offer its customers turnkey, single source
responsibility for engineering, procurement and construction services. In
November, 1994, EPC was awarded an estimated $20.7 million contract to
design, procure and construct a tank farm for Conoco in Westlake, Louisiana.
This fixed price contract has an estimated completion date of mid-1996.
During the last part of 1994, the Company acquired all of the outstanding
common stock of Schaffer of Baton Rouge, Louisiana. Schaffer is one of the
leading experts on sugar mill design, engineering and construction management.
In February, 1995, Schaffer secured an $83.0 million contract to design,
procure and construct a 4,000 metric ton cane-per-day sugar factory and 45,000
liter-per-day ethanol plant in Finchaa, Ethiopia. The project, which is
financed by the African Development Bank, is expected to be completed in the
latter part of 1997 followed by a twelve month training and warranty period.
During 1995, the electrical and instrumentation contracting subsidiary,
SECO, was combined with the operations of EPC to further enhance the services
available to the Company's clients. SECO's clients are petroleum,
petrochemical, paper, food processing, mining, marine, gaming and utility
companies, as well as major engineering firms and general contractors.
SECO was formed in 1961 as an electrical contractor in southern Louisiana.
SECO's initial growth was in the oil field and commercial markets, and was
characterized by progressively larger projects and wider geographical scope.
At present, a major portion of SECO's projects involve electrical and
instrumentation systems installation for large offshore petroleum production
facilities. SECO provides its services throughout the world, and has worked in
21 countries.
Offshore production platforms, petroleum refineries and petrochemical
processing plants, mining facilities and other industrial installations have
complex requirements for electrical, instrumentation, power distribution and
process control systems. Installations of these systems involve large
construction projects often characterized by multiple fabrication sites, wide
diversity of components and processes, and application of advanced technology.
The electrical and instrumentation contractor must excel in every phase of the
project from design assistance to final hookup.
Engineering, procurement and construction projects are typically of longer
duration, with more stable manpower levels than the Company's Specialty
Services work. Gross profit margins on construction contracts, however, are
lower than Specialty Services due to better defined design and scope of work,
and less critical nature of completion schedules compared to Specialty Services
projects.
ENVIRONMENTAL SERVICES AND PERFORMANCE CHEMICALS
In 1988, Serv-Tech introduced petroleum storage tank sludge cleaning
services, which significantly enhance personnel safety and reduce the
environmental risks of cleaning petroleum storage tanks. Sludge is a mixture of
hydrocarbons (paraffins and asphaltines), sediment and corrosive elements
which, together with water, form an emulsion of oil, water and solids.
Generally, more than 90% of the sludge constitutes valuable hydrocarbons.
Sludge is generally heavier and more viscous than oil and settles to the bottom
of the tank, thereby reducing the effective capacity of the tank and increasing
the likelihood of corrosion of the tank bottom which can lead to leakage into
the environment.
The Company's petroleum tank cleaning services utilize the HP2000 system,
a high-pressure rotating, controllable submerged jet which is inserted into a
tank while the tank remains in service. The twin nozzle, high-shear unit is
positioned at the center of the tank and directs single or opposed jets of
crude oil horizontally across the tank bottom. The high-pressure sweeping
action resuspends the hydrocarbon components of the sludge by breaking the
bonding within the emulsion. Once suspended, the
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sludges and crude oil are filtered through fine mesh screens on Company owned
filter trucks to further homogenize the crude oil and remove any sediment and
rust scale. A refinery can then process the resuspended hydrocarbon in the
normal manner. Inorganic sediments, scale and water remaining in the
tank will have to be removed using traditional methods. However, because the
volume of the sludge has been reduced, the time between such cleanups is
significantly increased.
The primary benefits of the Company's petroleum tank cleaning services are
the recovery of hydrocarbons from the resuspended sludge, the minimizing of
vapor emissions associated with the removal of the residual sludge from the
tank, enhancement of worker safety by reduced exposure to hazardous conditions,
and reduction in the volume of sludge and other waste which requires
reprocessing, disposal in landfills or incineration.
In December, 1991, the Company acquired the business operations of TTI, a
provider of tank cleaning services for product storage tanks in petroleum
products distribution terminals. TTI's tank cleaning process uses that
company's patented Hydrocarbon Reclaimer System. The Hydrocarbon Reclaimer
System filters the contaminated tank bottoms, recovering all of the reusable
product. The waste material collected in the filtering process is dried and
stored in containers supplied by TTI. All waste generated in the tank cleaning
process leaves the product distribution terminal as a dried solid. A unique
advantage of the process is that the waste solids are non-hazardous, and can be
transported and disposed by the customer, with a minimum of permitting.
During the first quarter of 1991, the Company acquired a 50% interest in
Chemisolv and acquired the remaining 50% interest in the fourth quarter of 1994.
Chemisolv is an environmental services and specialty chemical treatment company
with operations in the United Kingdom and the United States. Management of this
company has significant experience in providing waste stream treatment and
chemical treating solutions to a wide range of industries including food,
hydrocarbon processing, textiles, metal finishing, and pulp and paper.
In 1992, the Company and Chemisolv jointly developed a proprietary
chemical decontamination process for removing benzene and other hydrocarbons
from process equipment in refineries and petrochemical plants. The Life
Guard(R) system utilizes chemical formulations developed by the Company and
Chemisolv to emulsify and extract hydrocarbons remaining in heat exchangers and
towers and vessels after those units have been removed from service in
preparation for turnaround maintenance. The emulsified solution containing the
entrapped benzene and hydrocarbons is then separated to allow disposal of the
contaminants through the plant's waste treatment facilities. The Life Guard(R)
chemicals are non-toxic and biodegradable.
The benefits of the Life Guard(R) system are twofold: it improves worker
safety by removing harmful, carcinogenic benzene and other hydrocarbon
compounds from vessels in which maintenance is performed; and, it reduces the
time necessary to remove oil, sludges and hydrocarbons from process equipment.
This reduces turnaround time by permitting quicker entry to vessels,
eliminating the need for fresh air respiratory equipment, and providing cleaner
work areas. On turnarounds in which the Life Guard(R) system has been used,
the Company has experienced significant savings in time and manpower
requirements. Turnaround times have been reduced by one to three days and
manpower has been reduced up to 25%.
The Company manufactures pumping systems which circulate the Life Guard(R)
chemical solutions. The Company has received one United States patent and two
United States patents are pending regarding its Life Guard(R) Decontamination
System. See "--Patents, Licenses and Permits."
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CUSTOMERS AND MARKETING
Prior to 1995, the Company derived most of its revenues from the refining
and oil and gas production industries in the United States. Services have also
been provided to companies in the petrochemical, chemical, gas processing,
pipeline and liquid terminal industries. The Company's customers operate
through various subsidiaries and at multiple plant locations principally
throughout the United States. In general, decisions to award work are made at
each operating facility of the customer. While the Company derived a
significant portion of revenue from its historical customer base in 1995, the
Company's major customer was the Finchaa Sugar Factory. This is consistent
with the Company's continued diversification of its revenue base beyond
traditional markets.
In each of Serv-Tech's service lines, work is typically bid on a
job-by-job basis. Performance of services by the Company at any single plant
or project location does not assure the Company subsequent work at that
facility or other facilities of that customer. Conversely, the loss of a bid
for any one project does not affect the Company's ability to obtain additional
work from that customer. One customer accounted for 12% of the Company's
revenues in 1995 and 27% in 1994, and three customers accounted for 42% of
the Company's revenues in 1993. The following table sets forth the Company's
ten largest customers, based upon revenues, for each of 1995, 1994 and 1993:
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1995 1994 1993
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Finchaa Sugar Factory Mobil Oil Corporation Mobil Oil Corporation
Chevron USA, Inc. Chevron USA, Inc. McDermott, Inc.
Conoco, Inc. Conoco, Inc. Conoco, Inc.
Mobil Oil Corporation Texaco, Inc. Texaco, Inc.
Atlas Producing Company Exxon USA, Inc. Chevron U.S.A., Inc.
E. I. Dupont Atlantic-Richfield Company Exxon U.S.A., Inc.
Unocal Uno-Ven, Inc. Gulf Marine Fabricators
Coastal Refining McDermott, Inc. Atlantic Richfield
Phibro Energy, U.S.A., Inc. B. P. Oil Company Lea Refining, Inc.
Vista Chemical Star Enterprise Southwestern Refining
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The Company maintains close contact with its customers in order to
determine upcoming projects for which its services may be required. The
Company generally is required to bid competitively for work on a
project-by-project basis for each of the services it provides. Depending on
the size and complexity of the work to be awarded, bid lead times range from
two weeks to four months. Much of the work involved in preparing a bid
consists of planning the schedule for the project. As a result, costs
associated with the planning, as well as anticipated costs for management of
the project, are included in the Company's bid. Bids are generally awarded
based on price considerations, although scheduling, efficiency, quality and
safety are also considered by the customer in awarding contracts.
The Company's fee arrangements for its services are either fixed price or
based on detailed time and material billing schedules. The Company has
encouraged its customers to seek firm bid turnkey proposals for its Specialty
Services and EPC contracts. Management believes that firm bid contracts permit
its customers to realize the benefits of the Company's services and offer the
Company an opportunity to realize higher profit margins. Time and material
billing arrangements provide for cost plus billing schedules for labor and
equipment used on the job and offer the Company an assured level of project
profitability. The accumulated man-hours and equipment utilized are billed on
a weekly or monthly basis. In 1995, approximately 35 percent of the Company's
revenues were derived from fixed price contracts.
The Company maintains estimators and planners who review the scope of work
to be performed, analyze labor and material requirements, and prepare bids to
be submitted to potential customers. Final bid prices on major proposals are
coordinated between the estimator/planners, regional managers and senior
management.
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The Company markets its turnaround services through five regional offices
and its corporate headquarters in Houston, Texas, with its regional managers
primarily responsible for their sales effort. EPC services are marketed
through offices in Metairie, Louisiana, and seven regional offices. The
Company markets its environmental services and performance chemicals from its
Houston, Texas, Atlanta, Georgia, and Manchester, England, offices.
PATENTS, LICENSES AND PERMITS
The Company is the holder of 18 United States patents covering its Fast
Draw(R), Fast Clean(R), Life Guard(R) Decontamination System and tank cleaning
equipment and technology. The Company is actively developing technology
related to its businesses and has filed several patent applications with the
United States Patent Office. Management believes that the development of
proprietary technology has been an important factor in the Company's growth and
the Company intends to seek additional patent protection where appropriate.
However, there can be no assurance that additional patents will be granted, or
as to the validity or value of such patents. In addition, it is conceivable
that competitors could modify the essential technology represented by the
Company's patents in such a way that it would not result in patent
infringement. The Company's patents expire at various dates between November
18, 2003 and June 17, 2014.
The Company is certified by the American Society of Mechanical Engineers
("ASME") Boiler and Pressure Vessel Code to hold "A", "U", "S", and "PP"
stamps, as well as the National Board "R" stamp. These stamps permit the
Company to perform specialized major weld repairs, nozzle replacements and
additions in compliance with ASME requirements.
BACKLOG
The Company's backlog includes contracts which have been awarded and the
unearned portion of contracts for work in progress. The Company's backlog was
approximately $96.1 million at December 31, 1995 and $88.1 million at December
31, 1994.
COMPETITION
The market for the Company's specialty services, engineering, procurement
and construction, and environmental services is highly competitive. Many of
the Company's competitors have greater financial and other resources than the
Company. Additionally, the Company competes with numerous small, independent
contractors which collectively have a significant share of the market for these
services. Competitive factors for these services include price considerations,
performance record, quality and safety.
GOVERNMENT REGULATION
The Company's services involve contact with crude oil and refined
petroleum products. These substances have been classified as hazardous waste.
Under various federal laws, hazardous waste is regulated from the point of
generation until disposal. In addition, the United States Environmental
Protection Agency has issued regulations for hazardous waste generators,
transporters and owners and operators of treatment, storage and disposal
facilities.
The Company's services are structured to avoid any involvement in the
disposal of hazardous wastes and the Company does not consider itself to be a
generator or transporter of hazardous waste. Typically, all hazardous
materials handled by the Company are disposed of by the customer using the
customer's waste disposal facilities. The cleaning of heat exchangers is
usually performed on cleaning slabs, with the water and debris collected and
treated by the customer's waste water facilities. The Company has designed and
installed for several of its customers a closed-loop system to circulate and
filter
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water used in its Fast Clean(R) system. This minimizes water usage and
reduces the volume of waste water processed by the customer. The Company's
petroleum tank cleaning and sludge control systems resuspend sludge within the
petroleum storage tank, permitting the refinery to reclaim processible
hydrocarbons, rather than removing the sludge for reprocessing or disposal.
The Company's tank cleaning services for petrochemical product storage tanks
employ the patented Hydrocarbon Reclaimer System which recovers all of the
reusable product. All waste generated by this process is in the form of
non-hazardous dried solids, which can be conveniently transported and disposed
by the customer.
All of the Company's operations are subject to regulations issued by the
Department of Labor under OSHA. These regulations have strict requirements for
protecting personnel involved with any materials that are classified as
hazardous, which includes certain materials found in heat exchangers, towers,
vessels and petroleum storage tanks. Violations of these rules can result in
fines and suspension of licenses.
INSURANCE
The Company maintains statutory worker's compensation insurance in
accordance with various states requirements and liability insurance with an
occurrence annual aggregate coverage limit of $61 million. The Company
maintains professional liability insurance for its EPC subsidiaries. The
Company's general liability insurance provides only limited coverage for
pollution related claims and excludes fines and penalties levied against the
Company as a result of any violations by the Company of the regulations issued
by the Department of Labor under OSHA. To date, the Company has not incurred
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.
WORKING CAPITAL
The Company's customers typically compensate the Company for services
performed upon completion of a given project or on an agreed upon progress
payment schedule for larger projects. Therefore, the Company must have
sufficient working capital to permit it to undertake its services throughout
the duration of a project. The Company believes that its present working
capital position, combined with forecasted cash flows and borrowing capacity,
will be sufficient to meet the Company's working capital requirements. The
continued expected growth of the Company will require additional working
capital needs, especially those related to the seasonality of the business.
During 1995 in order to support the growing operations, the Company increased
its working capital line of credit from $20.0 million to $35.0 million.
QUARTERLY FLUCTUATIONS
The Company's revenues and operating income have historically been subject
to significant, quarterly fluctuations with respect to Specialty Services.
This is due primarily to the timing of shutdowns at plant facilities.
Accordingly, it is anticipated that the Company's quarterly results will
fluctuate and the results of one quarter should not be deemed to be
representative of the results of any other quarter or for the year. The
quarterly fluctuations are expected to be lessened as the Company increases the
volume of revenue from other business segments.
-10-
<PAGE> 11
EMPLOYEES
At December 31, 1995, the Company had 1,502 full-time employees, of which
444 were salaried and 1,058 were hourly. In addition, the Company employs
hourly workers on an as-required basis to perform labor on a job-by-job basis.
Total employment levels have ranged from 1,443 to 3,200 per week during 1995,
averaging 2,243 employees on a weekly basis. The number of employees
fluctuates significantly due to changing demand during the peak turnaround
periods and the level of EPC work performed. The Company has been able to staff
its projects through maintenance of a computerized listing of qualified workers
and the personal contacts of its superintendents and foremen. Certain of the
Company's subsidiaries maintain collective bargaining agreements with several
construction trade unions. Management believes its relations with its
employees to be good.
ITEM 2. PROPERTIES
The Company's corporate offices are located at 5200 Cedar Crest Boulevard
in Houston, Texas, at a Company owned combination office and operations
facility. This location contains 15,000 square feet of office space and
72,500 square feet of shop facilities. EPC occupies 45,200 square feet of
leased property located in Metairie, Louisiana. The Company leases an
aggregate of approximately 142,000 square feet of office, shop and storage
space in Lake Charles, Baton Rouge and Lafayette, Louisiana; Beaumont and
Houston, Texas; Atlanta, Georgia; and Los Angeles, California. The Company
does not anticipate any difficulty in renewing those leases that require
renewal within the next five years. The Company owns land and buildings
containing an aggregate of approximately 50,000 square feet of office and shop
space in Houston, Texas, and Westlake and Belle Chasse, Louisiana. The
Company believes that its existing facilities are adequate to meet the
requirements of current operations and that suitable additional space will be
available as required to accommodate any expansion of operations.
The Company designs, engineers and assembles the Fast Draw(R), Fast
Clean(R), Tank Cleaning, and Chemical Decontamination equipment at its
Westlake, Louisiana facility. The Company assembles this equipment from
components that it purchases from outside suppliers or which it fabricates.
The Company has several sources for these components and does not rely upon any
single supplier.
ITEM 3. LEGAL PROCEEDINGS
On January 26, 1990, the Company filed a petition in the 125th Judicial
District Court of Harris County, Texas, seeking injunctive and monetary relief
against three defendants. The Company alleged various claims, including, the
breach of a secrecy agreement, civil conspiracy, tortious interference with the
Company's business relationships and misappropriation of confidential and/or
trade secret information by all defendants. On June 11, 1992, the jury found
in favor of the Company, awarding $17.5 million in actual damages and legal
fees. In December, 1992, the Company received a partial settlement from two of
the defendants of approximately $2.7 million, net of $1.5 million in legal fees
and other expenses. In April, 1994, the 14th Court of Appeals of the State of
Texas reversed the judgment against the three defendants. The reversal by the
Appeals Court does not affect the partial settlement received in December,
1992. The Supreme Court of Texas has affirmed the Court of Appeals decision
and has remanded the case to trial court.
The Company is involved in various claims and disputes incidental to its
business. The Company believes that the disposition of all such claims and
disputes, individually or in the aggregate, should not have a material adverse
effect upon the Company's financial position, results of operations or cash
flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
-11-
<PAGE> 12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded in the over-the-counter market and is
quoted on the National Association of Securities Dealers' Automated Quotations
System ("NASDAQ") National Market System under the symbol "STEC". The
following table sets forth the quarterly high and low bid quotations of the
common stock, as quoted by NASDAQ, for the calendar quarters indicated.
<TABLE>
<CAPTION>
Calendar Period High Low
--------------- ---- ---
<S> <C> <C>
1995:
First Quarter............................................................... 8 3/4 6
Second Quarter.............................................................. 9 1/4 6 5/8
Third Quarter............................................................... 9 6 1/2
Fourth Quarter.............................................................. 8 1/2 5 1/8
1994:
First Quarter............................................................... 12 3/4 8 3/4
Second Quarter.............................................................. 10 3/4 7 1/2
Third Quarter............................................................... 10 1/4 7 1/4
Fourth Quarter.............................................................. 10 1/2 5 7/8
</TABLE>
At March 15, 1996, there were approximately 2,200 shareholders of the
common stock. The average of the high and low bid quotations on such date was
$5.5625. The Company has not paid dividends on its common stock, and the Board
of Directors of the Company presently intends to continue a policy of retaining
earnings for use in the Company's operations and to fund the Company's
expansion program.
ITEM 6. SELECTED FINANCIAL DATA
Information required by this item is included on page 3 of the Serv-Tech,
Inc. Annual Report under the caption "Financial Highlights", and is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information required by this item is included on pages 27-31 of the 1995
Serv-Tech, Inc. Annual Report under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations", and is incorporated
herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this item is included on pages 31-47 of the 1995
Serv-Tech, Inc. Annual Report under the captions "Independent Auditors'
Report", "Consolidated Balance Sheets", "Consolidated Statements of
Operations", "Consolidated Statements of Changes in Stockholders' Equity",
"Consolidated Statements of Cash Flows", and "Notes to Consolidated Financial
Statements", and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-12-
<PAGE> 13
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information called for by PART III (Items 10, 11, 12 and 13) has been
omitted as the Company intends to file with the Securities and Exchange
Commission not later than 120 days after the close of the fiscal year a
definitive Proxy Statement pursuant to Regulation 14A. Such information is set
forth in such Proxy Statement (i) with respect to Item 10, under the captions
"Election of Directors" and "Other Matters - Compliance with Section 16(a) of
the Exchange Act"; (ii) with respect to Item 11, under the caption "Executive
Compensation"; (iii) with respect to Item 12, under the captions "Security
Ownership of Management and Principal Holders of Securities" and "Election of
Directors"; and (iv) with respect to Item 13, under the caption "Compensation
Committee Interlocks and Insider Participation."
-13-
<PAGE> 14
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules:
(1) Consolidated Financial Statements:
The Consolidated Financial statements of Serv-Tech, Inc. and
Subsidiaries listed below are incorporated herein by reference to the
following pages of the Serv-Tech, Inc. Annual Report:
Page
---
Independent Auditors' Report.......................................... 31
Consolidated Balance Sheets as of December 31, 1995 and 1994.......... 32
Consolidated Statements of Operations for Each of the Three
Years in the Period Ended December 31, 1995........................ 33
Consolidated Statements of Changes in Stockholders' Equity for
Each of the Three Years in the Period ended December 31,
1995............................................................... 34
Consolidated Statements of Cash Flows for Each of the Three
Years in the Period Ended December 31, 1995........................ 35
(2) Consolidated Financial Statement Schedules:
II. Valuation and Qualifying Accounts............................ S-1
Independent Auditors' Report................................. S-2
The Financial Statements Schedules of Serv-Tech, Inc. and Subsidiaries
are included in Part IV of this report on the pages indicated.
(3) Exhibits:
The exhibits listed on the accompanying Exhibit Index are filed as part of
this report.
(b) Reports on Form 8-K:
None.
The Financial Statements and Schedules listed in the accompanying Index to
Financial Statements are filed herein as part of this report.
-14-
<PAGE> 15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SERV-TECH, INC.
By RICHARD L. DAERR
----------------------------------------
Richard L. Daerr,
Chief Executive Officer
Signature Title Date
ROBERT J. CRESCI Chairman of the Board March 29, 1996
- ------------------------ and Director
(Robert J. Cresci)
RICHARD L. DAERR President, Chief Executive March 29, 1996
- ------------------------ Officer and Director
(Richard L. Daerr)
DAVID P. TUSA Senior Vice-President, March 29, 1996
- ------------------------ Finance and Administration
(David P. Tusa)
MIKE M. MUSTAFOGLU Director March 29, 1996
- ------------------------
(Mike M. Mustafoglu)
CHARLES M. BALCH, M.D. Director March 29, 1996
- ------------------------
(Charles M. Balch, M.D.)
MICHAEL T. WILLIS Director March 29, 1996
- ------------------------
(Michael T. Willis)
JOHN B. O'BRIEN Director March 29, 1996
- ------------------------
(John B. O'Brien)
D. D. (DEL) HOCK Director March 29, 1996
- ------------------------
(D. D. (Del) Hock)
JAMES M. PIETTE Director March 29, 1996
- ------------------------
(James M. Piette)
DALE W. WILHELM Corporate Controller March 29, 1996
- ------------------------
(Dale W. Wilhelm)
-15-
<PAGE> 16
SCHEDULE II
SERV-TECH, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Col. A. Col. B Col. C - Additions Col. D Col. F
- ----------------------------------------------------------------------------------------------------------------------------------
(2)
Balance at (1) Charged to Balance
Beginning Charged to Costs Other Accounts- Deductions- at End
Description of Period and Expenses Describe Describe of Period
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1995:
Allowance for doubtful accounts .............. $1,739,431 $1,245,072 $ 74,043(B) $1,115,462(A) $1,943,084
December 31, 1994:
Allowance for doubtful accounts .............. 298,281 981,536 835,285(B) 375,671(A) 1,739,431
December 31, 1993:
Allowance for doubtful accounts .............. 395,649 399,042 - 496,410(A) 298,281
</TABLE>
- -----------------
(A) Represents recoveries and uncollectible accounts written off.
(B) Represents allowance for doubtful accounts of companies acquired at
date of acquisition.
S-1
<PAGE> 17
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Serv-Tech, Inc:
Under date of February 16, 1996, we reported on the consolidated balance
sheet of Serv-Tech, Inc. and Subsidiaries as of December 31, 1995, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the year then ended, as contained in the 1995 annual report
to shareholders. These consolidated financial statements and our report
thereon are incorporated by reference in the annual report on Form 10-K for the
fiscal year ended December 31, 1995. In connection with our audit of the
aforementioned consolidated financial statements, we also have audited the
related financial statement schedule as listed in the accompanying Index to
Financial Statements and Schedules. This financial statement schedule is
the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based on our audit.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Houston, Texas
February 16, 1996
S-2
<PAGE> 18
EXHIBIT INDEX
(3) 2.1 - Stock purchase Agreement dated September 20, 1991, between
Serv-Tech, Inc., on the one hand, and L. N. Bubrig, K.
T. Bubrig, F. L. Calandro, K. T. Bubrig, Jr., and the Byron
Keith Bubrig Interviros Trust, and the SECO Industries,
Inc. E.S.O.P. Trusts, on the other hand.
(5) 2.2 - Joint Venture Agreement dated February 4, 1992, between
Serv-Tech, Inc., Westdeutsche Industrieinstandhaelungs
Verwaltungsgesellschaft GmbH and Alan Kidd.
(7) 2.3 - Agreement and Plan of Merger dated June 14, 1994, among
Serv-Tech, Inc., Hartney Acquisition Corporation and
Hartney Industrial Services Corporation.
(1) 3.1 - Restated Articles of Incorporation of Serv-Tech, Inc.
(1) 3.2 - Bylaws, as amended, of Serv-Tech, Inc.
(1) 4.1 - Specimen stock certificate evidencing Common Stock of
Serv-Tech, Inc.
(1) 10.1 - Loan Agreement dated November 1, 1988 by and between
Serv-Tech, Inc. and Texas Commerce Bank National Association.
(Superseded by the Loan Agreement filed as Exhibit 10.2).
(4) 10.2 - Loan Agreement dated March 26, 1992, by and between
Serv-Tech, Inc. and Texas Commerce Bank National Association.
(Superseded by the Credit Agreement filed as Exhibit 10.36.)
(1) 10.3 - United States Patent Number 4,817,653 (Tank Cleaning, Water
Washing Robot), dated April 4, 1989.
(1) 10.4 - United States Patent Number 4,805,653 (Mobile Articulatable
Tube Bundle Cleaner), dated February 21, 1989.
(1) 10.5 - United States Patent Number 4,666,365 (Tube Bundle Pulling
Apparatus), dated May 19, 1987.
(1) 10.6 - United States Patent Number 4,575,305 (Truck-Mounted Tube
Bundle Pulling Apparatus), dated March 11, 1986.
(2) 10.7 - United States Patent No. 4,856,545 (Multi-Lance Tube Bundle
Cleaner), dated August 15, 1989.
(2) 10.8 - United States Patent No. 4,869,638 (Aerial Bundle Puller),
dated September 26, 1989.
(4) 10.9 - United States Patent No. 4,954,267 (Hydrocarbon Reclaimer
System), dated September 4, 1990.
(4) 10.10 - United States Patent No. 4,945,933 (Liquid Circulator Useful
for Dispersing Sediment Contained in a Storage Tank),
dated August 7, 1990.
(4) 10.11 - United States Patent No. 5,032,054 (Aerial Bundle Puller),
dated July 16, 1991.
E-1
<PAGE> 19
(4) 10.12 - United States Patent No. 5,091,016 (Method for Dispersing
Sediment Contained in a Storage Tank), dated February 25,
1992.
(8) 10.13 - United States Patent No. 5,356,482 (Process for Vessel
Decontamination), dated October 18, 1994.
(8) 10.14 - United States Patent No. 5,261,600 (Vertical Tube Bundle
Cleaner), dated November 16, 1993.
(8) 10.15 - United States Patent No. 5,173,007 (Method and Apparatus for
In-Line Blending of Aqueous Emulsions), dated December
22, 1992.
(8) 10.16 - United States Patent No. 5,389,156 (Decontamination of
Hydrocarbon Process Equipment), dated February 14, 1995.
(4) 10.17 - Amended and Restated 1986 Incentive Stock Option Plan of
Serv-Tech, Inc.
(4) 10.18 - Amended and Restated 1989 Incentive Stock Option Plan of
Serv-Tech, Inc.
(4) 10.19 - Amended and Restated 1989 Director Stock Option Plan of
Serv-Tech, Inc.
(4) 10.20 - Senior Subordinated Loan Agreement dated January 31, 1992,
between Hartney Corporation and Serv-Tech, Inc.
(6) 10.21 - Note Purchase Agreement dated June 1, 1993, by and between
Serv-Tech, Inc., and Berkshire Life Insurance Company;
Serv-Tech, Inc. and The Security Mutual Life Insurance
Company; Serv-Tech, Inc., and TMG Life Insurance Company;
Serv-Tech, Inc., and Principal Mutual Life Insurance Company.
(6) 10.22 - Employment Agreement, dated September 20, 1991, between the
Company and Frank L. Calandro.
(6) 10.23 - Registration Rights Agreement, dated September 20, 1991, among
Serv-Tech, Inc. and L.N. Bubrig, K. T. Bubrig, Frank
L. Calandro, K. T. Bubrig, Jr., Byron Keith Bubrig Inter
Vivos Trust.
(6) 10.24 - Non-Competition and Confidentiality Agreement, dated
September 20, 1991, between Serv-Tech, Inc. and Frank L.
Calandro.
(6) 10.25 - Employment Agreement, dated May 11, 1992, between the Company
and Larry A. Talbert.
(6) 10.26 - Registration Rights Agreement, dated May 11, 1992, between
Serv-Tech, Inc. and Larry A. Talbert.
(6) 10.27 - Earnout Agreement, dated May 11, 1992, between Serv-Tech, Inc.
and Larry A. Talbert.
(8) 10.28 - Employment Agreement, dated August 9, 1994, between Serv-Tech,
Inc., and Richard L. Daerr.
(8) 10.29 - Employment Agreement, dated August 29, 1994, between
Serv-Tech, Inc., and David P. Tusa.
E-2
<PAGE> 20
(8) 10.30 - Employment Agreement, dated November 10, 1994, between
Serv-Tech, Inc., and Frank A. Perrone.
10.31 - United States Patent No. 5,403,145 (Street Legal, Mobil, Truck
Mounted Tube Bundle Pulling Apparatus), dated April 4, 1995.
10.32 - United States Patent No. 5,425,814 (Method for Quick
Turnaround of Hydrocarbon Processing Units), dated June 20,
1995.
10.33 - United States Patent No. 5,460,331 (Apparatus for Dispersion
of Sludge in a Crude Oil Storage Tank), dated October 24,
1995.
10.34 - United States Patent No. 5,485,966 (Remotely Controlled
Chopping Machine for Tank Cleaning), dated January 23, 1996.
10.35 - Contract No. FP-03 for Design, Supply, Construction and
Commissioning of Finchaa Sugar Factory and Ethanol Plant
between Finchaa Sugar Factory of the Transitional Government
of Ethiopia and F. C. Schaffer & Associates, Inc.
10.36 - Credit Agreement dated May 15, 1995, by and between Serv-Tech,
Inc. and Texas Commerce Bank National Association, and Bank
One Texas, N.A.
10.37 - Agreement for Serv-Tech Turnaround Services Management Group.
10.38 - Agreement Relating to Employment Performance Bonuses by and
between Chemisolv, Limited and Chemisolv Holdings, Inc. and
Serv-Tech, Inc. and the Chemisolv Management Group.
10.39 - Option Assignment Agreement by and between Chemisolv Holdings,
Inc. and Chemisolv, Limited and Serv-Tech, Inc. and the
Chemisolv Option Holders and Laserdisk, Limited.
10.40 - Guaranteed Unsecured Loan Notes by and between Chemisolv
Holdings, Inc. and Serv-Tech, Inc. and the Chemisolv
Management Group.
13.1 - Portions of the 1995 Annual Report to Shareholders of
Serv-Tech, Inc. Portions of the 1995 Annual Report to
Shareholders of Serv-Tech, Inc. are not deemed to be "filed"
under the Securities Exchange Act of 1934.
21.1 - Subsidiaries of Serv-Tech, Inc.
23.1 - Consent of KPMG Peat Marwick LLP.
27.1 - Financial Data Schedule
99.1 - Opinion of Coopers & Lybrand for the consolidated balance
sheet as of December 31, 1994, and the consolidated statements
of operations, changes in stockholders' equity and cash flow
for the two years in the period ended December 31, 1994.
(1) Incorporated by reference from the registrant's Registration
Statement No. 33-29594 on Form S-1.
(2) Incorporated by reference from the registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1990.
E-3
<PAGE> 21
(3) Incorporated by reference from the registrant's Report on
Form 8-K dated September 20, 1991.
(4) Incorporated by reference from the registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1991.
(5) Incorporated by reference from the registrants Annual Report
on Form 10-K for the fiscal year ended December 31, 1992.
(6) Incorporated by reference from the registrants Annual Report
on Form 10-K for the fiscal year ended December 31, 1993.
(7) Incorporated by reference from the registrants Report on Form
8-K, dated June 14, 1994.
(8) Incorporated by reference from the registrants Annual Report
on Form 10-K for the fiscal year December 31, 1994.
E-4
<PAGE> 1
EXHIBIT 10.31
US005403145A
United States Patent [19] [11] Patent Number: 5,403,145
Cradeur et al. [45] Date of Patent: Apr. 4, 1995
- -------------------------------------------------------------------------------
[54] STREET LEGAL, MOBILE, TRUCK
MOUNTED TUBE BUNDLE PULLING
APPARATUS
[75] Inventors: Robert R. Cradeur, Sulpher, La.;
Richard W. Krajicek, Houston, Tex.
[73] Assignee: Serv-Tech, Inc., Houston, Tex.
[21] Appl. No.: 221,920
[22] Filed: Apr. 1, 1994
RELATED U.S. APPLICATION DATA
[63] Continuation of Ser. No. 739,466, Aug. 2, 1991, aban-
doned.
[51] Int. CL(6) ................................B66F 11/00
[52] U.S. CL ........................414/745.3; 180/24.01;
414/541; 414/544; 414/547
[58] Field of Search ..............414/495, 501, 540, 541,
414/542, 543, 544, 547, 555, 633, 745.3;
180/24.01
[56] REFERENCES CITED
U.S. PATENT DOCUMENTS
2,857,062 10/1958 Anderson .................414/543
3,064,834 11/1962 Dempster et al.
3,121,499 2/1964 LaBarre, Jr.
3,452,887 7/1969 Larson et al.
3,501,031 3/1970 Whitfield.................414/543
3,734,223 5/1973 Anderson
3,937,340 2/1976 Grove
4,306,832 12/1981 Schmiesing
4,392,524 7/1983 Banch
4,575,305 3/1986 Krajicek et al.
4,666,365 5/1987 Cradeur
4,943,118 7/1990 Davis .....................298/12
4,943,203 7/1990 Bohata
4,986,719 1/1991 Galbreath
5,088,570 2/1992 Loeber .................180/24.01
5,169,281 12/1992 Boisture ...............414/745.3
5,305,844 4/1994 Ducote .................180/24.01
Primary Examiner--Michael S. Huppert
Assistant Examiner--Janice L. Krizek
Attorney, Agent, or Firm--John R. Kirk, Jr.
[57] ABSTRACT
The invention relates to a street legal mobile mounted tube bundle pulling
apparatus which is moveable from a lifting position to a traveling position. A
longitudinal track is attached to the bed of the vehicle. A sled which is
contiguous with said track supports a turntable. A vertical telescoping column
is mounted on the turntable. A bundle pulling apparatus is attached to the
vertical telescoping column. Hydraulic cylinders are used for actuating both
the turntable and the sled. By actuating the sled the telescoping column and
bundle pulling apparatus which is a majority of the mass can be dragged to and
between a rearward lifting position and a forward travelling position.
6 CLAIMS, 8 DRAWING SHEETS
[FIGURE]
<PAGE> 2
U.S. Patent Apr. 4, 1995 Sheet 1 of 8 5,403,145
[FIG. 1]
<PAGE> 3
U.S. Patent Apr. 4, 1995 Sheet 2 of 8 5,403,145
[FIG. 2]
[FIG. 15]
<PAGE> 4
U.S. Patent Apr. 4, 1995 Sheet 3 of 8 5,403,145
[FIG. 3]
[FIG. 4]
<PAGE> 5
U.S. Patent Apr. 4, 1995 Sheet 4 of 8 5,403,145
[FIG. 4A]
[FIG. 5]
<PAGE> 6
U.S. Patent Apr. 4, 1995 Sheet 5 of 8 5,403,145
[FIG. 6]
<PAGE> 7
U.S. Patent Apr. 4, 1995 Sheet 6 of 8 5,403,145
[FIG. 7]
[FIG. 8]
<PAGE> 8
U.S. Patent Apr. 4, 1995 Sheet 7 of 8 5,403,145
[FIG. 9]
[FIG. 10]
[FIG. 12]
[FIG. 11]
<PAGE> 9
U.S. Patent Apr. 4, 1995 Sheet 8 of 8 5,403,145
[FIG. 13]
[FIG. 14]
<PAGE> 10
5,403,145
STREET LEGAL, MOBILE, TRUCK MOUNTED TUBE BUNDLE PULLING APPARATUS
This is a continuation of application Ser. No. 07/739,466, filed on Aug.
2, 1991, now abandoned.
The present invention generally relates to a truck mounted tube bundle
puller and more specifically relates to a bundle puller which is
interchangeable from a rearward lifting position to a forward travelling
position making the mobile bundle puller highway legal.
BACKGROUND OF INVENTION
U.S. Pat. No. 4,575,305 to Krajicek, et al. relates to a truck mounted
tube bundle pulling apparatus. In this invention the tube bundle pulling
apparatus is attached to a telescoping column. The telescoping column is
rotatably mounted to the rear of the bed. Although this invention is
commercially successful it has one primary disadvantage. The apparatus exceeds
the legal highway weight limits and therefore requires permitting for street
travel.
The highway legal limits are 34,000 lbs. on the dual drive axles, and
12,000 lbs. per steering axle. The invention disclosed in the '305 patent
resulted in a weight of approximately 42,000 lbs. on the rear axles and 10,000
lbs. on the steer axle. This distribution could not be remedied due to the
fixed location of the mass on the bed of the truck. For the past several years,
Serv-Tech has spent many thousands of dollars in highway permits for
transporting what has been classified as an overweight vehicle. Serv-Tech has
also spent many thousands of dollars in unseen costs on equipment and manpower
waiting for permits, waiting on weather conditions since many states will not
permit movement during bad weather and storing and housing equipment and
manpower since many states will not permit movement of overweight vehicles
during nights, weekends and holidays.
Several unsuccessful attempts were made to resolve this problem. For
example, an attempt was made to redistribute the weight by adding a third rear
axle. This did not work and only exacerbated the steering problems.
At the time application for the '305 patent was made the weight
distribution or highway legal problem was not recognized and therefore, at the
time, there could not have been any motivation to solve the problem. Once the
problem was recognized it took several unsuccessful attempts to resolve the
problem before Applicant conceived of shifting the mass between two positions
to resolve the problem.
SUMMARY OF THE INVENTION
The present invention resolves the highway legal problem by mounting the
bearing and structures on a slide plate. By dragging the slide plate the weight
can be redistributed by moving the center of gravity forward of the rear axle
centers. Dual front steer axles are also added allowing 12,000 lbs. to be
placed on each front axle. As a result of moving these structures forward, the
truck becomes highway weight legal in all states and in most of Europe.
Thus the requirement for obtaining moving permits is removed. The unit can be
driven to and from job sites at any time as a conventional truck.
The invention relates to a street legal, mobile, truck mounted bundle
pulling apparatus which is interchangeable from a lifting position to a
travelling position. A longitudinal track is attached to the bed of the
vehicle. A sled which is contiguous with said track supports a turntable. A
vertical telescoping column is mounted on the turntable. A bundle pulling
apparatus is attached to the vertical telescoping column. Hydraulic cylinders
are used for actuating both the turntable and the sled. By actuating the sled
the telescoping column and bundle pulling apparatus which is a majority of the
mass can be drug between rearward lifting position and a forward travelling
position.
BRIEF DESCRIPTION OF THE DRAWINGS
FIG. 1 is a side view of the invention shown in the lifting position.
FIG. 2 is a back view of the invention (without the carriage frame) shown
in FIG. 1.
FIG. 3 is a plan view of the invention (without the truck) shown in the
travel position.
FIG. 4 is a side view of the invention shown in FIG. 3.
FIG. 4A is a front view of the invention shown in FIG. 3.
FIG. 5 is a back view of the invention shown in FIG. 3 showing the loading
arm mounted thereon.
FIG. 6 is another rearward view of the invention showing the sled,
rails, turntable and telescoping column in crossection.
FIG. 7 is a rear view of the bed and outrigger assembly.
FIG. 8 is a crossectional view of the bed taken along line 8-8 of FIG. 3.
FIG. 9 is a top view of the sled.
FIG. 10 is a rear side view of the sled.
FIG. 11 is a plan view of the framing assembly.
FIG. 12 is a crossectional view taken along a line 12-12 of FIG. 11.
FIG. 13 is a plan view of the main features of the invention.
FIG. 14 is an exploded view of the fork shift assembly.
FIG. 15 is an exploded view of the telescoping loading arm.
DETAILED DESCRIPTION OF THE INVENTION
By way of definition, it is to be understood that references to hydraulic
cylinders encompass the pistons included therein including all necessary
controls and connecting lines required to make such cylinders operational. The
hydraulic cylinders and the controls as used in this invention are of a type
well known in the art. U.S. Pat. No. 4,575,305 is incorporated by reference for
information relating to the truck mounted tube bundle pulling art.
Referring to FIGS. 1 and 2, the highway legal bundle pulling apparatus 10
generally includes a vehicle or truck 20 having a bed 30. A track 40 is
attached to the bed 30. A sled 50 is mounted contiguous with said track 40 and
a turntable 60 is mounted on the sled 50. Hydraulic cylinders 70 and 75 are
used to actuate, respectively, sled 50 and turntable 60. A telescoping
column 80 is mounted on turntable 60. A bundle pulling apparatus 90 is attached
to the upper end of telescoping column 80.
Truck 20 preferably includes two front steering axles 21a and 21b although
three front steering axles could be used as well. The design of dual and triple
front steering axles 21 is of a type well known in the art. A bogie 22 is
attached to the rear of the vehicle 20. The design of a
<PAGE> 11
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bogie 22 is also well known in the art. The front axles and bogie are attached
to truck frame 24 which supports outrigger assembly 26 (best seen in FIGS.
3-5). Four longitudinally running beams 28a, 28b, 28c, and 28d are welded to
the outrigger assembly 26. The rear portion of outrigger assembly 26 (FIGS. 5
and 11) supports jacks 26a and 26c and rear stabilizer leg 26b.
Track 40 is welded to beams 28b and 28d. The track 40 is preferably made
from two inverted L-shaped rails 42a and 42b. These rails 42 are fixed,
preferably by welding, to beams 28b and 28d. The rails project inwardly for
retaining or interposing the sled 50. Impact plates 34a and 34b are attached to
outrigger assembly 26 and to rails 42a and 42b. Cross support members 29
support beams 28 (FIGS. 1 and 11).
Sled 50 is contiguous with track 40 and in the particular embodiment shown
is interposed between inverted L-shaped rails 42a and 42b. Referring to FIGS.
6, 9 and 10 sled 50 includes bearing plate 52 and three longitudinal runners
54a, 54b and 54c which are fixed, preferably by welding, to bearing plate
52. A lubricant can be placed between runners 54 and bed 30. Left and right
locking pin attachments 56a and 56b are attached to bearing plate 52 and are
used for locking the sled 50 in either the lifting position or the travelling
position. A crane bearing mounting plate 58 is attached to bearing plate 52 for
mounting of crane bearing 62. Rotate cylinder mount bracket 59 is also attached
to bearing plate 52 for the mounting of hydraulic cylinder 75. Hydraulic
cylinder 75 travels with sled 50. Nest 76 (FIG. 4) attached by tube 78 to mount
bracket 59 also travels with sled 50 and nests hydraulic lines (not shown). It
is to be understood that the hydraulic cylinders described herein could be
replaced by other known actuation means such as a chain, a rack and pinion, a
cable, etc.
Turntable 60 is mounted on bearing plate 52. The mounting is accomplished
through a crane bearing 62. Crane bearing 62 includes inner race 64a, outer
race 64b and ball bearings (depicted by 65). Turntable plate 61 is fixed to
inner race 64a by bolts 66 (shown in FIG. 6). Outer race 64b is fixed to crane
bearing mounting plate 58 and bearing plate 52 by bolts 67. Inner race 64a is
rotatable with respect to outer race 64b yet is trapped by outer race 64a and
the ball bearings. A clearance exists between bolts 66 and bearing plate 52 and
between bolts 67 and outrigger assembly 26 or bed 30.
Telescoping column 80 is mounted on top of turntable 60. Telescoping
column 80 preferably includes base section 81a, intermediate section 81b and
upper section 81c. Base section 81a is fixed to turntable 60, preferably by
welding with gussets 82 between turntable plate 61 and base section 81a.
The operation of the invention can be described as follows: After work has
been completed at the worksite, hydraulic cylinder 70 is actuated to drag sled
50 forward to a forward travelling position. Once in the travelling position,
pins (not shown) are used to lock the sled 50 in place. The vehicle 20 is now
highway legal. Once the vehicle 20 arrives at a new worksite and is positioned
for operation, hydraulic cylinder 70 can be actuated to drag (by pushing) the
sled 50 to the rearward lifting position. Once in the lifting position, the
sled 50 is pinned in place.
Referring to FIG. 1, the overall length from the front end of the truck 20
to the end of the outrigger assembly 26 is preferably thirty feet (30'). The
distance from the front end of the truck to the center of the front axle 21a is
62 inches and 63.6 inches separate the steering axles 21a and 21b. The rear
steering axle is 108 inches from the front axle of the bogie 22. The axles of
bogie 22 are separated by 56 inches with the center line of the bogie being
half the distance between the axles of the bogie. The center of gravity of the
rearward lifting position is located 45 inches from the center line of the rear
bogie. The sled travels approximately 7 1/2 feet from the rearward lifting
position until it reaches the forward travel position (FIGS. 3 and 4). This
results in a weight distribution as follows: 33,000 pounds bears upon the
center line of the rear bogie, and 12,000 pounds bears upon each of the
steering axles, resulting in an overall bearing weight of 57,000 pounds.
Referring to FIG. 13 hydraulic cylinder 70 is attached at one end to sled
50 and is attached at the other end to a clevis mount 57. Hydraulic cylinder 70
is preferably centered on the passenger side of truck 20 and attaches to sled
50 along a line through the center of gravity of sled 50.
Referring back to FIGS. 1-5, vertical telescoping column 80 has base
section 81a mounted on top of turntable 60. Intermediate telescoping section
81b telescopes over base section 81a. It is understood that the preferred
embodiment shows one intermediate telescoping section however, a design
employing a plurality of intermediate telescoping sections is within the
spirit of the invention. Top telescoping section 81c is adapted to telescope
over the outside of intermediate telescoping section 81b. It is understood that
the top telescoping section 81c and the intermediate telescoping section 81b
are telescoped relative to base section 81a via a raising mechanism (not shown)
located within vertical telescoping column 80 which is of a type well known in
the art. Top telescoping section 81c has a frame 80d with structural members
80e and 80f connected thereto. Structural members 80e and 80f have a vertical,
longitudinal axis which is parallel to the axis of vertical telescoping column
80. Structural members 80e and 80f are connected to arms 80g, 80h and 80i
which are connected to top telescoping section 81c. Structural member 80e
includes flange 80j (FIG. 3). Structural member 80f includes flange 80k is
parallel to flange 80j.
Bundle support member vertical adjustment section 801 (FIG. 1) is disposed
to move vertically over guide flanges 80j; and 80k. Bundle support member
vertical adjustment section 801 contains four mounting lugs 80m attached to its
upper end 80n (shown in FIG. 3), and disposed to accept support member
telescoping shafts 80o and 80p (shown in FIGS. 2 and 14). Support member
telescoping shafts 80o and 80p are each connected to mounting plate 80q.
Therefore, on actuation of support member telescoping shafts 80o and 80p bundle
support member vertical adjustment section 801 can be moved vertically
independent of the telescoping action of top telescoping section 81c and
intermediate telescoping section 81b over base section 81a. It is understood
that although the preferred embodiment is disclosed as including a pair of
telescoping shafts 80o and 80p for vertical movement of bundle support member
vertical adjustment section 801 relative to top telescoping section 81c, other
devices well known in the art such as hydraulic cylinders or rack and pinions
may also be used without departing from the spirit of the invention.
Cradle forks 80r and 80s are connected to front wall 80z and extend
horizontally therefrom. Cradle fork shift housing 80u defines grooves 80v and
80w for sliding over cradle forks 80r and 80s as actuated by cradle fork
<PAGE> 12
5,403,145
shift housing cylinder 80x. Retainer plates 80y define guide grooves which
guide the horizontal movement of bundle support member 91 along the top of
cradle fork shift housing 80u. The structure and operation of bundle support
member 91 is incorporated herein as discussed in U.S. Pat. No. 4,575,305 at
columns 6 to 9. Cradle fork shift housing 80u is extendable and retractable for
fine tune adjustments required for alignment with heat exchangers, bundle
dollies, etc. after truck 20 has been parked.
Since vertical telescoping column 80 is mounted on turntable 60 which is
in turn moveable to the rear of bed 30, it is clear that when the longitudinal
axis of bundle support member 91 is oriented at ninety degrees to the
longitudinal horizontal axis of bed 30, bundle support member 91 may be lowered
below the elevation of the bed 30. In order to lower bundle support member 91
below the elevation of bed 30 vertical telescoping column 80 must be in a fully
contracted position wherein top telescoping section 81c and intermediate
telescoping section 81b are fully lowered over base section 81a. Furthermore,
support member telescoping shafts 80o and 80p must also be in their fully
retracted position thereby lowering bundle support member vertical adjustment
section 801 relative to top telescoping section 81c. As best understood by
reference to FIG. 1, bundle support member vertical adjustment section 801 is
disposed to move downwardly behind bed 30 and adjacent to mounting housing 26d
which houses rear stabilizer leg 26b with wheel 26e. Bundle support member
vertical adjustment section 801 may thus move downwardly to a level of eighteen
inches above the ground.
After withdrawing a tube bundle from an exchanger shell, the tube bundle
is raised or lowered, as needed, through the action of support member
telescoping shafts 80o and 80p which can raise or lower bundle support member
91. Turntable hydraulic cylinder 75 is then used to align the longitudinal axis
of bundle support member 91 with the longitudinal axis of bed 30. Vertical
telescoping column 80 is placed in a fully retracted position by telescoping
intermediate telescoping section 81b and top telescoping section 81c downwardly
toward base section 81a. At that point, the bundle support member 91 can be
lowered until cradle forks 80r and 80s come in contact with carriage frame fork
structure support 94 (FIG. 4). It is understood that the previously described
lowering functions and maneuvering functions can occur in any order the
operator so chooses by using a remote control (not shown) or the control
console (not shown). It is also understood that depending upon the position of
a bundle dolly (not shown) relative to truck bed 30 that the offloading
assembly 100 may be used to load or unload a tube bundle from the bundle
support member 91 when the bundle support member 91 is positioned transversely
to the longitudinal axis of the over the road truck 20 and disposed below the
elevation of bed 30.
Having fully lowered the bundle support member 91 with a tube bundle
supported therefrom, off-loading mechanism 100 of this invention is used to
transfer a tube bundle from bundle support member 91 to a bundle dolly.
Referring to FIGS. 5 and 15, the off-loading mechanism 100 contains a first
telescoping loading arm 102 and an opposite second telescoping loading arm (not
shown). First telescoping loading arm 102 is identical in function to the
second telescoping loading arm. Therefore, the foregoing discussion, while
directed at first telescoping loading arm 102, is intended to apply to the
second telescoping loading arm as well.
First telescoping arm 102 contains a base 104 and an upper section 106.
Upper section 106 telescopes from within base 104. Base 104 is pivotally
connected to mounting bracket 108 (see FIGS. 1 and 2).
First telescoping arm 102 can be raised by using loading arm scope
cylinder 110. Arm scope cylinder 110 is connected to base 104 at brackets 105
and to upper section 106 at brackets 107. Therefore, actuation of arm scope
cylinder 110 raises upper section 106 relative to base 104.
Cable actuating cylinder 112 is mounted at a lower end on upper section
106 and at an upper end is attached to cable 114 which is supported by pulley
116. Cable actuating cylinder 112 travels with upper section 106 within base
104. Actuation of cylinder 112 extends or retracts cable 114. Hook 118 is
attached to the other end of cable 114 and is normally used for retaining a
sling (FIG. 15 only) for movement of tube bundles.
The first telescoping loading arm 102 is pivoted about mounting bracket
108 via a loading arm tilt cylinder 120. The loading arm tilt cylinder 120 is
pivotally mounted between mounting bracket 122 mounted on arm 80g and bracket
109 on base 104. Actuation of loading arm tilt cylinder 120 pivots first
telescoping loading arm 102 for setting the tube bundle onto the bundle dolly.
It should be noted that arm scope cylinder 110, cable actuating cylinder 112
and loading arm tilt cylinder 120 can be operated in any order chosen by the
operator either simultaneously or serially by manipulation of remote controls
(not shown) or by using a control console (not shown). As can be readily
appreciated by one skilled in the art, first telescoping mast loading arm 102
is adapted to raise the tube bundle vertically using loading arm scope cylinder
110. The tube bundle can be further raised vertically using cable actuating
cylinder 112 to retract cable 114.
As stated hereinabove, off-loading assembly 100 contains a first
telescoping loading arm 102 and a second telescoping loading arm. A spreader
bar 124 (FIG. 15) attaches to upper section 106 of first telescoping arm 102,
as well as to upper section of the second telescoping arm. Therefore, spreader
bar 124 serves a stabilizing function for off-loading assembly 100.
The bundle pulling apparatus 90 of the present invention is placed into
service by driving the over-the-road truck 20 to a suitable location adjacent
the heat exchanger whose bundle is to be removed or inserted. Lateral outrigger
beam 26f and jack 26c as well as stabilizer leg 26b are actuated to shift the
weight of the apparatus off of the wheels of truck 20. Actuation of hydraulic
cylinder 70 drags (pushes) sled 50 to the lifting position. Hydraulic cylinder
75 via arm 78 rotates turntable 60 to a desired position. Turntable 60 is
rotatable through approximately 105 degrees. Vertical telescoping column 80 is
extended and rotated until the longitudinal axis of bundle support member 91 is
aligned with the longitudinal axis of the heat exchanger. Refer to U.S. Pat.
No. 4,575,305, column 11, lines 30-60 for a description of tube bundle removing
procedures. Having fully withdrawn the tube bundle from the heat exchanger
shell, vertical telescoping column 80 is rotated and retracted thereby aligning
the longitudinal axis of the bundle support member 91 with the longitudinal
axis of the bed 30 and allowing the bundle support member 91 to be lowered
toward bed 30 while dragging sled 50 toward the travel position until forks 80r
and 80s
<PAGE> 13
5,403,145
come in contact with support 94. Vertical telescoping column 80 can also be
rotated to position the longitudinal axis of bundle support member 91
transversely to the longitudinal axis of bed 30. Support member telescoping
shafts 80o and 80p can be used to lower bundle support member 91 behind the bed
30 of truck 20 and to an elevation below the bed 30. From either position
described above, the offloading mechanism 100 may be used to transfer the tube
bundle from bundle support member 91 to a waiting bundle dolly. It should be
noted that the bundle pulling apparatus 90 is suitable for removing tube
bundles from heat exchangers having a ground clearance of as little as eighteen
inches. In situations where tube bundles are inaccessible from the position
shown in FIGS. 1 and 2, truck 20 can be backed in and the bundle extracted with
bundle pulling support member 91 parallel to the longitudinal axis of bed 30.
Other configurations are possible.
The preferred embodiment of the invention is shown and described. The
disclosure and description of the invention are illustrative and explanatory
thereof, and various changes in the size, shape, and materials, as well as in
the details of the illustrated construction may be made without departing from
the spirit of the invention.
What is claimed is:
1. A street legal, mobile tube bundle pulling apparatus mounted on a truck
and movable from a lifting position to a traveling position, said truck having
a bed disposed along a longitudinal axis and having a forward end and a
rearward end, said bed being supported by at least two pairs of steerable
wheels arranged in tandem relationship with one of said pairs of steerable
wheels being disposed adjacent said forward end and the other pair being spaced
rearwardly from said one pair, and by a plurality of nonsteerable wheels
mounted on at least two axles arranged in tandem relationship with one of said
axles being disposed adjacent said rearward end of the bed and the other one of
said axles being spaced forwardly of the one axle, said apparatus comprising:
a track attached to said bed and running in a longitudinal direction with
respect to said bed;
an outrigger assembly extendably mounted on said bed;
a sled slidably mounted on said track at a position elevationally above
said bed;
a turntable mounted on said sled;
a vertical telescoping columnmounted on said turntable;
a bundle pulling apparatus attached to said column;
a hydraulic means for rotating said turntable; and
a hydraulic means for dragging said sled on said track between said
lifting position and said traveling position at which the weight
of said sled, said turntable, said vertical telescoping column and
said tube bundle pulling apparatus is adjustably positioned with
respect to said longitudinal axis to controllably distribute said
weight between said steerable wheels and said nonsteerable wheels.
2. The apparatus according to claim 1 wherein said steerable wheels have a
centerpoint longitudinally equi-distantly positioned between said steerable
wheels that is separated from a longitudinal centerpoint of said axles by
fourteen feet, and the traveling position is seven and one-half feet forward of
the lifting position.
3. The apparatus according to claim 1 wherein said turntable comprises a
crane bearing fixed to said sled and to said column.
4. The apparatus according to claim 1 wherein said sled comprises a
bearing plate attached to at least two runners.
5. The apparatus according to claim 1 wherein said track comprises two
rails each having an inward projection, wherein said rails are fixed to said
bed such that said inward projections retain said sled.
6. In a tube bundle pulling apparatus mounted on a truck, said truck
having a bed disposed along a longitudinal axis and a forward end and a
rearward end, said bed being supported at the forward end by at least two pairs
of steerable wheels and at the rearward end by a plurality of non-steerable
wheels mounted on at least two axles, and said apparatus having a vertical
telescoping column mounted to a turntable, and a tube bundle pulling apparatus
mounted to the column, wherein the improvement comprises:
mounting the turntable to a sled, said sled being carried by a track
mounted longitudinally on the bed to enable the sled to travel
between a forward traveling position at which the weight of said sled,
said turntable, said vertical telescoping column and said tube bundle
pulling apparatus is adjustably positioned with respect to said
longitudinal axis to controllably distribute said weight between said
steerable wheels and said nonsteerable wheels and a rearward lifting
position adjacent the rearward end of said bed.
* * * * *
<PAGE> 1
EXHIBIT 10.32
UNITED STATES PATENT [19] [11] PATENT NUMBER: 5,425,814
KRAJICEK ET AL. [45] DATE OF PATENT: JUN. 20, 1995
- -------------------------------------------------------------------------------
[54] METHOD FOR QUICK TURNAROUND OF HYDROCARBON PROCESSING UNITS
[75] Inventors: Richard W. Krajicek; Nismanath
Mehta, both of Houston, Tex.; James
R. Duffy, Chesterfield, Mo.
[73] Assignee: Serv-Tech, Inc., Houston, Tex.
[21] Appl. No.: 261,423
[22] Filed: Jan. 17, 1994
RELATED U.S. APPLICATION DATA
[63] Continuation-in-part of Ser. No. 61,187, May 13, 1993, Pat. No. 5,389,156,
and a continuation-in-part of Ser. No. 998,556, Dec. 30, 1992, Pat. No.
5,356,482, which is a continuation-in-part of Ser. No. 805,367, Dec. 10,
1991, abandoned.
[51] Int. CL6 . . . . . . . . . . . . . . . B08B 3/00; B08B 9/00
[52] U.S. CL . . . . . . . . . . . . . . . 134/22.1; 134/22.14; 134/22.19;
134/22.15; 134/30; 134/31; 134/34; 134/11;
134/10; 134/39; 134/26; 134/19
[58] FIELD OF SEARCH . . . . . . . . . . 134/22.1, 22.14, 22.19, 134/22.15,
30, 31, 34, 11, 10, 39, 26, 19
[56] REFERENCES CITED
U.S. PATENT DOCUMENTS
1,722,211 7/1929 Guardino . . . . . . . . . . . . 134/22.15
1,891,592 12/1932 Fitzgerald . . . . . . . . . . . . 134/31
2,023,496 12/1935 Todd . . . . . . . . . . . . . 134/22.15
2,715,594 8/1955 Garrison . . . . . . . . . . . . 134/22.15
3,084,076 4/1963 Loucks et al. . . . . . . . . . 134/22.15
4,446,044 5/1984 Rutkiewic et al. . . . . . . . . . 252/170
BI4,511,488 9/1990 Matta . . . . . . . . . . . . . . 252/162
4,790,951 12/1988 Frieser et al. . . . . . . . . . 252/162
5,271,773 12/1993 Hamilton et al. . . . . . . . . . . 134/10
OTHER PUBLICATIONS
Aksoy, M. ""Benzene Carcinogenicity'', CRC Press, Inc., Boca Raton, Florida
(pp. 34-39, 50-53) No date. ""Toxicological Profile for Benzene'', Oak Ridge
National Laboratory, May 1989 (pp. 3-5, 7-12, 32-34, 39-41, 44, 68).
Primary Examiner -- David A. Simmons
Assisment Examiner -- Zeinab El-Arini
Attorney, Agent, or Firm -- John R. Kirk, Jr.; Jenkens & Gilchrist
[57] ABSTRACT
A quick cleaning method for hydrocarbon processing is described which avoids
using the time honored steam-out as a cleaning step by isolating the equipment
to be cleaned from the rest of the hydrocarbon processing units, establishing a
circulation loop and by pumping through the equipment an aqueous solution at an
elevated temperature, of an extractant, such as a terpene, and a surfactant
mixture which extracts and traps contaminants in an emulsion which is normally
subjected to a high shearing step before recirculation to the equipment.
29 CLAIMS, NO DRAWINGS
<PAGE> 2
5,425,814
METHOD FOR QUICK TURNAROUND OF HYDROCARBON PROCESSING UNITS
RELATED APPLICATION
This application is a continuation-in-part of applications Ser. No.
08/061,187, filed May 13, 1993, now U.S. Pat. No. 5,389,156, and a
continuation-in-part of Ser. No. 07/998,556, filed Dec. 30, 1992, now U.S. Pat.
No. 5,356,482 which was a continuation-in-part of application Ser. No.
07/805,367, filed Dec. 10, 1991, now abandoned.
FIELD OF THE INVENTION
This invention relates to the decontamination of hydrocarbon process
equipment and vessels to remove contaminants, particularly benzene, to clean
the equipment during turnaround periods of short duration or to restore
efficiency to pieces of equipment which experience premature fouling.
Specifically, it involves a unitary cleaning of all, or part, of the process
equipment in a hydrocarbon flow-path which allows an extractant-based
decontamination solution to be introduced into the processing system or
equipment at a desired location in the process stream being cleaned and to
recover in at almost any arbitrary location for disposal or reuse.
BACKGROUND OF THE INVENTION
In the chemical process and petroleum refining industries, maintenance and
capital improvements of process plants normally occur at planned intervals,
often three to seven years apart in the case of large petroleum refineries.
Even if scheduled annually or biannually, cleaning is attempted when the
operating unit is completely shut down and every aspect of its operation
inspected and maintained. Operating units in hydrocarbon processing plants are
made up of various types of vessels; i.e., tanks, heat exchanges, distillation
columns, heaters, reactors and the like in fluid communication with each other.
Characteristically, in refining and petrochemical operations, a feed, such as
crude oil, is introduced to one end of the plant, with hydrocarbon product
streams being removed at the other end, either to storage or to facilities for
transportation to market. Of course, any similar process flow-stream equipment
is also cleaned. This massive maintenance effort on each unit is called a
turnaround and maximum speed in returning the unit to operation is essential to
the plant economics, since the overriding cost of such an operation, even
though itself expensive, is the time during which this operating unit is not
producing refined product which can be sold. The speed at which the jobs are
done are, of course, tempered with the necessity that safety of the workers be
maintained throughout the operation.
Hydrocarbon processing equipment is designed for operation with various
hydrocarbon feedstreams for a certain period of time to normally concur with
the time lapse between scheduled turnarounds. For instance, a heat exchanger
may be over designed so that, as its efficiency falls off due to fouling and
contamination from operation, it passes through an optimum level of heat
transfer efficiency to a level of toleration which diminishes as the time for
the turnaround procedure approaches. It is not uncommon that, during operation
of hydrocarbon processing plants, particularly crude oil heaters in refineries
which operate in parallel with each other, some particular units will become
less efficient at a much faster rate than others. For example, the efficiency
of a single crude oil heater in a process stream can cause an overall decrease
in the operational capacity of the entire refinery, thus causing a considerable
depression of the economics of the refinery. The choice becomes whether to keep
operating until a scheduled turnaround or to shut down the entire refinery for
a long period of time in order to bring the overall efficiency back to a
satisfactory level. Such a work stoppage would result in premature expense to
maintain some of the equipment merely to bring one or two pieces off equipment
up to par.
Normally, a turnaround operation for a large hydrocarbon processing plant
may take three weeks to greater than a month of intensive round-the-clock
operations. While the copending applications describe some of the advantages in
time-saving through the practice of certain related inventions, the only
alternative heretofore practiced in connection with the cleaning of these
particular units has been to shut them down and then attempt to remove fouling
through the injection of steam into the process equipment or unit. Initial
injection of steam serves to remove hydrocarbons and volatile materials from
the interior of the equipment. However, continued injection of high temperature
steam often serves only to bake a scab of hard coke or scale on the walls of
hydrocarbon processing units. Once this occurs, the only alternative is to
disassemble the equipment and to proceed with cleaning of the parts in more
conventional ways such as through hydroblasting with a high-pressure stream of
water. A build up of carbon on heat exchanger tubing can cause hot spots to
develop in the equipment resulting in erratic operation of the processing unit.
The present cleaning practice, depending upon the equipment, uses a light
hydrocarbon solvent to initially remove heavy oils and tars, followed by
injection of steam for a period of time until monitoring devices indicate that
no dangerous gases remain which present an explosive hazard to workers who must
work in this environment. This period of preliminary steam cleaning is called a
"steamout" and has been known to last for days, even weeks on occasion. Process
equipment was also washed with water to remove contaminants where applicable,
and often, both steaming and water washing is involved in the degassing of a
vessel to make it possible for humans to safety enter to inspect and repair.
Frequently, acids or detergents were also used to remove stubborn deposits.
These steps often take many hours, even days, to accomplish -- days of lost
production.
Of particular importance to worker safety is, in addition to elimination
of explosive gases, the removal of benzene and other volatile organic carbon
components, many of which are known carcinogens, from the process vessels prior
to worker entry, if required. It has been long recognized that chronic exposure
by humans to benzene at high levels in the chemical and petro-chemical work
place leads to bone marrow depression, aplastic anemia, and leukemia. Although
absorption of benzene across the skin as a vapor or in aqueous media can occur,
benzene toxicity in process systems is most frequently caused by inhalation of
benzene that has managed to escape removal. Present government safety standards
for eight hour work days are set at 1.0 ppm (average) benzene. The National
Institute For Occupational Safety And Health (NIOSH) has recommended (1989) an
occupational long term exposure limit in air of
<PAGE> 3
5,425,814
0.1 ppm benzene. That is not good enough, since workmen employed by turnaround
service companies are continually exposed to the interior of process vessels.
Worker safety regulations now limit such exposure. One major goal of the present
invention, therefore, is to provide a process for process equipment
decontamination which exceeds this standard--in fact, which approaches, if not
meets, 0 ppm of benzene. Benzene is often found collecting in head space of a
vessel or trapped beneath scale or other contaminants anywhere along the process
flow stream--in piping, in valves, and in pumps, as well as towers, reactors,
tanks and heat exchanges--only to seep out from the interstices of contamination
deposits at a later time when cleaning had been thought to be completed.
In this era of quality management, when a particular piece of process
equipment has lost its efficiency and requires cleaning in order to return the
entire operating unit to useful efficiency, a procedure is needed for quickly
accomplishing such cleaning and return to service through the removal of
scales, absorbed hydrocarbons, cokes and other contamination from equipment and
heat exchange surfaces without disturbing the entire unit when possible and
certainly without requiring a prolonged shut down. Previously, such shut downs
could last for weeks while extensive steaming and contamination removal
continued during a steamout operation. The procedures required for such a
cleaning, until now, are substantially described above. Where a single piece of
process equipment rather than the entire unit is involved, it is necessary to
unbolt flanges and install blinds to isolate the equipment while steam is
introduced. Previously, when steam was used, venting to the atmosphere was
allowed. Venting is no longer permissible under responsible environmental
management, yet the steamout is strongly extended technology.
Even though there are many conflicting problems which converge on cleaning
process equipment, the overriding requirements are still speed with safety, and
the practice of this invention accomplishes these while providing avenues for a
more effective protection of the environment. This invention allows almost
pristine cleaning of process equipment--from the crude oil feed pump to product
storage tank and any step along the way--without time-honored steamout in terms
of hours, rather than days or weeks.
SUMMARY OF THE INVENTION
This invention involves an improvement over old methods of cleaning and
decontaminating process equipment where a steamout step was used. In the
present invention the process equipment is cleaned by introducing, at any
convenient, arbitrary location of the equipment an aqueous solution of an
extractant having an affinity for the contaminant and an emulsifying surfactant
such that the aqueous solution proceeds through the equipment being cleaned
including piping, pumps and process equipment (except for those selected by
plant personnel which may be harmed by the introduction of non-process
substances). The aqueous solution can be discarded in an environmentally benign
way or reused. The process of this invention uses materials which are
nonhazardous, which do not create additional waste, and which can be disposed
of by merely introducing them into the plant's waste water system where they
can be handled by the biosystem on a routine basis.
Initially, the processing system equipment may be drained while hot and
flushed with a light hydrocarbon solvent to make an initial cleansing, although
not absolutely necessary in the practice of the invention. Where desired or
necessary, flanges are released and blinds are set in place in order to isolate
the equipment to be cleaned from the rest of the unit. A line which leads from
a circulation pump is attached to an intake flange of the equipment to be
cleaned. The intake side of the pump is connected to a reservoir of cleaning
liquid, initially water, and is downstream from a high shear device which is
preferably a filter having an opening of from about 5 to about 100 microns. The
40 micron filter is best. The filters have been found to enhance the stability
of the emulsion formed during the decontamination process. The contaminants
removed from the system are trapped in the dispersed or discontinuous oil phase
of the emulsion. Under certain conditions, the high shear operation of the
filter is important to the success of the practice of this specialized cleaning
operation. The act of pumping the solution or emulsion itself causes some
shearing force to be applied. In some instances, this is enough.
A sufficient amount of water would be introduced into the process flow
equipment to provide a head for pumps, preferably the process pumps where
possible, to be used to circulate it through the process flow equipment to be
cleaned. The amount of water would be from about 5 to about 25% of the volume
of the system. If a heat exchanger alone is to be cleaned then it would be
necessary to assure that it would be substantially filled during circulation
either through back pressure created in the system or by simply adding more
water. Steam or another means would be used to heat the water, now circulating,
and process equipment from the injection inlet to the exit to a temperature of
from about 100 degrees F. to about 220 degrees F. or higher if the system is
operating under pressure. The cleaning injection is continued by incorporating
into the circulating hot water an extractant, having a high vapor pressure at
the temperature involved, such that the vapors will condense on equipment
surfaces to invade deposited scale and trap the contamination connected with
the scale. It is preferred that a surfactant which boils at, or has a high
vapor pressure within, the same temperature parameters also be included with
the aqueous solution being circulated to enhance the invasion of the
interstices of deposits containing contaminants and wash down of the internal
surfaces of the process equipment with both condensed water and extractant. The
circulating water heated by the steam, or some other means, also contains
extractant and surfactant, if present, and in addition to sweeping contaminants
from the system, serves to perform the cleaning function upon the surfaces
contracted by it. The high shear device (40u filter) enhances the stability of
emulsion which contains the contaminant extracted from the process equipment.
A terpene extractant material is preferred because it is known to be
environmentally safe, does not harm the ozone layer and its boiling point and
vapor pressure and the solubility of hydrocarbon contaminants in the
extractant. Even if the surfactant and extractant do not boil in the
temperature range of the treatment, if the partial pressure of these two
components is sufficiently high at cleaning conditions, vapors will be
dispersed throughout the process equipment loop being cleaned and will condense
to invade the interstices of the con-
<PAGE> 4
5,425,814
taminant material and matrix of hydrocarbon scale to assure extraction and
removal of the contaminants. It has been discovered that this process is
particularly effective in thoroughly removing benzene from the equipment and
causing a disintegration of the hydrocarbon scale to leave the equipment almost
pristine in a very short period of time. The solids break down so completely
that they, in fact, are transported through the micron sized filter,
particularly the preferred 40 micron six filter in the shearing operation of
the practice of this invention. This shearing step assists the captivity of
normally volatile carcinogenic aromatic hydrocarbons like benzene. If a
knock-out zone or drum, preferably upstream of the filter, is used in the
circulation loop, then larger sized solids can be collected.
The chemical formulations useful in the invention are capable of
emulsifying and dissolving a wide range of typical hydrocarbon process industry
contaminants such as tars, resins, and asphaltenes that might normally have
been removed using aromatic or aliphatic solvents (some of which may be
carcinogenic or teratogenic) and strong alkaline-based detergents. The
decontamination solutions of this invention are not aggressive; they are
non-reactive, and safe for use with the metallurgy normally found within
hydrocarbon processing units. This characteristic allows the circulation of the
decontamination solution using the standard process pumps already in place,
thus allowing full and maximum use of system pressure and design fluid flow
ratings without the damage to pump seals and packing which had been experienced
during cleaning using reactive chemicals. In fact, the flow of the present
chemical formulations may be controlled and monitored from the chemical plant's
own control room. Surprisingly, observation of the interior of the equipment
after cleaning approximates the appearance of new equipment. The surfaces are
so clean that, in the case of mild steel, a patina of oxidation quickly forms
upon exposure to air. Even more surprising is the ability to complete cleaning
for disassembly and inspection is from about 10 to about 36 hours on jobs
previously requiring from five to ten times as long; i.e., cleaning is
accomplished in from about 10% to about 20% of the time.
DETAILED DESCRIPTION OF THE INVENTION
The method of this invention allows the owner of hydrocarbon processing
units to clean process equipment or looped collections of equipment in a very
short period of time without the necessity to resorting of the use of steam as
the cleaning agent for equipment to remove contamination and scales and other
deposits from hydrocarbon processing equipment as was previously required, i.e.
without a steamout step. The steamout requires long periods of time and often
exacerbated the problem of cleaning out tars and cokes. The cleaning method
taught by this application is quick, amounting only to a matter of hours before
the equipment could be opened for inspection as opposed to days previously when
a steamout was required for safety. This allows reduced down time and in the
case of badly fouled equipment reducing efficiency of the hydrocarbon
processing unit can bring it back to full capacity without complete turnaround.
Once the equipment being cleaned is shut down and drained, it is isolated
through blinds, or blanks, most likely inserted at the flanges, and separated
from the balance of the hydrocarbon processing unit, lines are installed to
create a circulation loop through the isolated equipment. If necessary, pumps
and a shearing unit are inserted in the loop. The practice of the method of
this invention avoids the problem with the baking coke deposits into the units
where a steamout step was previously used. Further, it takes advantage of the
use of extractants which meet the Montreal protocol concerning the release of
hydrocarbon to the atmosphere just in case an emission does occur. The practice
of this invention even allows the removal of hydrocarbon fouling in a packed
tower in a period of from 5 to 6 days without the physical removal of the
packing from the tower.
In the practice of the method of this invention which eliminates the
"steamout" step universally followed in the cleaning of the hydrocarbon units,
the equipment, or entire hydrocarbon processing unit, may be shut down and
drained as completely as possible. It would then normally be flushed by
circulating a light solvent through it such as a sweet crude or naphtha,
kerosene or diesel cut. If it is a single piece of equipment or several pieces
of equipment in fluid communication with each other, appropriate blanks are
inserted into the flanges between this equipment and equipment which is not to
be cleaned in this step. After the equipment is isolated a fluid circulation
loop is established through the equipment to a shearing means, like a filter,
through a pump which can be upstream or downstream from the shearing means and
back to the equipment. The equipment to be cleaned is filled with water up to
about 5% to about 25% of the volume of the system, as long as the amount of
water is sufficient to cover the pump intakes while circulating the cleaning
fluid; provided, however, the amount of water must be sufficient that heat
exchanges are filled either by the rate of circulation or through addition of
more water.
Process pumps or extraneous pumps may be brought to bear on the operation,
but a conduit for the solution is attached to the equipment where entry of the
cleaning material is desired with a second conduit for the fluid attached at
the exit. In the loop through which the fluid will be circulated includes a
shearing means which can either be a static in-line mixture or a filter having
a filter size of from about 1 to about 100 microns, preferably from about 20 to
about 60 microns, and most preferably 40 microns plus or minus 15%, to provide
shear to stabilize the emulsion created by the extractant, surfactant and the
contaminants and solids removed from the equipment. A stable oil-in-water
emulsion to be formed with extremely small particle size is caused by the
combination of the shearing action and the ability of the extractant to break
down the agglomerated scale or deposits on the equipment surfaces.
The water in the equipment is circulated and heated to bring it to a
temperature of from about 100 degrees F. to about 220 degrees F. The preferred
method of heating is to inject steam into the water to raise its temperature
and add the extractant and emulsifying agent to the heated water to form the
cleaning solution. The extraction strength and emulsion forming capability of
the circulating solution can be balanced by simple sampling and testing
well-known in the art and adjusted as necessary during the cleaning process.
The sampling and testing accomplishes a second purpose in that once the removal
capacity of the extractant and surfactant has been exceeded there would be a
tendency for the emulsion to invert where the water would become the
discontinuous phase and the oil the continuous phase. At such time, it would be
necessary to add more extractant and
<PAGE> 5
surfactant to reverse the invert phenomenon. The circulation is continued until
the foulding content of the cleaning solutions stabilizes, indicating that the
removal of additional contamination is probably not to occur. This normally
occurs within 6 to 12 hours. The material is then drained, the equipment
flushed with water and opened for inspection to assure the restoration of the
equipment to full operational capacity. For equipment like process vessels,
towers, reactors and heat exchanges this occurs some 20 to 30 hours after the
unit is shut down as opposed to days or even weeks with the old steamout
cleaning method. Even with days of steamout questions remained about whether
cleaning was complete remained.
The cleaning process of this invention is applicable to almost any, if
not all, hydrocarbon processing equipment as long as it can be isolated from
adjacent equipment. For example, the method may be used to clean any equipment
within the normal refining and hydrocarbon processing industry. For example,
the units would include, but not be limited to, crude oil units, vis-breaker
systems, hydrocrackers, hydrotreaters (including the reactor), fluid cat
cracking systems (except for the craking unit itself), delayed coking units,
ethylene thermal crackers, amine units and other associated vessels. For
example, each of the units would have heat exchanges associated with them and
some involve direct heating furnaces, such as, for example, the crude unit
train. When high temperature hydrocarbon processing equipment is used, the
prospect of coking occurs and it has surprisingly been found that the method of
this invention has a salutary effect on the decoking of heaters and equipment
while avoiding the troublesome steamout step.
One of the great advantages of the cleaning method of this invention is
its flexibility with respect to the ability to clean the entire process
equipment or any parts thereof. Simply stated, the steps of the invention
involves the shutdown and draining of the entire process plant, whether a
petroleum refinery, a petrochemical plant, or the like. Normally, this draining
will occur while the plant equipment is still hot, followed by an optional
flush, usually with a light solvent, to remove soluble hydrocarbons. Flanges
would be opened with blinds inserted to isolate the equipment to be cleaned. Of
course, where there are valves in the system, they can be closed making
insertion of blinds unnecessary unless these are plans to perform maintenance
on the valves. A circulation loop and pumps, if needed, and shearing filter,
if needed are installed.
A sufficient amount of water would be introduced into the process flow
equipment to provide a head for pumps, preferably the process pumps, to be used
to circulate it through the process flow equipment to be cleaned. Circulation
through the system would preferably be at a rate to generate at least about
turbulent flow. Normally, this flow rate would be from 500 to about 5,000
gallons per minute depending upon the size of the plant equipment and pumps
used to accomplish the circulation. The preferable flow rates would run from
about 800 to about 1,400 gallons per minute.
The stabilizing influence of the turbulent flow of the material
circulating through the equipment is enhanced by insertion in the loop of a
shearing means which additionally enhances the stabilization of the emulsion
and, hence the removal capacity of the fluid greatly contributing to the reduced
time form completion of the cleaning process. The action of shearing the
emulsion containing contaminants, especially suspended solids, causes most
smaller sizes to result thus making it more easily held in the emulsion to
prevent it from settling out in the equipment. This shearing means can be in the
form of an inline static mixer such as a "Keenix" brand mixer or a filter or
even an ultra filter having pore sizes of from 1 to about 100 microns or,
preferably, about 40 microns plus or minus about 15%.
The amount of water introduced into the equipment being cleaned would be
normally enough such that when the pumps are running at the desired flow rate,
no cavitation would occur through lack of fluid in the intake of the pump and
heat exchangers in the loop are filled. Normally, the amount of water introduced
would be about 5% to about 25% of the internal volume of the process flow stream
being cleaned. Preferably, the amount would be from about 10% to about 18% of
the internal volume. Back pressure may be created by installing orifice plates
in flow lines during circulation to keep exchangers full to assure contact with
all fouled surfaces. If not, more water can be added.
This would be followed by a circulation of water and then a heating of the
equipment, preferably by the injection of steam into the water. Of course any
residual heat in the units would aid in heating. Heating continues until the
equipment and solution reaches a temperature of from about 100 degrees
Fahrenheit to about 220 degrees Fahrenheit, preferably from 120 degrees
Fahrenheit to about 180 degrees Fahrenheit. In the case where the equipment is
maintained under pressure the water could be heated to its boiling point for
the existing conditions. The steam temperature could be up to about 375 degrees
Fahrenheit to perform the heating step. This steam would probably be from the
same source as previously used for the now unnecessary "steamout" step. Then an
extractant and surfactant as defined herein are added to the circulating heated
water. The high vapor pressure will cause it to be vaporized throughout the
system which is not flooded with liquid ultimately condensing on inner surfaces
and mixing with the heated water being circulated through the equipment,
preferably using process pumps. The circulation continues for a sufficient
period of time, preferably for about 8 hours to about 12 hours or until
contamination is removed. It has been found that after about a circulation time
of from about 10 to 20 hours is normally sufficient for opening the equipment
for inspection. Event though experience with the practice of the invention has
shown that the cleaning is sufficient to put the equipment back on line with
greatly improved results, it is only prudent to inspect the equipment to assure
that some dangerous fault has not occurred and to install new gaskets for
continued operation.
The solution may be tested during circulation, using known procedures for
the emulsifier activity remaining in the solution. If activity has diminished,
or been exhausted, the solution could either be reconstituted by adding
extractant and/or surfactant or it can be replaced entirely with virgin, heated
aqueous solution. By adding a known amount of surfactant when the emulsifier
activity is tested, the reduction in activity can indicate the level of
cleaning. Once thorough cleaning is indicated, the equipment being cleaned is
drained and rinsed with water. If the circulating chemicals are not spent, the
cleaning liquid could be used as circulation fluid in another piece of
equipment to be cleaned.
The contamination removed is held in an aqueous emulsion such that an
emulsion breaker can be used, employing known techniques, to separate the water
from hydrocarbon and from solids. As stated before, the
<PAGE> 6
5,425,814
stability of the emulsion is enhanced by the shearing forces placed upon the
cleaning emulsion by the circulation rate, the pumps themselves, and the
shearing means, particularly a filter having a small pore size. The hydrocarbon
removed can be sent to a normal slop tank at the refinery and the recovered
water to a biopond for biological remediation treatment. In the preferred
embodiment of the invention the shearing means is best provided by using a
truck-mounted tank having two chambers connected by a passageway including a
filter of the desired size. The truck may include a circulation pump in case the
process pumps are not available.
Using the steps of the present invention as described above results in
almost pristine cleaning of the process equipment in much shorter periods of
time as compared to prior art methods using steamout procedures, while also
maintaining strict safety standards for personnel. The time savings are evident
when cleaning a single piece of hydrocarbon processing equipment isolated from
the entire unit by blind flanges. It is not uncommon that the equipment in a
plant is contaminated with residual amounts of carcinogens such as benzene,
xylene, tolnene, and other hydrocarbons, both aromatic and aliphatic. The
presence of these chemicals is detected with various devices and limitations
have been set by health and environmental standards which can be safely
contacted by humans or what amounts can be released to the environment,
respectively. Thus, these materials must be removed before work and maintenance
crews can safely enter a vessel for inspection or repair. Steamout and other
cleaning methods and attempts, even using surfactants, fail to remedy the
problem created by the volatile organics.
The extractant may preferably be introduced into the circulating water
while injecting steam to heat the circulating water to a temperature of from
about 160 degrees Fahrenheit to about 270 degrees Fahrenheit, preferably from
about 185 degrees Fahrenheit to about 210 degrees Fahrenheit, and then adding
the extractant to the circulating water to obtain a concentration of from about
0.1% to about 7% by volume, preferably, from about 1 1/2% to about 5%.
The extractant is chosen from those having an affinity for the contaminant
being removed. The criteria for selection are the solubility of the material
being removed in the extractant and the vapor pressure of the extractant such
that a significant amount in the vapor phase at the temperature of the
circulating heated water to condense on the surfaces of the metal in the
interstices in the metal. While some hazardous solvents may be used for a
portion of the method of this invention, the extractant material should
preferably be non-toxic and nonhazardous and selected such that it has a high
vapor pressure. Thus, the partial pressure of the extractant will be significant
at cleaning conditions.
Preferred extractants having affinity for the scales and contaminants
normally found in a hydrocarbon processing unit include materials such as the
various terpenes; including, for example, dipentenes, cinenes, cajeputenes,
diamylenes, the oils of bergamot, geranium, citronella, dill, and caraway, and
the like and related terpenes such as hermiterpenes (isoprenes), sesquiterpenes
(caryophyllenes), diterpenes, and polyterpenes. The especially preferred
extractant is limonene, particularly, d-limonene. Mixtures of several
extractants may be used satisfactorily with the same criteria as set forth
above. Consultation with well-known tables having vapor pressure information
and simple experimentation to determine the affinity of the extractant for the
contaminating material is all that is necessary to select the mixture and
determine relative proportions.
The matter of selecting the satisfactory surfactant is also within
ordinary skill in the art. The boiling point and vapor pressure criteria remain
the same as for the extractant such that the surfactant will also condense at
substantially the same time as water vapor and the extractant material
condenses. This allows the cracks and crevices of the metal and internals of
the entire process system, including interstices of the matrix of scaly
contamination, to all be invaded by the components of this cleaning system to
break down the scale and trap the contaminants into the solution
(microemulsion) and remove the troublesome contaminants, especially volatile
organics such as benzene.
The selected surfactants may be anionic, cationic, amphoteric or
non-ionic, or mixture from several classes, but the selection specifically is
within the experience of the skilled chemist, based upon the material being
removed as the contaminant, the extractant being used and the relative amounts
which are expected to be taken into the wash solution from the condensing steam
or the circulating water wash. The HLB (Hydrophile/-Lyophile Balance) of the
surfactants selected preferably should be between 6 and 18 and preferably,
between about 7.5 and 12 for the optimum results in the practice of this
invention. The characteristics of the members of these classes of surfactants
are well known as are the many compounds within these classes. Many surfactants
and/or emulsifiers may be selected for use in the practice of the invention
depending upon the many and varied process streams which can be cleaned using
this invention.
Preferred surfactants are selected from ethoxylated alkyl phenols having an
average of from about 6 to about 12 moles of ethylene oxide per mole of
alkyl-phenol, where the alkyl group contains from 8 to 10 carbon atoms. Another
preferred component in a surfactant mix is a block copolymer of ethylene oxide
and propylene oxide having a molecular weight of from about 1,500 to about
2,500. As a third component in the especially preferred embodiment is a fatty
acid alkanolamide which may be and often is, available in commercial solutions
as 50/50 mixture with a linear alkylbenzene sulfonic acid. Many variations on
this theme are well within the scope of the practice of this invention and the
components may be varied, as well as their constituents, without departing from
the practice of this invention. Combinations of the foregoing materials are
especially useful in creating a stable microemulsion with the preferred
extractants; i.e., terpenes, and particularly d-limonene. A mixture as described
above has a high range of volatility and is found to be useful in contacting and
removing many different types of contamination found in hydrocarbon processing
units.
Mixtures of surfactants in several of the classes and mentioned above may
be used successfully, especially in the situation where a premix of extractant
and surfactant is used. This premix would normally be in the form of a
microemulsion of several extractants and surfactants. Often, several
surfactants would be necessary in order to enhance the shelf life as a
homogenous fluid, usually as a microemulsion with water acting as the
discontinuous phase in the continuous phase terpene. Of course, the emulsion
inverts in the presence of large amounts of water.
The amount of the mixture added to circulating liquid would result in an
effective amount of the extractant
<PAGE> 7
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and surfactant being present, usually at a concentration from about 0.1% to
about 7%, preferably from 1 1/2% to about 5%, and more preferably from about 2%
to about 4%, the emulsification of contaminants is important to the successful
position of this invention and those skilled in the art given knowledge of the
contaminants and the description herein will be able, with slight
experimentation, to select a useful mixture. The shearing step of the method of
this invention also contributes to the successful stabilizing of the emulsion.
The practice of this invention substantially reduces the time and enhances
the results of the cleaning, allowing the process equipment to be put back on
stream sooner than previously when steamout was used either alone or even in
connection with an improved process such as one similar to that described and
claimed herein. As a particular advantage, the process equipment is free from
volatile organic compounds (VOCs), especially benzene which is a known
carcinogen. Prior attempts at decontamination left residual benzene
contamination endangering workers who must enter the equipment.
For example, a preferred mixture of extractants and surfactants for
cleaning a reaction vessel was prepared using the following components:
TABLE I
- ------------------------------------------------------------------------------
(Mixture A)
-----------
Weight Percent
- ------------------------------------------------------------------------------
d-Limonene 57%
Nonionic copolymer(1) 09%
Monemalse 653-C(2) 17%
Butyl Cellusolve 03%
Nonionic surfactant(3) 05%
Water 09%
------
100%
- ------------------------------------------------------------------------------
(1) Block copolymer of ethelyne oxide and propylene oxide having a molecular
weight of 1950 and MLB of 12 to 18.
(2) 90% active ingredients of a 50/50 mixture of an ethmolomide of a C12 fatty
acid and a linear alky/benzene sulfuric acid in 10% isopropanol b.p. 205
degrees F.
(3) 10 mole ethylene oxide acids adduct of a nonlyphenol.
In another embodiment (Mixture B), the 8% represented by the butyl
cellusolve and the nonionic surfactant in the mixture is replaced by a 6 mole
ethylene oxide adduct of nonylphenol with an HLB of 10.8.
The above-identified components, when mixed together, form a stable
microemulsion of water in the terpene having a long shelf life and exhibiting
good solvency for oils or greases, including the lighter materials such as
benzene, toluene, and xylene which are trapped and held in the emulsion until
removed from the process flow equipment in spite of the elevated temperatures
at which the cleaning is performed.
The effluent from the decontamination process will be resolvable into
hydrocarbons, solids, and water phases such that the hydrocarbons may be
recovered and the water containing soluble light hydrocarbons (especially
benzene) can be scrubbed or stripped using a suitable conventional gas
stripping operation for environmentally safe disposal. The solids can be
removed for incineration and disposal to a land fill.
Of course, the selection of the equipment which goes into the circulating
loop will vary with respect to the hydrocarbon processing unit being cleaned
and are selected using the parameters of the necessity for cleaning and the
fluid communication through existing processing pipes. Of course, any equipment
through which circulation is not desired then is isolated by the installation
of blanks in the flow lines. A convenient place for introducing the fluid and
removing the fluid is selected and the loop established.
The following example is a description of one such loop created in a
hydrocarbon processing refinery to illustrate the operation of the
above-described invention. It is offered for purposes of instruction to those
skilled in the art and should not be considered as a limitation on the scope of
the described invention as claimed.
EXAMPLE
A hydrogenation unit of a refinery was shut down and drained. Blanks were
inserted to isolate the hydrogenation reactor to protect the catalyst from the
cleaning solution. Blanks were also inserted to close off the feed line from
the crude unit. The volume of the vessels to be cleaned which included a
fractionation tower and several drum-type vessels, a fin fanned heat exchanger,
as well as three shell and tube heat exchangers, was selected for cleaning. A
truck mounted pump and shearing device having a 40 micron filter was used to
complete the circulation loop by attaching temporary piping to draw fluid off
the bottom of the tower and pumping to both of the drum vessels was set up.
This allowed the cleaning solution to circulate throughout the system by
varying the valving. The volume of the well water used as fill was 30,000
gallons which was introduced through one of the drum vessels and allowed to
fill the system. Circulation was begun and steam introduced to heat the water
to about 190 degrees F. During circulation steam was periodically introduced to
maintain the water temperature between a minimum of 180 degrees F. and a
maximum of 200 degrees F. Mixture B (3,800 pounds) was introduced into the
circulating water to result in approximately 1.5% of volume of the
extractant/surfactant material circulating through the system. Circulation was
continued for about 10 hours with periodic testing to determine the degree of
contamination removal. When testing showed no changes in concentration,
circulation was stopped (after about 10 hours), the circulating cleaning
solution was pumped out of the hydrogenation unit to be used to assist cleaning
the crude processing unit. Therefore, the crude line was reopened for the
draining of the hydrogenation unit. Afterwards wash water circulated through
the system, drained and the hydrogenation unit was opened for inspection.
Examination of the unit showed that it was cleaner that previously experienced
after conventional methods involving a steamout step and was accomplished in
less than one fourth the time.
Similarly, other units of the refinery were shut down, drained with loops
established and cleaning occurred by pumping at conditions as set forth in the
hydrogenation unit with similar, if not identical, results. The equipment
cleaned throughout the refinery was, when inspected, found to be cleaner than
previously and this stage of the process, i.e. the removal of fouling from the
surfaces of equipment, was accomplished much more quickly than previously when
the steamout step was used. During prior similar operations a steamout was done
as a matter of course.
Having described this invention and given exemplars thereof one of
ordinary skill in the art having this description before them would be able to
make many modifications and adjustments to the process without departing from
the scope of the invention as claimed herein.
What is claimed is:
<PAGE> 8
5,425,814
1. A method for cleaning and decontaminating hydrocarbon processing plant
equipment to remove scales and chemical deposits without a steamout step
comprising the steps of:
isolating the equipment to be cleaned from other process equipment;
establishing a fluid loop of the equipment to be cleaned, including a
pump for causing fluid to circulate within the loop;
filling the equipment with sufficient water to cause any heat exchangers
in the loop to be substantially full during circulation;
circulating the water through the loop;
heating the water to a temperature of from about 100 degrees F.
to about the boiling point of water;
adding a sufficient amount of an extractant chemical with an affinity for
contaminants present in the equipment and a surfactant having
emulsifying activity for said contaminant and extractant to said
water to form a heated emulsion to clean the surface of the equipment;
contacting surfaces of the equipment to be cleaned with the heated
emulsion;
circulating said heated emulsion at the temperature through the loop for a
period of time sufficient to clean the contacted surfaces; and
removing the circulating emulsion from the loop.
2. The method of claim 1 wherein the water fills from about 5% to about
25% of the volume of the equipment.
3. The method of claim 1 wherein the temperature of the circulating
emulsion is from about 120 degrees F. to about 180 degrees F.
4. The method of claim 1 which includes circulating such emulsion through
shearing means in the loop to stabilize such emulsion.
5. The method of claim 4 wherein the circulation through the equipment and
shearing means is at a rate of from about 800 to about 1,400 gallons per minute.
6. The method of claim 4 wherein the shearing means is a filter having a
pore size of from 1 to about 100 microns.
7. The method of claim 6 wherein the filter has a pore size of about 40
microns, plus or minus about 15%.
8. The method of claim 1 wherein the extractant is a terpene and the
surfactant has a HLB of from about 6 to about 18.
9. The method of claim 8 wherein the terpene is d-Limonene and the
surfactant comprises a 6 to 12 mole ethylene oxide adduct of an alkyl phenol
wherein the alkyl group contains 8 to 10 carbon atoms, a block copolymer of
ethylene oxide and propylene oxide having a molecular weight of from about
1,500 to about 2,500 and fatty acid alkanol amid.
10. The method of claim 9 wherein the terpene and surfactant mixture is
from about 0.1% to about 7% by volume of the emulsion.
11. The method of claim 1 wherein the heating step occurs during
circulation of water through the loop.
12. The method of claim 1 wherein the extractant chemical and surfactant
are added to the water during one or more of the filling, circulation or
heating steps.
13. The method of claim 1 wherein the extractant chemical and surfactant
are added to the heated water.
14. A method for restoring efficiency in a hydrocarbon processing plant of
processing equipment to remove scales and chemical deposits and without a
steamout step comprising the steps of:
draining the hydrocarbon process equipment of process fluids;
isolating the equipment to be cleaned from other process equipment;
flushing the hydrocarbon process equipment with a light solvent and
filling the equipment with sufficient water to establish a head
pressure for process pumps and fill heat exchangers during
circulation;
circulating said water to a temperature of from about 100 degrees
F. to about 220 degrees F.;
adding an extractant chemical with affinity for contaminants present in
the equipment and a surfactant having emulsifying activity for said
contaminants into said heated water to form a heated emulsion;
circulating said heated emulsion at a temperature from about 100 degrees
F. to about 220 degrees F. for a period of up to about 12 hours;
removing the circulating solution containing emulsified contaminants; and
rinsing the hydrocarbond process equipment with water before returning the
equipment to operational status.
15. The method of claim 14 which includes circulating such emulsion
through a shearing means in the loop to stabilize such emulsion.
16. The method of claim 15 wherein the shearing means is a filter having a
pore size from 1 to about 100 microns.
17. The method of claim 16 wherein the filter has a pore size of about 40
microns, plus or minus about 15%.
18. The method of claim 14 wherein the extractant is a terpene and the
surfactant has an HLB of from about 6 to about 18.
19. The method of claim 18 wherein the terpene is d-Limonene and the
surfactant comprises a 6 to 12 mole ethylene oxide adduct of an alkyl phenol
wherein the alkyl group contains 8 to 10 carbon atoms, a block copolymer of
ethylene oxide and propylene oxide having a molecular weight of from about
1,500 to 2,500 and fatty acid alkanol amid.
20. A method for cleaning and decontaminating hydrocarbon processing plant
equipment to remove scales and chemical deposits on internal equipment surfaces
without a steamout step comprising the steps of:
isolating the equipment to be cleaned from other processing equipment;
contacting surfaces of the equipment with an aqueous solution heated to a
temperature of from about 100 degrees F. to the boiling point of water, the
solution containing an amount, sufficient to clean the surfaces of an
extractant chemical with an affinity for contaminants present in the equipment
and a surfactant having emulsifying activity for said contaminants and
extractant, for a time sufficient to clean the contacted surfaces and form an
emulsion; and
removing the emulsion from the equipment.
21. The method of claim 20 which includes the step of replacing the
removed emulsion with additional heated solution to repeat the contacting step.
22. The method of claim 20 which includes the steps of establishing a
fluid loop of the equipment to be cleaned, including a pump for causing the
fluid to circulate; and
circulating the emulsion through the loop.
23. The method of claim 22 which includes circulating the emulsion through
a shearing means within the loop to stabilize the emulsion.
<PAGE> 9
5,425,814
24. The method of claim 23 wherein the shearing means is a filter having a
pore size of from 1 to about 100 microns.
25. The method of claim 24 wherein the filter has a pore size of about 40
microns, plus or minus about 15%.
26. The method of claim 22 wherein the circulation at a rate of is from
about 800 to about 1,400 gallons per minute.
27. The method of claim 20 wherein the extractant is a terpene and the
surfactant has an HLB of from about 6 to about 18.
28. The method of claim 27 wherein the terpene is d-Limonene and the
surfactant comprises a 6 to 12 mole ethylene oxide adduct of an alkyl phenol
wherein the alkyl group contains 8 to 10 carbon atoms, a block copolymer of
ethylene oxide and propylene oxide having a molecular weight of from about
1,500 to about 2,500 and a fatty acid alkanol amid.
29. The method of claim 28 wherein the terpene and surfactant is from
about 0.1% to about 7% by volume of the emulsion.
* * * * *
<PAGE> 1
EXHIBIT 10.33
UNITED STATES PATENT [19] [11] PATENT NUMBER: 5,460,331
KRAJICEK ET AL. [45] DATE OF PATENT: OCT. 24, 1995
- -------------------------------------------------------------------------------
[54] APPARATUS FOR DISPERSION OF SLUDGE IN A CRUDE OIL STORAGE TANK
[75] Inventors: RICHARD W. KRAJICEK, Houston, Tex.;
ROBERT R. CRADEUR, Sulphur, La.
[73] Assignee: SERV-TECH, INC., Houston, Tex.
[21] Appl. No.: 261,438
[22] Filed: JUN. 17, 1994
[51] INT. CL.(R)...................BO5B 3/02; BO8B 9/093
[52] U.S. CL. .....................239/263.3; 239/263.1;
239,264; 134/167 R
[58] FIELD OF SEARCH.................. 239/263.1, 263.3,
239/264, 142; 134/167 R, 168 R
[56] REFERENCES CITED
U.S. PATENT DOCUMENTS
1,978,015 10/1934 Erdman,
2,116,935 5/1938 Richard et al.
3,420,444 7/1969 Ajuefors..................... 239/264
3,460,988 8/1969 Kennedy, Jr. et al ........ 134/168 R
3,472,451 10/1969 Orem et al. ............... 134/167 R
3,586,294 6/1971 Strong.
3,834,625 9/1974 Barthod-Malat................ 239/264
3,878,857 4/1975 Heibo ..................... 134/167 R
3,953,226 4/1976 Emond et al. ................ 134/104
4,407,678 10/1983 Furness et al. ............ 134/167 R
4,685,974 8/1987 Furness et al. ............ 134/22.18
4,945,933 8/1990 Krajicek et al. ........... 134/167 R
5,091,016 2/1992 Krajicek et al. ............ 134/22.1
5,351,885 10/1994 Manabe .................... 239/263.1
FOREIGN PATENT DOCUMENTS
349510 1/1990 European Pat. Off. ........ 239/263.1
Primary Examiner--Karen B. Merritt
Attorney, Agent, or Firm--John R. Kirk, Jr.; Jenkins &
Gilchrist
[57] ABSTRACT
An apparatus for cleaning the interior of storage tanks of the type used for
storing large volumes of crude oil wherein hydrocarbon sludge accumulates with
the passage of time. The apparatus comprises a crude oil circulator having
rotatable nozzles positioned within the tank, a gear member externally disposed
on an outer surface of a hollow rotor, and a worm gear operatively connected to
the gear member. A drive shaft is connected, through a valve opening in the
tank wall, to a motor unit. Upon failure of the worm gear, the worm gear is
removed from the tank through the valve opening, replaced or repaired, and
reintroduced into the tank through the valve opening.
6 Claims, 5 Drawing Sheets
[GRAPHIC]
<PAGE> 2
U.S. Patent Oct. 24, 1995 Sheet 1 of 5 5,460,331
[FIG. 1]
<PAGE> 3
U.S. Patent Oct. 24, 1995 Sheet 2 of 5 5,460,331
[FIG. 2]
<PAGE> 4
U.S. Patent Oct. 24, 1995 Sheet 3 of 5 5,460,331
[FIG. 3]
<PAGE> 5
U.S. Patent Oct. 24, 1995 Sheet 4 of 5 5,460,331
[FIG. 4]
[FIG. 5]
[FIG. 6]
[FIG. 7]
<PAGE> 6
U.S. Patent Oct. 24, 1995 Sheet 5 of 5 5,460,331
[FIG. 8]
[FIG. 9]
<PAGE> 7
5,460,331
APPARATUS FOR DISPERSION OF SLUDGE
IN A CRUDE OIL STORAGE TANK
BACKGROUND OF THE INVENTION
1. Field of the Invention
The present invention relaxes generally to an apparatus for dispersing
sediment, such as hydrocarbon sludge, in a storage tank, and more particularly
to such an apparatus that is repairable without emptying the storage tank.
2. Description of the Related Art.
It is a common commercial practice to store liquid materials in storage
tanks. Typically, for many industrial applications, storage tanks will have a
diameter from 100 to 300 feet and heights of 20 to 50 feet or more. The liquids
stored in such storage tanks are diverse. For example, water or aqueous
solutions of organic or inorganic chemicals may be stored in this manner,
derivatives of agricultural products such as vegetable oils which are water
soluble are likewise stored in this manner.
More commonly, however, large volume storage tanks of this nature are used
in the production, collection and refining of crude oils and derivatives thereof
such as crude oils containing naphthenic and aromatic components, and refinery
products such as gasolines, diesel fuels, jet fuels, fuel oils, kerosene, gas
oil, etc., and petrochemical derivatives thereof such as benzene, xylene,
toluene, etc.
With the passage of time, solid materials, usually in finely divided form,
will accumulate in the storage tank and settle at the bottom thereof. When the
accumulation becomes excessive, it must be removed from the storage tank.
One manner in which this can be accomplished is to drain the tank and then
have workmen enter the tank and manually remove the sediments that are
deposited therein. However, such a procedure is costly and time-consuming and
can cause the workmen involved therein to be exposed to toxic or potentially
toxic materials.
The problem of sediment accumulation is particularly accentuated insofar
as the storage of crude oil and, in particular, aromatic and napthenic crude
oils is concerned. Such crude oils, as introduced into the storage tank, will
normally contain aromatic, napthenic and asphaltic components which are
believed to be potentially reactive and/or condensible with each other.
Moreover, a minor amount of water will normally be present in the crude oil
(e.g., about 0.1 to 5 wt. %). Usually, the water will not be present as a
separate phase, but rather as small droplets of water emulsified by ionizable
components of the crude oil, such as asphaltenes.
It is believed that molecular charge transfer forces, such as vander waals
forces, cause many of the molecular aromatic, napthenic and asphaltic
components of the crude oil to agglomerate and weakly bond to each other to
form aggregates having a size sufficient to cause them to precipitate from the
crude oil and to settle at the bottom of a crude oil storage tank together with
the emulsified water droplets so that the resultant "hydrocarbon sludge" will
normally comprise highly aromatic components such as polyaromatic components in
which a significant portion of the water (in the form of emulsified droplets)
will be occluded. Also, when phyrins are present, the porphyrin molecules are
believed to be attracted to each other so as to form agglomerates that
will settle from the crude oil stored in the crude oil storage tank. It is for
reasons such as these that the sediment in the bottom of a crude oil storage
tank is sometimes colloquially referred to as "black sediment and water" or
"hydrocarbon sludge" or just plain "sludge".
The hydrocarbon sludge that accumulates, as such, is of marginal economic
value and, if manually removed, usually represents a disposal problem.
Various prior art methods have been suggested for removing such materials
from storage tanks. For example, U.S. Pat. No. 1,978,615 to Erdman is directed
to method and apparatus for cleaning sediment from a tank containing a fluid
comprising a central manifold from which a plurality of discharge pipes
radiate, each discharge pipe being provided with a plurality of discharge
nozzles so that liquid may be pumped through the central manifold and out
through the nozzles to roil the sediment or other foreign materials at the
bottom of the tank and suspend it for withdrawal through a side withdrawal pipe
located above the apparatus.
U.S. Pat. No. 2,116,935 issued to Richard et al. is directed to a method
and apparatus for cleaning tanks such as railroad tank cars and comprises a
pipe which is suspended vertically in the tank for rotation about a horizontal
axis and which contains, at a lower end thereof, a reaction nozzle mounted for
rotation about a horizontal axis and includes a reaction nozzle member mounted
on vertical conduit for rotation about a horizontal axis so that liquid pumped
down the conduit is forced out the vertically disposed jets of the reaction
nozzle. The device also includes appropriate means for slowly rotating the
reaction nozzle about the vertical axis of the suspending pipe.
U.S. Pat. No. 3,586,294 to Strong is directed to a method and apparatus
for creating a suspension of fine particles in a liquid in a tank using a
plurality of spargers suspended above the bottom of the tank on a nonrotating
lattice of feed pipes through which a liquid is pumped for emission through the
sparging nozzles to suspend fine particles of sediment in the liquid for
discharge from the tank or removal of the suspension.
U.S. Pat. No. 3,878,857 to Heibo is directed to a device 120 for cleaning
the side walls of a storage tank such as a tank located on a ship carrying
crude oil. The apparatus comprises an L-shaped inlet pipe suspended from the
top of the tank. A pair of diametrically opposed jets are mounted on the end of
the "L" so that liquid pumped through the L-shaped inlet pipe will be forced to
flow out of the pipe through one of the jets at a time. Means are provided for
rotating the jetting means a fraction of a turn about a horizontal axis for
each complete revolution about the vertical axis. The mechanism for
accomplishing this is a worm gear which operates in conjunction with a cog
wheel and a blocking wheel.
U.S. Pat. No. 3,953,226 to Edmond et al. is directed to a device for
cleaning sediment from a tank and includes pipe means oscillatably suspended
from the top of the tank. The oscillatable pipe means is provided, at a
discharge point near the bottom of the tank, with one or more spray jets
through which hot water may be sprayed to sweep suspended matter to a sump
located on the opposite side of the storage tank for removal.
U.S. Pat. No. 4,407,678, issued to Furness et al., discloses a sludge
removal machine for removing sludge from the bottom of a storage tank which
comprises a hollow body, and laterally rotatable nozzles. The sludge removal
machine is suspended in a storage tank from a pipe through which a cleaning
liquid may be pumped. The sludge removal machine is also provided with a
"turbine" or impeller for rotating the nozzles in order to disperse sludge. The
rotational speed of the turbine, and thus the rotation rate of the
<PAGE> 8
5,460,331
nozzles, is determined by the viscosity, pressure, and flow rate of the liquid
pumped through the machine. Therefore, if it is desired to increase or decrease
the fairly critical speed of rotation of the nozzles, one of these parameters,
e.g., flow rate must be adjusted accordingly.
U.S. Pat. No. 4,685,974, also to Furness et al., is directed to a method
for removing settled sludge from the bottom of a storage tank which uses
apparatus of the type disclosed and claimed in Furness et al. A liquid such as
crude oil is pumped into a machine suspended in a storage tank adjacent a side
wall thereof and which is provided with diametrically opposed lateral nozzles
which are rotated in a manner such that each nozzle emits liquid during 180
degrees of its rotation to avoid impingement of liquid on the side of the tank
wall to thereby suspend the sludge in liquid in the tank, after which the
liquid having sludge suspended therein is pumped from the tank.
In an improvement over the prior art, U.S. Pat. No. 4,945,933 and U.S. Pat.
No. 5,019,016 disclose an apparatus useful for dispersing sediment contained in
a crude oil storage tank. The apparatus generally comprises an oil circulator
having a plurality of rotatably mounted nozzled outlet jets. Crude oil is
continuously forced through the jets, whose rotation is controlled by an
independently controllable indexing power means, to disperse the sediment.
While the prior art practices do provide methods and apparatus for
dispersing sludge in a crude oil storage tank, these devices are difficult to
service or repair, requiring removal of the entire circulation apparatus from
the tank which typically necessitates emptying of the tank before such removal
can be accomplished. Therefore, there is a need for a sludge dispersing
apparatus having a rotation speed that is independently controllable of the
fluid flow rate through the apparatus, and that can be easily removed for
service or repair.
SUMMARY OF THE INVENTION
Accordingly, the present invention is directed to a new and improved
method and apparatus useful for the removal of sediment, such as hydrocarbon
sludge from a storage tank containing a liquid such as crude oil.
According to one embodiment of the present invention an apparatus useful
for dispersing sediment in a storage tank includes a liquid circulator that has
a housing, a hollow rotor rotatably mounted in the housing and having an
internal bore disposed therein, and one or more nozzles in fluid communication
with the internal bore of the rotor. A gear member is disposed around the
periphery of the hollow rotor, and when driven by a mating worm gear, will
rotate the hollow rotor and the nozzles. The apparatus further includes an
elongated tubular casing that extends from the housing, through a wall of the
tank, to a position external of the tank. A driven shaft, rotatably mounted in
the tubular casting operatively connects the worm gear with a motor. The worm
gear and the driven shaft are insertable into the tubular casing through the
end of the casing disposed externally of the tank. An end of the driven shaft
adjacent the worm gear abuts a thrust cap disposed at an opposite end of the
tubular casing. Operation of the motor results in a corresponding rotation of
the worm gear, the gear member, the hollow rotor and, most importantly the
nozzles, at a rate that is independent of the pressure and rate of flow of
liquid through the nozzles.
According to still yet another embodiment of the present invention there
is provided a method for redispersing hydrocarbon sludge deposited in a crude
oil storage tank having a opening in the side thereof and covered by a gate
valve. Liquid, such as crude oil which is either stored or is to be stored in
the tank, is delivered under high pressure to the interior of the tank through
a liquid circulator disposed within the tank. The circulator has one or more
nozzles that are rotated by a shaft driven worm gear that is positioned within
a tubular casing extending through the tank wall opening. The worm gear engages
a gear member disposed around the periphery of a hollow rotor which carries a
nozzle support and the nozzles attached to the nozzle support. The high
pressure delivery and rotation of the nozzles are continued until the shaft
driven worm gear fails either due to stripping of the worm gear or shearing of
a key which secures the worm gear to the driven shaft. At this point, the worm
gear is disengaged from the gear member and pulled from the tubular casing to a
point just past the gate valve. The gate valve is then closed, and the worm
gear is completely withdrawn from the tubular casing and repaired and/or
replaced.
After repair or replacement, an operable shaft driven worm gear is
inserted into the tubular casing to a position adjacent the gate valve. The
gate valve is opened to allow passage of the shaft and worm gear which are then
further inserted into the casing until the worm gear engages the gear member
attached to the hollow rotor and is seated in an end cap thrust seat. The
circulator and rotation steps above are then repeated.
BRIEF DESCRIPTION OF THE DRAWINGS
FIG. 1 is a side view of an apparatus embodying the present invention
showing a liquid circulator driven by a worm gear having an attached drive
shaft powered by a motor unit.
FIG. 2 is a sectional view the liquid circulator and worm gear assembly
taken along the line 2 -- 2 of FIG. 8 with the nozzles removed in the interest
of greater clarity.
FIG. 3 is an enlarged view from FIG. 1 of a gate valve assembly and the
drive shaft.
FIG. 4 is an enlarged detail view of the worm gear assembly shown in
FIG. 1.
FIG. 5 is a cross-sectional view of the worm gear assembly taken along the
line 5 -- 5 in FIG. 4.
FIG. 6 is a cross-sectional view of the worm gear assembly taken along the
line 6 -- 6 in FIG. 4.
FIG. 7 is an end view of the worm gear assembly.
FIG. 8 is a top view of the crude oil circulator and the worm gear
assembly, with the crude oil circulator rotated 90 degrees from the position
shown in FIG. 1.
FIG. 9 is a view of the drive shaft removed from the worm gear assembly,
showing various elements of the drive shaft.
DETAILED DESCRIPTION OF THE INVENTION
In accordance with the present invention, a liquid circulator 300 is
provided which, when in operation, is positioned inside a liquid storage tank,
particularly a crude oil or petrochemical storage tank. The liquid circulator
300 generally comprises a rotatable nozzle support member 346 with one or more
nozzles 360 attached to the support member. The liquid circulator further
comprises a hollow rotor 314 through which a liquid, such as crude oil, will
flow under pressure from an intake conduit 101 to the nozzle support member
346, and discharged through the nozzles
<PAGE> 9
5,460,331
360 into interior of the tank, to cause sludge to be broken into smaller
particles.
The crude oil circulator 300 of the present invention also comprises
appropriate means for rotating the nozzles 360. The rotation means generally
includes a flat spur gear 330 attached to the hollow rotor 314. When engaged
by a driven worm gear 402, the spur gear 330 will rotate the hollow rotor 314,
the nozzle support member 346 mounted on the rotor, and the nozzles 360 about a
vertical axis 150.
Also in accordance with the present invention, an elongate tubular
casing 200 extends from a housing 310, in which the rotor 314 is rotatably
supported, and has an outer diameter substantially equivalent to that of an
opening 106 in the wall 102 of the storage tank. The tybular casing 200 is
provided with flanges so that it can be secured to a gate valve 110 disposed
externally of the tank.
Also in accordance with the present invention, a retrievable drive
housing 209 is constructed so that it can be slidably inserted into, and
withdrawn from, the elongate tubular casing 200. The drive housing 209 is
adapted to rotatably support a worm gear assembly 400, a worm gear assembly
drive shaft 406, and an attached drive shaft 405 through an open end of the
housing.
In association with the present invention, the liquid circulator 300 is
typically connected to a circulation system having a filter system, pumping
means and piping or tubing means for providing for circulation of a liquid such
as crude oil from the storage tank through a discharge line, through the filter
system to the pump, and then discharged through the liquid circulator 300 back
into the tank. More specifically, in this mode of operation, the stored liquid
is continuously recirculated as a result of withdrawal of liquid from the tank
and then returning the withdrawn fluid, under pressure, by way of an intake
conduit 101, the hollow rotor 314 and the nozzle support member 346, and then
through the nozzles 360 to the interior of the tank. Alternatively, the source
of the pressurized liquid delivered to the tank may be a side stream, or a
portion, of the liquid added to the tank during filling.
The pump mentioned above is generally a high pressure pump capable of
delivering up to about 5,000 gallons per minute of liquid at a pressure of up
to about 150 pounds per square inch, and is generally provided with appropriate
filter means, such as a pair of filters, mounted in parallel in filter tanks
adjacent the storage tank. The filter means is fluidly interconnected with the
din charge line of the tank by appropriate conduit means, and the discharge end
of the filter means is interconnected with the suction side of the high
pressure pump by a conduit. The discharge side of the high pressure pump is
connected with the crude oil circulator 300 by the intake conduit 101.
Therefore, in the normal operational mode, the high pressure pump will
withdraw fluid, such as crude oil, from the storage tank, through the filter,
and then to the high pressure pump. The pump preferably pressures the crude oil
to a pressure of about 100 to about 150 psig at a flow rate of from about 4,000
to about 5,000 gallons per minute of crude oil through the nozzles 360 of the
circulator 300. The initial velocity of the crude oil ejected from the liquid
circulator nozzles 360 is preferably from about 75 to about 120 feet per
second, thereby assuring that the velocity of the crude oil will have a
velocity of about 0.5 to 2 feet per second adjacent the periphery of the crude
oil storage tank.
With this construction, and the above described parameters, crude oil
ejected from the nozzles 360 will form an expanding cone of turbulent crude
oil. Because of its high velocity, the ejected crude oil will impact with
hydrocarbon sludge in the storage tank and cause the sludge to be progressively
broken into smaller particles, both physically and as a result of disrupting
the molecular charge transfer forces interconnecting the asphaltic, naphthenic,
polyaromatic, etc., molecular components of the sludge. As a consequence, the
sludge will be progressively dispersed in the crude oil and will be of a size
that will normally pass through the filters of the filter means. At the end of
the dispersing operation, the aromatic, asphaltenic, naphthenic and/or
porphyritic components of the sludge will be molecularly redispersed in the
crude oil and comprise a part of the crude oil withdrawn from the storage tank
for processing in a refinery normally within which the crude oil storage tank
is located.
In the operation of the system as described above, sooner or later the
teeth of the worm gear 402 will become stripped, either through normal wear and
tear or through the impingement of the nozzles 360 against a physical barrier.
At that point, the drive shaft 406, the worm gear assembly 400 and the drive
housing 209 are easily withdrawn from the tank. As these components clear the
gate valve 110, the gate valve 110, the gate valve is closed to prevent any
accidental leakage of crude oil from the tank through the elongate tubular
casing 200. The worm gear 402, or the entire worm gear assembly 400, may be
either repaired or replaced. The replacement worm gear or assembly is then
reinserted into the elongate tubular casing 200 and into the storage tank by
opening the gate valve 110.
Referring now to FIGS. 1, 2, 3 and 8, the crude oil circulator,
designaged generally by the number 300, is positioned generally at the bottom
and center of a crude oil tank of which the tank sall 102 represents one
portion of the peripheral wall of the tank. In the preferred embodiment of the
present invention, the crude oil circulator 300 includes a housing 310 having a
flanged base 312 that mates with a flange 105 attached to the intake conduit
101. The housing 310 is removably connected with the intake conduit 101 by a
plurality of bolts extending through aligned holes provided in both of the
flanges 105,312.
The circulator 300 also includes the hollow cylindrical rotor 314 that is
rotatably supported by the housing 310. A pair of L-shaped bearing pads 316,
318, interposed the rotor 314 and an interanl bore 320 of the housing 310
provide, after assembly as described below in more detail, both radial and axial
support for the rotor 314. The rotor 314 is further supported at its upper end
by a centrally disposed internal bore 324 of a guide flange 322. The guide
flange 322 is removably attached tot he housing 310 by a plurality of cap screws
326. A plurality of radial seals 328 are disposed in the respective internal
bores 320,324 of the housing 310 and the guide flange 322 to provide a fluid
seal around the outer circumferential surface of the cylindrical rotor 314. The
seals 328 prevent leakage of oil, or other fluid stored in the storage tank,
into the interal cavity 332 and the interconnected interior of the casing 200.
The spur gear 330 is fixed, preferably by welding, to the outer
circumferential surface of the hollow rotor 314 in concentric relationship with
the rotor and the axis of rotation 150. The spur gear 330 extends radially
outwardly from the rotor 314 into an internal cavity 332 defined by the upper
wall surfaces of the housing 310 and the lower wall surfaces of the guide
flange 322.
A ring-shaped rotor support plate 334 is attached to the lower end of
the housing 310 by a plurality of cap screws, and has a central opening
radially aligned with the internal bore surface of the hollow cylindrical rotor
314. The rotor
<PAGE> 10
5,460,331
support plate 334 cooperates with a lower planer surface of the spur gear 330,
and the radially outwardly extending portions of the bearing pads 316,318 that
are respectively interposed the housing 310 and adjacent surfaces of the
support plate and gear, to maintain the rotor 314 and attached spur gear 330 in
a predetermined axially aligned relationship with respect to the housing 310.
The circulator 300 also includes a hollow nozzle support member 346 that
is removably attached to the upper end of the hollow cylindrical rotor 314 by a
plurality of cap screws. The hollow nozzle support has internal wall surfaces
348 defining an internal cavity that, at its lower end, is radially aligned
with respect to the internal bore 332 of the hollow rotor 314. The internal wall
surfaces 348 of the nozzle support member 346 also extend radially outwardly in
the upper portion of the support member and define one or more radial openings
350 in the nozzle support member 346. An externally threaded nozzle mount 352 is
formed on an outer surface of the support member 346 in concentrically with each
of the radial openings 350. In the preferred embodiment, the nozzle support
member 346 has two threaded nozzle mounts 352 that are spaced apart by a radial
arc of 180 degrees. However, if desired, the nozzle support member 346 may be
configured to have a single or, alternatively, more than two nozzle mounts 352.
A nozzle 360, having internal threads provided at an inlet end of the
nozzle is threadably mounted on each of the nozzle mounts 352. Each of the
nozzles 360 has a discharge orifice 362 disposed at the outlet end of the
nozzle that is preferably lined with a suitable erosion material, such as
tungsten carbide. Depending on the application and the desires and
specifications of the user, various sizes and shapes of crude oil circulator
nozzles 360 may be utilized. While not shown, it is understood that a unitary
nozzle support with one or more integrally formed nozzles may also be utilized.
The rotatably mounted rotor 314, the nozzle support member 346 and the
nozzles 360, are rotated through 360 degrees around the centerline 150 in
response to rotation of the spur gear 330. This complete rotation provides
continuous spraying around and throughout the tank to be cleaned. The spur gear
330 is driven by a worm gear drive assembly shown generally at 400. More
specifically, the drive assembly 400 includes the worm drive gear 402 which
mates with a plurality of teeth 336 formed on the periphery of the spur gear
330. As described above, the worm gear 402 is driven by the drive shaft 406.
The worm gear assembly 400 is partially enclosed, and removably supported,
by a worm gear assembly housing 410 provided at one side of the circulator
housing 310. In the preferred embodiment of the present invention, the worm
gear assembly housing 410 is integrally formed, i.e., comprises a single cast
member, with the circulator housing 310. Alternatively, the assembly housing
410 may be a separate fabricated part that is permanently affixed to the
circulator housing 310 by a weldment to form a sealed joint between the two
components. The worm gear assembly housing 410 and the casing 200 are joined to
each other by a housing flange 455 and a casing flange 255 that are
interconnected by a pair of nuts 456,256 and a threaded bolt 257.
Referring now to FIGS. 2 and 4-9, the worm gear assembly 400 includes the
aforementioned retrievable drive housing 209 which has an elongated slot 403
formed through a portion of the side wall at the forward end of the side wall
at the forward end of the housing, and the worm gear drive shaft 406 rotatably
supported in the drive housing 209 by a pair of bearing assemblies 430,431.
Preferably, the retrievable drive housing 209 is formed of multiple sections
that are screwed together to form a desired overall length of housing, and for
ease of assembly and disassembly. Also, the sectioned construction enables the
forward end of the housing to be machined as a separate component, thereby
enabling the drive housing 209 to be more easily manufactured.
The worm gear assembly drive shaft 406, best shown in FIG. 9, has a pair
of bearing journals 413,418, a pair of bearing abutment shoulders 416,415
respectively associated with the journals 413,418, a centrally disposed worm
gear journal 402a with a keyway 402b provided therein an and associated worm
gear abutment shoulder 401, and a plurality of threads 406a,406b,406c,406d
positioned at axially spaced predetermined positions on the drive shaft 406. As
shown assembled in FIG. 4, a pair of retaining nuts 433 on the threads 406b
cooperate with the forward bearing abutment shoulder 415 to retain the bearing
assembly 430 on the forward bearing journal 413. Likewise, a second pair of
retaining nuts 438 on the threads 406a cooperate with the rearward bearing
abutment shoulder 415 to retain the rear bearing assembly 431 on the rear
bearing journal 418. In similar fashion, the worm gear 402 is retained in a
fixed axial relationship with the shaft 406 by a pair of retaining nuts 435 on
the threads 406c which cooperate with the worm gear abutment shoulder 401 to
prevent axial movement of the worm gear on the shaft.
The forwardly disposed bearing assembly 430 is maintained at a fixed axial
position with respect to the drive housing 209 by a snap ring 429 that engages
a groove in the wall of the housing 209 to prevent forward movement of the
bearing assembly 430 and by a radially inwardly extending shoulder 427 in the
wall of the housing which prevents rearward movement of the bearing assembly
430 with respect to the housing 209. The rear bearing assembly 431 is
restrained from forward movement with respect to the drive housing 209 by a
second inwardly extending shoulder 428 formed in the wall of the housing 209.
Thus it can be seen that, after assembly, the worm gear 402 is maintained in a
fixed predetermined relationship with respect to both the drive housing 209 and
the worm gear assembly drive shaft 406.
The threads 406d disposed at the rearward end of the worm gear assembly
drive shaft 406 couple the worm gear assembly drive shaft 406 to a drive shaft
405 through employment of a threaded shaft coupling 222. Similar couplings are
also used to advantageously connect shaft segments together and provide a
desired overall length for the drive shaft 405.
The worm gear 402 is maintained in a fixed rotational relationship with
the drive shaft 406 by a worm gear key inserted into the keyway 402b.
Preferably the apparatus of the present invention is designed to fail at the
worm gear key or by stripping the teeth of the worm gear 402. As described
below in additional detail, the worm gear assembly 400 may be removed and
serviced much easier than could the circulator 300. Therefore, the worm gear
402 is intentionally formed from a material that is softer than the material of
the teeth 336 on the spur gear 330. Preferably, the worm gear 402 is formed of
a soft metal such as brass or the like.
As best shown in FIGS. 2 and 5-7, the elongated groove or slot 403 provided
in the wall of the forward end of the drive housing 209 allows engagement of the
worm gear 402 with the spur gear 330. A worm gear assembly positioning member
420 is attached to the forward end of the retrievable drive housing 209 by a
plurality of bolts 421. As best shown
<PAGE> 11
5,460,331
in FIG. 1, the worm gear assembly 400 is maintained at a predetermined fixed
position with respect to the spur gear 330 by engagement of the worm gear
positioning member 420 in a worm gear assembly docking station 450 that is
provided in the worm gear assembly housing 410. The docking station, or end
cap, 450 has a seat that is contoured to receive a mating end portion of the
member 420. The worm gear assembly 400 is held against the docking station 450
by the drive housing 209 which, when coupled with a restraining flange to be
described later, maintains the worm gear 402 in engaging alignment with the
spur gear 330.
The worm gear assembly 400 is easily removed, by simply pulling the
retrievable drive housing 209, containing the shaft 405, the attached shaft 406
and the worm gear assembly 400, from the protective tubular casing 200. As the
worm gear assembly clears the gate valve 110, a valve plate 116 is desirably
lowered by rotation of a turning bar 118 to preclude accidental or inadvertent
leakage of fluid past the seals 328 and then subsequently through the casing
200.
As best shown in FIG. 3, the gate valve 110 is connected, at one side of
the valve, to a flange 108 mounted on an end of the tubular casing 200 that
extends externally of the tank wall 102, and at the other side to a flange 201
attached to one end of a first packing box 205. The packing box 205 contains a
packing element 168 interposed an internal wall of the box and the external wall
of the retrievable drive housing 209 to provide a seal between the two surfaces.
The tubular casing 200 extends from the gate valve 110 externally of the
tank opening 106 to the worm gear assembly 400. The casing 200 serves as a
guide and means through which the retrievable drive housing 209 containing the
worm gear assembly 400 is moved from an operational position, to servicing and
back. The retrievable drive housing 209, is adjustably maintained at a
predetermined fixed position with respect to the tubular casing 200, and also
with respect to the worm gear assembly housing 410 to which the casing 200 is
connected, by adjustment of a drive housing restraining flange 175 attached to
the outer end of the drive housing 209. The drive housing restraining flange
175 is adjustably connected to the first packing section 160 by a plurality of
nuts 175a threadably mounted on the bolts 175b that extend through both the
drive housing restraining flange 175 and the flange 162 attached to the
rearward portion of the first packing section 160. A plurality of shaft guides
221 keep the drive shaft 405 correctly centered within the drive housing 209.
As shown in FIG. 1, a drain pipe 224 communicating with the interior of
the tubular casing 200 has a valve 225 therewith for the drainage of any liquid
that may inadvertently find its way into the casing 200.
In addition to the first packing box 20S, a packing section shown
generally at 160 includes a first packing pusher 165 that has a radial flange
attached to a circular collar adapted to slidably fit between an internal wall
surface of the backing box 205 and the external wall surface of the drive
housing 209. The first packing pusher 165 is adjustably interconnected to the
packing box 205 at the flange 162 by a plurality of interconnecting nuts 165a
and bolts 175b. As can be seen from a study of FIG. 3, the packing 168 is
axially compressed when the first pusher 165 is moved, by appropriate adjustment
of the adjusting nuts disposed on the bolt 175b, towards the flange 162.
The packing section 160 also includes a second packing box 178 having
internally disposed rope packing 169 to provide a seal around the drive shaft
405. The second packing box 178 is fixedly attached at its forward end to the
drive housing restraining flange 175 and has a radial flange 177 attached at
its rearward end. Finally, a second packing pusher 181 having a radial flange
at the rear thereof, is adjustably connected to the second packing box 178 by a
plurality of nuts 177a, 181a threadably mounted on a plurality of bolts 177b
extending through the rearwardly disposed flange 177 of the packing box 178 and
the pusher flange.
The gate valve 110 may be of any desired construction and may comprise,
for example, a bonnet 112 and the valve plate which may be raised and lowered
by appropriate turning means such as the aforementioned turning bar 118.
The motor unit 500 provides the source of rotational motion needed to
rotate the nozzles 360 around the centerline 150. A motor output shaft 505 of
the motor unit 500 is linked to the drive shaft 405 by a coupling 502. As the
motor unit 505 drives the output shaft 505, the worm gear 402 is also rotated,
thereby rotating the spur gear 330, which in turn rotates the cylindrical rotor
314, the nozzle support member 346 and, consequently, the nozzles 360 about the
centerline 150.
The speed of the motor unit 500 is controlled such that the outlet nozzles
360 are rotated at a rate of about 0.5 to about 4 revolutions per hour. Thus,
the rotational speed of the outlet nozzles 360 is determined by the rotational
drive speed of the output shaft 505, the gear ratio of the worm gear 402, and
the diameter and tooth pitch of the spur gear 330. Preferably, the motor unit
500 has a controllably variable speed and, desirably, also includes suitable
gear box means to provide a reduced motor output shaft speed.
OPERATION
When a crude oil storage tank containing crude oil has a significant
quantity of accumulated hydrocarbon sludge in the bottom, and has a crude oil
circulator 300 embodying the present invention positioned in the tank, requires
removal of the sludge, a high pressure pump is activated to withdraw crude oil
from the tank. The withdrawn crude oil passes through a conduit to the filter
system to remove solid particles, through another conduit to the intake of a
high pressure pump, and is then discharged from the pump through the conduit
101 to the circulator 300 where it is discharged back into the tank through the
nozzles 360.
Alternatively, crude oil may be provided externally of the tank, such as
during initial filling of the tank. In this operational mode, the crude oil
directed to the tank through the circulator 300 is diverted, as a side stream,
from the primary flow of oil into the tank.
At the same time as the crude oil is being circulated, the motor unit 500
independently drives the worm gear 402 through the drive shaft 405. Rotation of
the worm gear 402 causes corresponding rotation of the hollow rotor 314 and,
consequently, rotation of the nozzles 360, thus distributing a high velocity
jet of crude oil around a 360 degree path in the storage tank. As discussed
above, the gear ratios in a gear box at the motor unit 500 are selected such
that the nozzle support 346 completes about 0.5 to 4 revolutions per hour.
As mentioned earlier, the hydrocarbon sludge or "black sediment and
water" that accumulates with time in a crude oil storage tank is formed by the
reversible interaction of asphaltenes, porphyrins, condensed ring aromatics,
etc., in the crude oil. Thus, the charge transfer forces at the molecular level
causes a reversible coupling of these molecular components to form molecules of
such a size that they become solid particles big enough to settle as sludge in
the
<PAGE> 12
5,460,331
storage tank.
However, when the hydrocarbon sludge is impacted with the high velocity
jet of crude oil emanating from the nozzles 360, the energy of the ejected
crude oil is sufficient to disrupt the charge transfer forces and refragment
the hydrocarbon sludge molecules into smaller components that are small enough
to be colloidally suspended in or dissolved in the crude oil. Agglomerations of
water in the hydrocarbon sludge likewise tend to be atomized and colloidally
suspended in a like manner.
The slow rotation of the nozzled outlet jets 360 provides adequate time
for the disruption of the charge transfer forces so that the slow rate of
rotation actually enhances, rather than impedes the rate at which the
hydrocarbon sludge is fragmentized and resuspended in the crude oil.
Normally, with the apparatus of the present invention, a crude oil storage
tank can be cleaned in a short time such as a matter of 0.5 to 5 days.
Importantly, the worm gear 402 is designed such that failure of the
system, as for example the result of accidental impingement of rotating
elements of the circulator 300 against a fixed barrier, will cause failure at
the worm gear 402, either by stripping of the teeth on the worm gear 402, or by
breaking the key that secures the worm gear 402 in place on the shaft 406.
Once failure occurs, repairs to the system can be made very easily. The
motor unit 500 and the drive shaft 405 are uncoupled at the coupling 502. The
worm gear drive housing 209 can be withdrawn by removing the nuts 175a from the
bolts 175b, connecting the drive housing restraining flange 175 to the packing
box 205, and then pulling the drive housing 209 from the casing 200. After the
forward end of the drive housing 209 clears the gate valve 110, the valve is
preferably closed during the following service procedure to prevent any
accidental leakage of fluid past the seals 328 and subsequently through the
casing 200.
After withdrawal of the drive housing 209 from the casing 200, the worm
gear assembly 400 is serviced to repair or replace the sheared key or stripped
gears. The worm gear assembly 400 is disassembled by first removing the bolts
421 and separating the worm gear positioning member 420 from the forward end of
the drive housing 209. After removal of the worm gear positioning member 420,
the forward retaining nuts 433 are unscrewed from the end of the worm gear
assembly drive shaft 406 and the shaft 406, along with the remaining
shaft-mounted elements of the worm gear assembly 400, is withdrawn from the
drive housing 209. After removal of the worm gear retaining nuts 435, the worm
gear 402 may be separated from drive shaft 406. If required, the bearing
assembly 430 may also be removed for cleaning or replacement at this time by
removal of the snap ring 429.
After replacement of the worm gear 402, or the key between the worm gear
402 and the shaft 406, or both, the worm gear is reinstalled on the shaft
journal 402a and secured thereon by the retaining nuts 435. The forward and
retaining nuts 433 are then installed to axially retain the worm gear drive
shaft 406 in the desired position with respect to the drive housing 209. The
reassembly of the worm gear assembly 400 is then completed by reattaching the
worm gear positioning member 420 to the end of the drive housing 209.
After reassembly, the worm gear assembly 400 is then placed into operable
engagement with the circulator 300 by insertion through the casing 200. As the
forward end of the worm gear drive shaft 209 approaches gate valve 110, the
valve plate 116 is raised to allow passage of the shaft into the tank. To
provide passage of the forward end of the drive housing 209 past the spur gear
330, the elongated slot 403 at the forward end of the drive housing 209 must be
radially aligned with the spur gear 330. The shaft 405, with the worm gear
drive shaft 406 with the worm gear 402 mounted thereon, is then rotated
simultaneously with moving the drive housing 209 forwardly. This will insure
proper engagement of the worm gear 402 with the mating teeth of the spur gear
330 without risking possible stripping or damage to the teeth upon initial
contact. Insertion of the drive housing 209 is continued until the positioning
member 420 abuts and properly engages the seat provided in the docking station
450. The positioning member 420 is maintained in biased contact with the
docking station 450 adjustment of the nuts 175a to controllably position the
drive housing restraining flange 175.
Other aspects, features and advantages of the present invention can be
obtained from a study of this disclosure together with the appended claims.
What is claimed is:
1. An apparatus useful for dispersing sediment in a storage tank
containing liquid and sediment, the apparatus comprising:
a liquid circulator comprising a housing having a liquid inlet port, a
hollow rotor rotatably mounted in the housing and having an internal
bore in fluid communication with the liquid inlet port, a gear member
positioned around the periphery of the hollow rotor in rotationally
fixed relationship therewith, and at least one nozzle rotatably
mounted in said housing and in fluid communication with the internal
bore of said rotor;
a tubular casing disposed externally of the internal bore of said hollow
rotor and having a first end connected to the housing of said
circulator and a second end adapted to be spaced externally of said
storage tank;
a rotational drive unit removably disposed in said tubular casing and
comprising a housing, a shaft rotatably mounted in said drive unit
housing and having a worm gear mounted thereon and disposed in
operative engagement with said circulator gear member, said
rotational drive unit being removable from said tubular casing in
response to withdrawing said shaft from said second end of the
tubular casing;
a liquid inlet conduit connected to said liquid circulator housing in
fluid communication with the inlet port of said circulator housing;
and,
a power means comprising a motor having an output shaft operatively
connected to the rotational drive unit, said output shaft and said
shaft having a worm gear mounted thereon being coupled together by a
drive shaft disposed inside said tubular casing, said rotor and said
at least one nozzle being rotatable at a preselected rate in response
to the operation of said motor, said preselected rate being
independent of the pressure and rate of flow of liquid through said
at least one nozzle.
2. The apparatus of claim 1 wherein said at least one nozzle comprises two
nozzles.
3. The apparatus of claim 2 wherein said circulator gear member is a spur
gear.
4. An apparatus useful for dispersing sediment in a storage tank
containing liquid and sediment, the apparatus comprising:
a liquid circulator comprising a housing having a liquid inlet port, a
hollow rotor rotatably mounted in the
<PAGE> 13
5,460,331
housing and having an internal bore in fluid communication with the liquid
inlet port, a gear member positioned around the periphery of the hollow
rotor in rotationally fixed relationship therewith, and at least one nozzle
rotatably mounted in said housing and in fluid communication with the
internal bore of said rotor;
a tubular housing removably attached to the liquid circulater and disposed
externally of the internal bore of said hollow rotor, said tubular housing
having an opening in a wall of the housing adjacent said circulater gear
member, and an end adapted to be spaced externally of said storage tank;
a rotational drive unit disposed within the tubular housing and comprising a
worm gear drive shaft with a worm gear affixed thereto, said worm gear being
disposed at the tubular housing wall opening and in operative engagement
with the circulater gear member, said rotational drive unit being removable
from said tubular casing in response to withdrawing said shaft from said
tubular casing end adapted to be spaced externally of the storage tank;
a liquid inlet conduit connected to said liquid circulater housing and in fluid
communication with the inlet port of said circulater housing; and
a power means comprising a motor having an output shaft, said power means being
operatively connected with the rotational drive unit by coupling the output
shaft and the worm gear shaft, said at least one nozzle being rotatable at a
predetermined rate in response to rotation of the output shaft by said power
means, said predetermined rate being independent of the pressure and rate of
flow of liquid through said at least one nozzle.
5. The apparatus of claim 4 wherein said at least one nozzle comprises two
nozzles.
6. The apparatus of claim 4 wherein said gear member comprises a spur gear.
* * * * *
<PAGE> 1
EXHIBIT 10.34
United States Patent [19] [11] Patent Number: 5,485,966
Cradeur [45] Date of Patent: Jan. 23, 1996
- -------------------------------------------------------------------------------
[54] REMOTELY CONTROLLED CHOPPING MACHINE TANK CLEANING
[75] Inventor: Robert R. Cradeur, Sulphur, La.
[73] Assignee: Serv-Tech, Inc., Houston, Tex.
[21] App. No.: 237,455
[22] Filed: May 3, 1994
[51] Int. Cl.6 .................................... B02C 13/02; B02C 25/00
[52] U.S. Cl. ............................. 241/39; 241/101.72; 241/101.74;
241/189.1
[58] Field of Search....................................... 134/168 R, 181;
180/6.2; 239/227, 722; 241/38, 39, 101.72,
101.74, 189.1, 282.1, 282.2, 277; 299/1.5,
30, 25, 39, 89, 91; 901/1
[56] Reference Cited
U.S. PATENT DOCUMENTS
2,197,549 4/1940 Hargrave et al. ..................... 2411/101.7 X
2,336,478 12/1943 Lewis et al. .............................. 299/39
2,341,486 2/1944 Swenfeger ............................ 241/101.7 X
3,560,050 2/1971 Lockwood .................................. 299/39
3,907,366 9/1975 Pender .................................. 299/30 X
3,937,261 2/1976 Blum ................................... 241/277 X
4,023,862 5/1977 Gold .................................... 299/30 X
4,192,551 3/1980 Weimer et al. .......................... 299/30 X
4,376,515 3/1983 Scc .................................... 241/277 X
4,753,484 6/1988 Stolarzyk et al. ....................... 299/30 X
4,817,653 4/1989 Krajicek et al. ........................ 239/722 X
Primary Examiner -- Timothy V. Eley
Attorney, Agent, or Firm -- John R. Kirk, Jr.; Jenkins & Gilchrist
[57] ABSTRACT
A chopping machine comprises a frame and a plurality of detachable components
which may be individually insertable through an entryway into a storage tank to
be cleaned. The detachable components include traction drive belts and a
chopping assembly. Hydraulic power means are provided exteriorly of the tank,
and are connected by lines extending through the entryway to the frame mounted
operating components inside the tanks. The chopping assembly comprises a
plurality of replacement blades radically disposed about a rotable tubular
member.
15. Claims, 2 Drawing Sheets
[ F I G U R E ]
<PAGE> 2
U.S. Patent Jan. 23, 1996 Sheet 1 of 2 5,485,966
[FIG. 1]
<PAGE> 3
U.S. Patent Jan. 23, 1996 Sheet 2 of 2 5,485,966
[FIG. 2]
[FIG. 3]
<PAGE> 4
5,485,966
1
REMOTELY CONTROLLED CHOPPING
MACHINE FOR TANK CLEANING
BACKGROUND OF THE INVENTION
1. Field of the Invention
This invention relates to a mobile cleaning device. More particularly,
this invention relates to a remote controlled chopping machine for cutting and
chopping solids buildup on the interior floor of hydrocarbon storage tanks of
the type used in petroleum refineries and chemical plants.
2. Brief Description of the Related Art
Petroleum refineries, chemical plants, petroleum and chemical stock farms,
and similar plants, are normally provided with large cylindrical storage tanks
having diameters of from about 20 to about 300 feet and heights of from about
50 to about 100 feet and closed to the atmosphere by floating or fixed roofs.
With the passage of time, and particularly when the tanks are used to store
crude oil, sedimentation and fouling of the tank surfaces will occur.
Conventionally, a gang of workmen enter the tank through an entryway
adjacent the bottom of the tank and manually operate high pressure hoses,
similar to the hoses used in fighting fires, in order to wash down the inside of
the tank. Suction lines disposed on the bottom of the tank are used to remove
the wash water and sediments collected by the water. It is generally necessary
for the workmen to use respirators and wear protective garments. As a
consequence, a workman can work inside the tank for only a very limited time
because of the debilitating working conditions, and must then leave the tank to
rest.
U.S. Pat. No. 4,817,653, issued Apr. 4, 1989 to Richard W. Krajicek et
al., and assigned to the assignee of the present invention, is directed to
solving the problems associated with washing down the inside of the above
described tanks. The '653 patent describes an essentially self-contained mobile
water washing robot which is remotely operable, thereby negating the need for
operating personnel to be in close proximity of the cleaning nozzles and other
high pressure lines during water wash cleaning operations. U.S. Pat. No.
4,817,653 is incorporated herein by reference for all respects and purposes.
However, even with the improvements in tank cleaning disclosed in the '653
patent, the problem of solids buildup on the floor of the storage tank still
exists. This is a particular problem when solids such as coke, sludge, or
granite accumulate and harden over a period of time. In general, these
sludge-like materials form mounds or large cakes on the bottom surface of the
tank, especially in areas where there is little or no turbulence, and must be
broken into smaller pieces for disposal. Heretofore, these materials were cut
by laborers into fragments by repeated strokes with a pickax, and then shoveled
or otherwise "mucked out". Thus, while the disclosure of '653 patent eliminated
much of the dangerous, undesirable in-tank labor, improvements still need to be
made. It is an object of the present invention to provide a hydraulically
powered, remotely controlled, movable chopping device for breaking up the
high-solids material deposits on the bottom of the above described types of
hydrocarbon storage tanks.
Accordingly, the present invention is directed to an apparatus for
chopping waste, such as sludge formed on the bottom of the interior of oil
storage tanks, and comprises modular components that can be separately moved
inside a storage tank and then conveniently assembled inside the tank to form a
workable apparatus.
SUMMARY OF THE INVENTION
According to one embodiment of the present invention, an apparatus for
chopping waste has a frame, a traction drive means detachably mounted on the
frame, and a chopping assembly also detachably mounted on the frame. The
apparatus also includes hydraulic power means for independently powering the
traction means and the chopping assembly, and control means for regulating the
operation of the power means. Optionally, the apparatus also includes a
hydraulically powered fluid wash means that is detachably mounted on the frame
of the apparatus.
BRIEF DESCRIPTION OF THE DRAWINGS
FIG. 1 is a side view of an apparatus for chopping waste having a chopping
assembly detachably mounted on a forward end of the apparatus, and embodying
the present invention.
FIG. 2 is a front view of the chopping assembly component of the apparatus
embodying the present invention.
FIG. 3 is a cross sectional view of a portion of the chopping assembly,
taken along the line 3--3 in FIG. 2, showing a cutting blade mounting
arrangement for the apparatus embodying the present invention.
DETAILED DESCRIPTION OF THE
INVENTION
In accordance with the present invention, a mobile, remotely controlled,
hydraulically powered chopping machine 10 for chopping waste is provided which
can be disassembled, moved into or positioned in a storage tank to be cleaned
through an entryway adjacent the bottom of the tank, and then reassembled
inside the tank.
The principal components of the chopping machine 10 include a frame 12,
preferably having an open bottom configuration, to which a hydraulically
powered and controlled traction drive means 20 for moving the apparatus is
detachably mounted. A hydraulically powered and controlled chopping assembly 30
is also detachably mounted on the frame 12. A hydraulic power means 50 for
independently powering the traction drive means 20 and the chopping assembly 30
and a hydraulic control means 60 for regulating the operation of the hydraulic
power means 50 are remotely positioned from the frame 12, preferably outside of
the tank in which the main structure of the chopping machine 10 is operating.
When remotely disposed in this manner, the hydraulic power means 50 is
hydraulically connected through an entryway into the tank with a first
hydraulic motor means 25 driving the traction drive means 20, and a second
hydraulic motor means 40 driving the chopping assembly 30.
The frame 12, the traction drive means 20, the hydraulic power means 50 and
hydraulic control means 60, are described in detail in the U.S. Pat. No.
4,817,653 which, as noted above, is incorporated herein for all purposes. More
specifically, for the sake of brevity and avoidance of unnecessary repetition, a
detailed discussion of the above identified common elements is not repeated in
the description of the present invention. The traction drive means 20 of the
chopping machine 10 is identified in the '653 patent as "robot articulation
means 700". The remaining common elements are generally identified by the same
descriptive terminology in both specifications.
<PAGE> 5
5,485,966
Briefly, the traction drive means 20 includes a pair of detachably mounted
endless belts 22,24, such as a rubber belt or a plurality of track links
connected together to form an endless chain. The endless belts 22,24 are driven
by the first hydraulic motor means 25 which includes a pair of hydraulic motors
26,28, one motor of the pair being operatively connected to a respective one of
the endless belts 22,24.
In the preferred embodiment of the present invention, the chopping
assembly 30 comprises a plurality of chopping blades 32 mounted through slots
provided in a long square tube 34. Stub rotor shafts 36,38 are attached,
respectively, to the left and right hand ends of the square tube 34, as viewed
in FIG. 2, and are rotatably supported by a pair of bearing assemblies 42,44.
The right hand stub rotor shaft 38 extends through its supporting bearing
assembly 44 and engages the second hydraulic motor means 40. The second
hydraulic motor means includes a hydraulic motor 46 and, preferably, is
operatively connected with the rotor shaft 38 through a reduction gear box 48.
Alternatively, the square tube 34 carrying the chopping blades 32 could be a
cylindrical pipe having a plurality of chopping blades or cutting plates
emanating from different surface portions of the pipe and arranged to cut or
chop the solids buildup on the bottom of the tank.
The rotational speed of the square tube 34 carrying the chopping blades 32
must be in a range suitable for effectively processing the waste material.
Furthermore, it is desirable that the waste material be subjected to at least
one of chopping, mixing, scraping, stirring, cutting, pulverizing, agitating,
disintegrating, digging, pounding or other similar actions. In the preferred
embodiment of the present invention, the second hydraulic motor means 40 is
capable of varying the rotational speed of the square tube 34 from 0 up to
about 200 rpm, preferably about 120 rpm, and is designed to rotate in a
clockwise direction as viewed from the right hand end of the square tube 34 in
FIG. 2.
Preferably, as best shown in FIG. 3, the chopping blades 32 are mounted in
a protective sleeve 33 to protect blades from becoming bent or distorted. Also,
it is desirable that the chopping blades 32 be formed of a non-ferritic
material such as brass, bronze, or aluminum to decrease the risk of generating
sparks that could ignite volatile hydrocarbon fumes that may be present in the
tank being cleaned.
As shown in FIGS. 2 and 3, the chopping blades are proportionally spaced,
in a radially staggered relationship at right angles to an adjacent blade,
along the square tube 34 which in the illustrated embodiment supports
twenty-one chopping blades 32. In this arrangement, ten of the chopping blades
32 extend through aligned openings provided in two parallel sides of the square
tube 34 and eleven of the chopping blades 32 extend through aligned openings in
the remaining parallel sides of the square tube 34. The sleeves 33 are welded
to the square tube 34, and centered over the openings so that the chopping
blades 32 can be inserted through the openings and retained in place by bolts
35 extending through each of the sleeve 33 and an associated chopping blade 32
positioned in the sleeve. Thus, two pairs of bolts and nuts hold each chopping
blades 32 within sleeve 33 on both sides of the square tube 34. By this
arrangement, the chopping blades 32 are easily removed when they become worn
from repeated use. Moreover, chopping blades 32 of different lengths can be
easily interchanged to vary the distance from the tip of the blade to the deck
of the storage tank. In the preferred embodiment, the chopping blades 32 are
fourteen inches in length 1/2 inch thick, and two inches wide. If desired, the
chopping blades 32 could have a different configuration or shape, or be adorned
with a variety of notches or cutting aids to facilitate the chopping process.
The chopping assembly 30 is supported, in a fixed relationship with the
frame 12, by a support assembly 70 detachably mounted on the forward end of
the frame. The support assembly 70 comprises a pair of upper and lower
reinforced arms 72,74 that are connected together at one end by a plate member
76 extending between the upper and lower arms, and at the other end to the
frame 12. A square tubular cross member 78 is rigidly attached to the plate
member 76, by a pair of connecting plate member 80, in a perpendicular
relationship with the front panel 18 and side panels 14,16 of the frame 12. The
tubular cross member 78 has a length substantially equal to the distance
between the left and right hand bearing assemblies 42,44. A pair of flange
mounting plates 82,84 are fixedly attached, such as by welding, to each end of
the connecting plate member 80. Each of the flange mounting plates 82,84
contains holes therethrough for receiving bolts for attachment of the plates to
the flange of a respective one of the bearing assemblies 42,44.
As shown in FIG. 2, the second hydraulic motor means 40 for operating the
chopper assembly 30, is also supported by the flange mounting plate 84, by way
of attachment through the housing of the right bearing assembly 44.
A protective cover, or shroud, 96 is also mounted, preferably with
removable bolts, to a forwardly disposed surface of the cross member 78.
Preferably, the shroud 96 extends along the length of the square tube 34 on
which the chopping blades 32 are mounted from an area directly above the square
tube 34 to an area directly to the rear of the chopping blades 32, i.e.,
between the chopping assembly 30 and the frame 12.
In an alternative embodiment of the present invention, an articulatable
water jet washer 90, indicated by broken lines in FIG. 1 and described in detail
in the previously incorporated U.S. Pat. No. 4,817,653, may be mounted on the
frame 12. For this purpose, a threaded coupling 92 and a water supply pipe 94
are provided, respectively, on the top and sides of the frame 12. When connected
with a high pressure water pump and hose as taught in the patent, an operator is
able to remotely operate the water jet washer and progressively wash down the
sides of the tank with high pressure water. Thus, when combined with the chopper
assembly described above, an operator has the ability to chop solid waste
material from the floor of the tank to be cleaned and wash down the interior
walls of the tank with a single apparatus, either simultaneously or
sequentially.
When a storage tank is to be cleaned, the portable hydraulic power means
50 is moved to a location adjacent the tank and individual components, i.e.,
the traction drive means 20, the chopping assembly 30, the second hydraulic
motor means 40, and the support assembly 70 either as a unit or as two or more
subassemblies, are then moved into the tank through an entryway. Also, if
desired, the water jet washer 90 can also be separately moved into the tank.
Next, the scaffolding and the slide rail and winch assemblies, described in the
incorporated U.S. Pat. No. 4,817,653, are put in place and used to lift, move
and lower the frame 12 onto the floor of the storage tank for assembly with the
aforementioned individual components. After assembly, hydraulic lines between
the hydraulic power means 50 and the hydraulic motors 26,28, and between the
hydraulic power means 50 and the hydraulic motor 46 driving the chopping
assembly 30, are then connected. Also, appropriate control lines between the
hydraulic control means 60 and the
<PAGE> 6
5,485,966
respective motors are also connected. The hydraulic control means may be either
positioned inside or outside the tank to be cleaned. Preferably, an operator is
able to operate the appropriate control switches on the control panel from the
entryway, with both the operator and control panel being positioned outside the
tank. If this is not possible, the control means may be placed inside the tank
and the operator fitted with protective garments and possibly, auxiliary
breathing apparatus.
The remotely controlled chopping machine 10 embodying the present
invention can be moved from place to place about the tank by actuation of the
hydraulic motors 26,28. Both endless belts 22,24 can be driven in the same
direction in order to move the frame 12 in a forward or reverse direction. The
chopping machine 10 can be turned to the right or to the left in essentially a
zero radius by operating one of the belts, e.g., 22, in a forward direction and
the other belt, e.g., 24, in a rearward direction.
When the tank cleaning operation is complete, the hydraulic and water
supply lines are disconnected and withdrawn through the entryway, the chopping
machine 10 is disassembled into its component parts, and the component parts
are removed from the tank by way of the entryway.
The above embodiments are given by way of example of the present
invention and are not intended as limitations as further embodiments and
advances will occur to those of skill in the art who practice the present
invention.
What is claimed is:
1. An apparatus useful for chopping waste on the interior bottom of a
storage tank having an entryway adjacent said bottom, comprising:
a frame;
a traction drive means for moving said apparatus, said traction
drive means being detachably mounted on said frame;
a support assembly detachably mounted to a forward end of said
frame and having a pair of upper and lower arms detachably connected to
said frame at a first end of said arms, a plate member fixedly connected
to a second end of said arms, and a pair of spaced apart flange mounting
plates each fixedly attached to said plate member;
a chopping assembly rotatably mounted in a pair of bearing
assemblies, said bearing assemblies being detachably connectable to a
respective one of said flange mounting plates of the support assembly,
and said chopping assembly being separately insertable through said
entryway;
a hydraulic power means for independently powering said traction
drive means and said chopping assembly; and,
a hydraulic power means for regulating the operation of said
hydraulic power means.
2. The apparatus as set forth in claim 1 wherein said chopping assembly
comprises a plurality of chopping blades, said blades extending radially
outwardly from a shaft member that is rotatable about a horizontal axis.
3. The apparatus, as set forth in claim 2 wherein said chopping
assembly includes a mounting means attached to said frame, said shaft member
being rotatably mounted on said mounting means, and said shaft member has a
plurality of sleeves radially attached to said shaft member, each of said
chopping blades being mounted on a respective one of said sleeves and extending
radially outwardly from said sleeve.
4. The apparatus, as set forth in claim 3 wherein said sleeves are
mounted along four rows equiangularly spaced around said shaft member.
5. The apparatus, as set forth in claim 4 wherein adjacent rows of said
sleeves are staggered.
6. The apparatus as set forth in claim 3 wherein said apparatus
includes a shroud mounted on said mounting means, said shroud being disposed
about a portion of said chopping assembly extending from a first area
vertically above said chopping assembly to a second area between said chopping
assembly and said frame.
7. The apparatus as set forth in claim 1 wherein said frame includes a
pair of spaced side members and said traction drive means includes a pair of
endless belts, one of said endless belts being detachably mounted to a
respective one of said side members.
8. The apparatus as set forth in claim 1 wherein said apparatus
includes a fluid washing means for controllably delivering a pressurized jet of
fluid.
9. An apparatus for chopping waste on the interior bottom of a storage
tank having an entryway adjacent said bottom, comprising:
a frame;
a traction drive means for moving said apparatus, said traction
drive mean being detachable mounted on said frame;
a support assembly detachably mounted to a forward end of said
frame and having a pair of upper and lower arms detachably connected to
said frame at a first end of said arms, a plate member fixedly connected
to a second end of said arms, and a pair of spaced apart flange mounting
plates each fixedly attached to said plate member;
a chopping assembly rotatably mounted in a pair of bearing
assemblies, said bearing assemblies being detachably connectable to a
respective one of said flange mounting plates of the support assembly,
and said chopping assembly being separately insertable through said
entryway;
a first hydraulic motor mounted on said frame and operatively
connected with said traction drive means;
a first hydraulic motor control means, connected with said first
hydraulic motor, for remotely regulating operation of said traction
drive means;
a second hydraulic motor mounted on said chopping assembly and
operatively connected with said chopping assembly;
a second hydraulic motor control means, connected with said
second hydraulic motor, for remotely regulating operation of said
chopping assembly; and,
a hydraulic power means for delivering a flow of hydraulic fluid
under pressure to said first and said second hydraulic motors, said
hydraulic power means being disposed at a position remote from said
frame.
10. The apparatus as set forth in claim 9 wherein said frame includes a
pair of spaced side members and said traction drive means includes a pair of
endless belts, one of said endless belts being detachably mounted to a
respective one of said side members.
11. The apparatus as set forth in claim 9 wherein said apparatus
includes a fluid washing means for controllably delivering a pressurized jet of
fluid.
12. An externally powered and remotely controllable chopping apparatus
for chopping sludge on the interior bottom of an oil storage tank, said storage
tank having an entryway adjacent the bottom thereof, said chopping apparatus
comprising:
a frame that is movable through said entryway;
a traction drive means for moving said apparatus about the
interior bottom of said tank, said traction drive means being
detachably mountable on said frame;
<PAGE> 7
5,485,966
a support assembly detachably mounted to a forward end of said
frame and having a pair of upper and lower arms detachably connected to
said frame at a first end of said arms, a plate member fixedly connected
to a second end of said arms, and a pair of spaced apart flange mounting
plates each fixedly attached to said plate member;
a support assembly detachably mounted to a forward end of said
frame and having a pair of upper and lower arms fixedly connected
together at one end by a plate member and detachably connected to said
frame at the other end, and a pair of spaced apart flange mounting
plates each fixedly attached to said plate member;
a chopping assembly rotatably mounted in a pair of bearing
assemblies, said bearing assemblies being detachably connectable to a
respective one of said flange mounting plates of the support assembly,
and said chopping assembly being separately insertable through said
entryway;
a first hydraulic motor mounted on said frame and operatively
connected with said traction drive means;
a first hydraulic motor control means, connected with said first
hydraulic motor, for remotely regulating operation of said traction
drive means;
a second hydraulic motor mounted on and operatively connected
with said chopper assembly;
a second hydraulic motor control means, connected with said
second hydraulic motor, for remotely regulating operation of said
chopper assembly; and
a hydraulic power means for delivering a flow of hydraulic fluid
under pressure to said first and said second hydraulic motors, said
hydraulic power means being disposed at a position remote from said
frame.
13. The apparatus as set forth in claim 12 wherein said chopping apparatus
includes a fluid washing means for controllably delivering a pressurized jet of
fluid, said fluid washing means being detachably mounted on said frame.
14. The apparatus as set forth in claim 12 wherein said frame includes a
pair of spaced side members and said traction drive means includes a pair of
endless belts, one of said endless belts being detachably mounted to a
respective one of said side members.
15. An externally powered and remotely controllable chopping apparatus for
chopping sludge on the interior bottom of an oil storage tank, said storage
tank having an entryway adjacent the bottom thereof, said chopping apparatus
comprising:
an open-bottomed frame having opposed side panels and a top
panel interconnecting said side panels, said frame having a height and
width such that the frame can be moved into the storage tank through
said entryway;
a pair of endless belts each being detachably mountable on one
of said opposed side panels of the frame and separately insertable
through said entryway;
a support assembly detachably mounted to a forward end of said
frame and having a pair of upper and lower arms fixedly connected
together at one end by a late member and detachably connected to said
frame at the other end, and a pair of spaced apart flange mounting
plates each fixedly attached to said plate member;
a chopping assembly rotatably mounted in a pair of bearing
assemblies, said bearing assemblies being detachably connectable to a
respective one of said flange mounting plates of the support assembly,
and said chopping assembly being separately insertable through said
entryway;
a first hydraulic motor mounted on said frame and operatively
connected with said pair of endless belts;
a first hydraulic motor control means, connected with said first
hydraulic motor, for remotely regulating operation of said pair of
endless belts;
a second hydraulic motor mounted on and operatively connected
with said chopper assembly;
a second hydraulic motor control means, connected with said
second hydraulic motor, for remotely regulating operation of said
chopper assembly; and
a hydraulic power means for delivering a flow of hydraulic fluid
under pressure to said first and said second hydraulic motors, said
hydraulic power means being disposed at a position outside of said tank
and hydraulically connected through the entryway with said first and
second hydraulic motors.
* * * * *
<PAGE> 1
EXHIBIT 10.35
CONTRACT NO. FP - 03
FOR
DESIGN, SUPPLY, CONSTRUCTION AND COMMISSIONING
OF FINCHAA SUGAR FACTORY AND ETHANOL PLANT
BETWEEN
FINCHAA SUGAR FACTORY OF THE TRANSITIONAL
GOVERNMENT OF ETHIOPIA
AND
F.C. SCHAFFER & ASSOCIATES INC., LOUISIANA, U.S.A.
VOLUME 1
CONTRACT AGREEMENT
AND
CONDITIONS OF CONTRACT
<PAGE> 2
CONTRACT AGREEMENT
FOR
DESIGN, SUPPLY, CONSTRUCTION AND COMMISSIONING OF
FINCHAA SUGAR FACTORY AND ETHANOL PLANT
THIS AGREEMENT IS MADE THE day of 1994
between
1) THE FINCHAA SUGAR FACTORY OF THE TRANSITIONAL GOVERNMENT OF ETHIOPIA
(hereinafter called 'the Employer') and
2) F.C. SCHAFFER & ASSOCIATES INC. REGISTERED UNDER THE LAWS OF LOUISIANA,
U.S.A. (hereinafter called 'the Contractor')
WHEREAS the Employer is desirous that in connection with the Finchaa Sugar
Project the above-named works should be executed and has accepted a tender by
the Contractor for the execution, completion and maintenance of such works.
NOW IT IS AGREED AS FOLLOWS:
1. In this Agreement words and expressions shall have the same meanings as
are respectively assigned to them in the Conditions of Contract
hereinafter referred to.
2. The following documents shall be deemed to form and be read and construed
as 'the Contract':
a) the Contract Agreement
b) The Conditions of Contract
c) the Specification
d) the Schedule of Prices
3. The Contract Price is USD 70,016,819.- (Seventy Million, Sixteen Thousand,
Eight Hundred and Nineteen).
and Birr 75,404,068.- (Seventy Five Million, Four Hundred Four Thousand
and Sixty Eight).
4. In consideration of the payment of the Contract Price by the Employer to
the Contractor, the Contractor hereby undertakes to execute, complete and
maintain the Works in conformity in all respects with the terms and
Conditions of the Contract.
5. The Employer hereby undertakes to pay the Contractor in consideration of
the due execution, completion and maintenance of the Works the Contract
Price at the times and in the manner prescribed under the Contract.
<PAGE> 3
IN WITNESS WHEREOF the duly authorised representatives to the parties hereto
have in accordance with the laws of Ethiopia hereunto set their respective
hands the day and year first above written.
Signed by ......................... Signed by .........................
on behalf of the Employer on behalf of the Contractor
......................... .........................
in the presence of....... in the presence of.......
......................... .........................
......................... .........................
<PAGE> 4
CONDITIONS OF CONTRACT
<PAGE> 5
TABLE OF CONTENTS
1. DEFINITIONS AND INTERPRETATIONS
1.1 Definitions 1-1
1.2 Headings and Titles 1-5
1.3 Interpretation 1-5
1.4 Written Communications 1-5
1.5 Notices, Consents and Approvals 1-5
1.6 Costs, Overhead Charges and Profit 1-5
1.7 Periods 1-6
1.8 References 1-6
2. ENGINEER AND ENGINEER'S REPRESENTATIVE
2.1 Engineer's Duties and Authority 1-6
2.2 Engineer's Decisions and Interpretations 1-7
2.3 Engineer's Representative 1-7
2.4 Engineer's Power to Delegate 1-7
2.5 Confirmation in Writing 1-8
2.6 Replacement of Engineer 1-8
3. ASSIGNMENT, SUB-CONTRACTING AND VENDORS
3.1 Assignment of Contract 1-8
3.2 Subcontracting 1-8
3.3 Vendors 1-9
4. CONTRACT DOCUMENTS
4.1 Language 1-9
4.2 Priority of Contract Documents 1-9
4.3 Documents Mutually Explanatory 1-9
4.4 Contractor's Drawings 1-10
4.5 Consequences of Disapproval of Contractor's Drawings 1-10
4.6 Approved Contractor's Drawings 1-11
4.7 Inspection of Contractor's Drawings 1-11
4.8 Erection Information 1-11
4.9 Operation and Maintenance Manuals 1-11
4.10 Employer's use of Contractor's Drawings 1-11
4.11 Contractor's use of Employer's Drawings 1-12
4.12 Manufacturer's Drawings 1-12
4.13 Errors in Contractor's Drawings 1-12
4.14 Errors by the Employer or Engineer 1-12
4.15 Disruption of Progress 1-13
4.16 Delays and Cost of Delays of Drawings 1-13
4.17 Failure by Contractor to Submit Drawings 1-13
<PAGE> 6
7. LABOUR
7.1 Engagement of Labour 1-27
7.2 Employment of Local Population 1-27
7.3 Importation of Labour 1-27
7.4 Use of Alcohol and Drugs 1-28
7.5 Prohibition of Firearms 1-28
7.6 Preservation of Peace 1-28
7.7 Working Hours 1-28
7.8 Outbreak of Illness 1-29
7.9 Prevention of Disease 1-29
7.10 Responsibilities for Safety 1-29
7.11 Removal of Temporary Facilities 1-29
7.12 First Aid Facilities 1-30
7.13 Responsibilities for Costs 1-30
7.14 Responsibilities of Subcontractors 1-30
7.15 Reporting Requirements 1-30
7.16 Availability of Facilities to Other Contractors 1-30
7.17 Provision of Information on Labour Laws 1-31
8. MATERIALS, PLANT AND WORKMANSHIP
8.1 Quality of Plant 1-31
8.2 Certificate of Testing 1-32
8.3 Inspection of Operation 1-32
8.4 Inspection and Testing 1-32
8.5 Dates for Inspection and Testing 1-32
8.6 Rejection 1-33
8.7 Removal of Improper Plant 1-33
8.8 Default of Contractor in Compliance 1-33
8.9 Examination of Work Before Covering Up 1-34
8.10 Uncovering and making Openings 1-34
8.11 Plant - Free Issue 1-34
8.12 Permission to Deliver 1-35
8.13 Warranty 1-35
9. SUSPENSION OF WORKS, DELIVERY OR ERECTION
9.1 Order to Suspend 1-36
9.2 Cost of Suspension 1-36
9.3 Payment in Event of Suspension 1-36
9.4 Prolonged Suspension 1-37
9.5 Resumption of Work 1-37
10. COMMENCEMENT AND COMPLETION OF WORKS
10.1 Commencement of Works 1-38
10.2 Time for Completion 1-38
10.3 Extension of Time for Completion 1-38
10.4 Rate of Progress 1-39
10.5 Delay in Completion and Liquidated Damages 1-40
10.6 Bonus for Early Completion 1-41
10.7 Prolonged Delay 1-41
<PAGE> 7
5. OBLIGATIONS OF THE CONTRACTOR
5.1 General Obligations 1-13
5.2 Obligation to Provide Items and to Execute Works 1-14
5.3 Availability of Spare Parts 1-14
5.4 Performance Security 1-14
5.5 Period of Validity 1-14
5.6 Claims Under Performance Security 1-14
5.7 Site Data 1-15
5.8 Other Local Conditions 1-16
5.9 Physical Obstructions and Conditions 1-16
5.10 Work to be in Accordance with contract 1-16
5.11 Master Schedule to be Furnished 1-17
5.12 Cash flow Estimate and Contract
Administration Procedure to be Furnished 1-18
5.13 Contractor's Superintendence 1-18
5.14 Contractor's Employees 1-18
5.15 Objection to Contractor's Employees 1-19
5.16 Setting Out 1-19
5.17 Contractor's Equipment 1-20
5.18 Safety, Security and Protection of Environment 1-20
5.19 Clearance of Site 1-21
5.20 Opportunities for Other Persons and 1-21
Contractors
5.21 Authority for Access 1-22
5.22 Information for Import Permits and 1-22
Licenses
5.23 Compliance with Laws 1-22
5.24 Patent Rights 1-22
5.25 Claims in Respect of Patent Rights 1-23
5.26 Employer's Warranty for Patent Rights 1-23
5.27 Royalties 1-23
5.28 Antiquities 1-23
5.29 Traffic and Special Loads 1-24
6. OBLIGATIONS OF THE EMPLOYER
6.1 Possession of Site 1-25
6.2 Civil Works on Site 1-26
6.3 Permits and Approvals 1-26
6.4 Information Regarding Laws 1-26
6.5 Clearance Through Customs 1-26
6.6 Permits for Re-Export 1-26
6.7 Letter of Guarantee of Payment 1-26
for Arbitration Awards
6.8 Letter of Credit 1-27
<PAGE> 8
11. TESTS ON COMPLETION
11.1 Notice of Tests 1-41
11.2 Time for Tests 1-41
11.3 Delayed Tests 1-42
11.4 Facilities for Tests on Completion 1-42
11.5 Notice of Test Results 1-42
11.6 Retesting 1-42
11.7 Disagreement as to Result of Test 1-43
11.8 Consequences of Failure to Pass Tests 1-43
on Completion
11.9 Test Certificate 1-43
11.10 Test by Employer's Operators 1-44
12. TAKING OVER
12.1 Taking-Over 1-44
12.2 Taking-Over Certificate 1-44
12.3 Use Before Taking-Over 1-45
12.4 Interference with Tests on Completion 1-45
13. PERFORMANCE TESTS
13.1 Carrying Out Tests 1-46
13.2 Notice 1-46
13.3 Facilities for Performance Tests 1-46
13.4 Procedure for Performance Tests 1-46
13.5 Cessation of Performance Tests 1-46
13.6 Adjustments and Modifications 1-46
13.7 Costs of Performance Tests 1-47
13.8 Evaluation of Performance Tests 1-47
13.9 Failure to Pass Performance Tests 1-47
13.10 Postponement and Adjustments of 1-48
Modifications
14. ACCEPTANCE
14.1 Issue of Acceptance Certificate 1-49
14.2 Provisional Acceptance Certificate 1-49
14.3 Uncompleted Performance Tests and Work 1-49
14.4 Revoking of Provisional Acceptance Certificate 1-50
14.5 Defects Liability 1-50
15. DEFECTS LIABILITY
15.1 Defects Liability Period 1-50
15.2 Making Good Defects 1-50
15.3 Notice of Defects 1-51
15.4 Extension of Defects Liability Period 1-51
15.5 Failure to Remedy Defects 1-51
15.6 Removal of Defective work 1-52
15.7 Further Tests/Performance Tests 1-52
<PAGE> 9
15.8 Right of Access 1-52
15.9 Contractor to Search 1-52
15.10 Defects Liability Certificate 1-53
15.11 Defects in Free Issue Equipment 1-53
15.12 Exclusive Remedies 1-53
16. VARIATION
16.1 Engineer's Right to Vary 1-53
16.2 Variation in Excess of 5% 1-54
16.3 Variation Order Procedure 1-54
16.4 Disagreement on Adjustment of Contract Price 1-55
16.5 Variation on Manufacture and Drawings 1-55
16.6 Contractor to Proceed 1-56
16.7 Records of Costs 1-56
16.8 Monthly Variations Statement 1-56
17. OWNERSHIP OF PLANT 1-57
18. CERTIFICATE AND PAYMENT
18.1 Methods of Application 1-57
18.2 Issue of Certificate of payment 1-57
18.3 Corrections to Certificates of Payment 1-58
18.4 Payment 1-58
18.5 Delayed Payment 1-58
18.6 Remedies on Failure to Certify or Make Payment 1-58
18.7 Application for Final Certificate of Payment 1-59
18.8 Issue of final Certificate of Payment 1-59
18.9 Final Certificate of Payment conclusive 1-60
18.10 Advance Payment 1-60
18.11 Advance Payment Guarantee 1-60
18.12 Terms of Payment 1-60
18.13 Retention 1-61
19. CLAIMS
19.1 Procedure 1-61
19.2 Assessment 1-62
20. CURRENCY OF PAYMENT 1-62
21. RISK AND RESPONSIBILITY
21.1 Allocation of Risk and Responsibility 1-62
21.2 Employer's Risks 1-62
21.3 Contractor's Risks 1-63
<PAGE> 10
22. FORCE MAJEURE
22.1 Definition of Force Majeure 1-64
22.2 Effect of Force Majeure 1-64
22.3 Notice of Occurrence 1-64
22.4 Performance to Continue 1-65
22.5 Additional Cost Caused by Force Majeure 1-65
22.6 Damage Caused by Force Majeure 1-65
22.7 Termination in Consequence of Force Majeure 1-65
22.8 Payment on Termination for Force 1-65
Majeure
22.9 Release from Performance 1-66
22.10 Force Majeure Affecting Engineer's 1-66
Duties
23. CARE OF THE WORKS AND PASSING OF RISK
23.1 Contractor's Responsibility for the 1-67
Care of the works
23.2 Risk Transfer Date 1-67
23.3 Loss or Damage Before Risk Transfer 1-67
Date
24. DAMAGE TO PROPERTY AND INJURY TO PERSONS
24.1 Contractor's Liability 1-68
24.2 Employer's Liability 1-68
24.3 Accidents 1-68
25. LIMITATION OF LIABILITY
25.1 Liability for Indirect or Consequential 1-68
Damage
25.2 Maximum Liability 1-69
25.3 Liability after Expiration of Defects 1-69
Liability Period
25.4 Exclusive Remedies 1-69
25.5 Mitigation of Loss or Damage 1-69
25.6 Foreseen Damages 1-70
26. INSURANCE
26.1 The Works 1-70
26.2 Contractor's Equipment 1-70
26.3 Third party Liability 1-70
26.4 Employees Insurance 1-71
26.5 General Requirements of Insurance 1-71
Policies
26.6 Remedies on the Contractor's Failure 1-71
to Insure
26.7 Amounts not Recovered 1-71
<PAGE> 11
27. DEFAULT
27.1 Notice of Default 1-71
27.2 Contractor's Default 1-72
27.3 Valuation at Date of Termination 1-72
27.4 Payment After Termination 1-72
27.5 Effect on Liability for Delay 1-72
27.6 Employer's Default 1-73
27.7 Removal of Contractor's Equipment 1-73
27.8 Payment on Termination for Employer's Default 1-73
28. URGENT REMOVAL WORK 1-73
29. CHANGES IN COST AND LEGISLATION
29.1 Local Currency Component of Contract Price 1-74
29.2 Foreign Currency Component of Contract 1-74
Price 1-73
30. CUSTOMS AND TAXES
30.1 Customs, Import Duties and Taxes 1-74
30.2 Clearance Through Customs 1-75
30.3 Taxation 1-75
30.4 Customs and Taxes on Contractor's Equipment 1-75
31. EXPLOSIVES 1-75
32. PUBLICITY 1-76
33. NOTICES
33.1 Notices to Contractor 1-76
33.2 Notices to Employer and Engineer 1-76
33.3 Minutes of Meetings 1-77
34. SETTLEMENTS OF DISPUTES 1-77
35. APPLICABLE LAW 1-78
<PAGE> 12
1. DEFINITIONS AND INTERPRETATIONS
1.1 Definitions
In the Contract (as hereinafter defined), the following words and
expressions shall have the meanings hereby assigned to them:
1.1.1 "Commencement Date" means the date on which work commences
which shall be the Effective Date.
1.1.2 "Conditions" means these Conditions of Contract.
1.1.3 "Contract" means these conditions, the Specification, the
Employer's Drawings and the Contractor's Drawings, Annexes, the
Contract Agreement, Schedule of Prices, and such further
documents as may be expressly incorporated in the Contract
Agreement.
1.1.4 "Contract Agreement" means the document recording the terms of
the Contract between the Employer and the Contractor and
referred to as such in this Contract.
1.1.5 "Contract Price" means the sum stated in the Contract Agreement
payable to the Contractor for the execution of the Works.
1.1.6 "Contractor" means F.C. Schaffer & Associates Inc. a Company
registered under the Law of LOUISIANA, USA and its legal
successors in title but not (except with the consent of the
Employer) any assignee of the Contractor.
1.1.7 "Contractor's Drawings" means all drawings, samples, patterns,
models and operation and maintenance manuals to be submitted
by the Contractor in accordance with Clause 4.
1.1.8 "Contractor's Equipment" means all appliances or things of
whatsoever nature required for the purposes of the Works but
does not include Plant.
1.1.9 "Contractor's Risks" means the risks defined in Sub-Clause 21.2.
1-1
<PAGE> 13
1.1.10 "Defects Liability Certificate" means the certificate to be
issued by the Engineer to the Contractor in accordance with
Sub-Clause 15.10
1.1.11 "Defects Liability Period" means one year following taking over,
during which the Contractor is responsible for making good defects
and damage in accordance with Clause 15.
1.1.12 "Effective Date" means the date when each of the following
conditions has been satisfied:
a) The Employer has obtained any necessary approval of the
Contract by the relevant authorities in Ethiopia;
b) The Employer has obtained the approval by the African
Development Bank of the award of the Contract to the Contractor.
c) The Contractor has provided the performance security and the
advance payment guarantee required to be obtained under the
Contract; and
d) The Contractor has received the advance payment and,
e) The Employer has provided the Letter of Guarantee required
under Sub-Clause 6.7.
1.1.13 "Employer" means the Finchaa Sugar Factory of the Government of
Ethiopia and its legal successors in title, but not (except with
the consent of the Contractor) any assignee of the Employer.
1.1.14 "Employer's Drawings" means all the drawings and information
provided by the Employer or the Engineer to the Contractor under
the Contract.
1.1.15 "Employer's Risks" means those risks defined in Sub-Clause 21.2
1-2
<PAGE> 14
1.1.16 "Engineer" means Tate and Lyle Technical Services a Division of
BOOKER TATE, Limited United Kingdom, to act as Engineer for the
purposes of the Contract or such other person as may be appointed
by the Employer to act as the Engineer for the purpose of the
Contract.
1.1.17 "Engineer's Representative" means any representative of the
Engineer appointed from time to time by the Engineer under
Sub-Clause 2.3
1.1.18 "Financial Certificate of Payment", means the certificate to be
issued by the Engineer to the Employer in accordance with Sub-
Clause 18.8
1.1.19 "Force Majeure" has the meaning assigned to it under Sub-Clause
22.1
1.1.20 "Foreign Currency" means any currency other than the Ethiopian
Birr.
1.1.21 "Gross Misconduct" means any act or omission of the Contractor in
violation of the most elementary rules of dilignece which a
conscientious contractor in the same position and under the same
circumstances would have followed.
1.1.22 "Master Schedule" means the schedule for completion of the Works
set forth in Annex 19 of the Specification.
1.1.23 "Performance Security" means the security to be provided by the
Contractor in accordance with Sub-Clause 5.4 for the due
performance of the Contract.
1.1.24 "Plant" means machinery, apparatus, materials and all things to
be provided under the Contract for incorporation in the Works.
1.1.25 "Risk Transfer Date" means the date when the risk of loss of or
damage to the Works passes from the Contractor to the Employer
in accordance with Sub-Clause 23.2.
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<PAGE> 15
1.1.26 "Schedule of Prices" means the completed
and priced Schedule of Prices, or any
part or individual schedule thereof,
forming a part of the Contract documents.
1.1.27 "Section" means a part of the Works
specifically identified as such in the
Contract.
1.1.28 "Site" means the place or places
provided or made available by the
Employer where work is to be done by the
Contractor or to which Plant is to be
delivered, together with so much of the
area surrounding the same as the
Contractor shall with the consent of the
Employer use in connection with the Works
otherwise than merely for the purposes of
access.
1.1.29 "Specification" means the specification
of the Works included in the Contract as
Annexes 1-20 and any modification thereof
made under Clause 16 or submitted by the
Contractor and approved by the Engineer.
1.1.30 "Subcontractor" means any person (other
than the Contractor) named in the
Contract for any part of the Works, or
any person to whom any part of the
Contract has been subcontracted and the
Subcontractor's legal successors in title
but not any assignee of the Subcontractor.
1.1.31 "Taking-Over Certificate" means the
certificate to be given by the Engineer
to the Contractor in accordance with
Clause 12.
1.1.32 "Tests on Completion" means the tests
specified in Annex 11 of the Contract, or
otherwise agreed by the Engineer and the
Contractor to be performed before the
Works or any Section or part thereof are
taken over by the Employer.
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1.1.33 "Time for Completion" means the time stated in the Contract
for completing the Works or any Section thereof and passing
the Tests on Completion calculated from the Commencement Date
unless extended in accordance with Clause 10.
1.1.34 "Variation Order" means any written order, identified as such,
issued to the Contractor by the Engineer under Sub-Clause 16.1.
1.1.35 "Works" means all Plant to be provided and work to be done by
the Contractor under the Contract.
1.2 Headings and Titles
The headings and titles in these Conditions shall not be deemed part
thereof or be taken into consideration in the interpretation or
construction of the Contract.
1.3 Interpretation
Words importing persons or parties shall include firms and
corporations and any organization having legal capacity. Words
importing the singular only also include the plural and vice versa
where the context requires.
1.4 Written Communications
Wherever in the Contract provision is made for a communication to be
"written" or "in writing" this means any hand-written, type-written
or printed communication, including telex, cable and facsimile
transmission.
1.5 Notices, Consents and Approvals
Wherever in the Contract provision is made for the giving of notice,
consent, certificate, determination or approval by any person, such
consent or approval shall not be unreasonably withheld or delayed.
Unless otherwise specified, such notice, consent or approval shall be
in writing and the word "notify" shall be construed accordingly.
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1.6 Costs, Overhead Charges and Profit
Whenever by these Conditions the Contractor is
entitled to be paid cost, such cost shall be
properly incurred and shall include any overhead
charges properly allocable thereto but not profit
unless so stated. Any profit entitlement shall be
added to cost as provided for in the Contract.
1.7 Periods
In these Conditions "day" means calendar day,
"month" means calendar month, and "year" means 365
days, all pursuant to the Gregorian Calendar.
1.8 References
References to clauses are references to the
specified Clause or Sub-Clause of these Conditions
of Contract.
2. ENGINEER AND ENGINEER'S REPRESENTATIVE
2.1 Engineer's Duties and Authority
(a) The Engineer shall carry out the duties
specified in the Contract
(b) The Engineer may exercise the authority
specified in or necessarily to be implied from
the Contract. However he is required to
obtain the specific approval of the Employer
before exercising the authority as indicated
below:
1. Approval of subletting any part of the
works under Sub-Clause 3.1.
2. Certification of additional cost under
Sub-Clause 5.9.
3. Determination of extension of time under
Sub-Clause 10.3.
4. Issuing a variation order under Clause
16.
except:
i) in an emergency situation as
reasonably determined by the
Engineer.
ii) where the variation order does not
exceed US$30,000 or its Birr
Equivalent at prevailing rate at the
National Bank of Ethiopia.
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5. Fixing rates or prices under Sub-Clause 16.4.
6. Certifying additional payment under Sub-Clause 23.5.
7. Issuing of Taking-Over Certificate under Clause 12.
The Employer will deliver to the Contractor a copy of any approval or other
communication issued to the Engineer pursuant to this Sub-Clause 2.1
simultaneously with its delivery of such approval or communication to the
Engineer.
2.2 Engineer's Decisions and Instructions
The Contractor shall proceed with decisions and instructions given by the
Engineer in writing in accordance with these Conditions. The Engineer shall
have no authority to relieve the Contractor of any of his obligations under
the Contract.
2.3 Engineer's Representative
The Engineer's Representative shall be appointed by and be responsible to
the Engineer and shall carry out such duties and exercise such authority as
may be delegated to him by the Engineer in Sub Clause 2.4.
2.4 Engineer's Power to Delegate
The Engineer may from time to time delegate to the Engineer's Representative
any of the duties vested in the Engineer and may at any time revoke such
delegation. Any such delegation or revocation shall be in writing and shall
not take effect until a copy thereof has been delivered to the Contractor
and the Employer. Any decision, instruction or approval given by the
Engineer's Representative to the Contractor in accordance with such
delegation shall have the same effect as though it had been given by the
Engineer. However:
(a) any failure of the Engineer's Representative to disapprove any work,
plant or workmanships shall not prejudice the right of the Engineer
thereafter to disapprove such work plant or workmanships and to give
instruction for rectification thereof;
(b) if the Contractor questions any decision of the Engineer's
Representative, he may refer the matter to the Engineer, who shall
thereupon confirm, reverse or vary such decision.
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<PAGE> 19
2.5 Confirmation in Writing
The Contractor may require the Engineer to confirm in writing any
decision or instruction of the Engineer. The Contractor shall notify the
Engineer of such requirements without delay. Such a decision or
instruction shall not be effective until written confirmation thereof
has been received by the Contractor.
2.6 Replacement of Engineer
The Employer shall have the right to replace the Engineer and appoint a
person to act in replacement who is independent and impartial.
Furthermore, the Employer shall give the Contractor thirty (30)
days/notice of any replacement of the Engineer, to allow the Contractor
to work towards an orderly transition between the then-current Engineer
and the replacement Engineer. Any delay in the construction of the Works
which is caused by the replacement of the Engineer shall entitle the
Contractor to an extension of the Time for Completion, as provided in
Sub-Clause 10.3e.
3. ASSIGNMENT, SUB-CONTRACTING AND VENDORS
3.1 Assignment of Contract
The Contractor shall not, without the prior consent of the Employer
(which consent, notwithstanding the provisions of Sub-Clause 1.5, shall
be at the sole discretion of the Employer), assign the Contract or any
part thereof, or any benefit or interest therein or there under,
otherwise than by:
(a) a charge in favor of the Contractor's bankers or financial sources
for any commitments due or to become due under the Contract, or
(b) assignment to the Contractor's insurers (in cases where the insurers
have discharged the Contractor's loss or liability) of the
Contractor's right to obtain relief against any other party liable.
3.2 Subcontracting
The Contractor shall not subcontract the whole of the Works. Except
where otherwise provided by the Contract the Contractor shall not
subcontract any part of the Works without the prior consent of the
Employer.
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<PAGE> 20
Provided that the Contractor shall not be required to obtain such
consent for:
(a) the provision of local labor and personnel,
(b) the purchase of materials which are in accordance with the standards
specified in the Contract, or
(c) the sub-contracting of the Civil Works to the Blue Nile Construction
Enterprize and the Erection Works to DEMECH.
The Contractor shall be responsible for the acts, defaults and neglects
of any Subcontractor, his agents or employees as fully as if they were
the acts, defaults or neglects of the Contractor, his agents or
employees.
3.3 Vendors
The Contractor shall not deviate from the Vendor List annexed to the
Contract for purchasing the plant.
4. CONTRACT DOCUMENTS
4.1 Language
The language in which the Contract documents and all documents issued
pursuant thereto shall be drawn up is English. The day to day
communication during the execution of the Contract shall be in English.
4.2 Priority of Contract Documents.
Unless otherwise provided in the Contract the priorith of the Contract
documents shall be as follows:
1. Contract Agreement
2. The Conditions of Contract
3. The Specification Annexes 1-20
4. Annexes A-E associated with the Contract Agreement
5. The Schedules of Prices
6. Any other documents forming part of the
Contract
4.3 Documents Mutually Explanatory
Subject to Sub-Clause 4.2, the Contract Documents shall be taken as
mutually explanatory. Any ambiguities or discrepancies shall be resolved
by the Engineer, who shall then instruct the Contractor thereon.
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<PAGE> 21
1. DEFINITIONS AND INTERPRETATIONS
1.1 Definitions
In the Contract (as hereinafter defined), the following words
and expressions shall have the meanings hereby assigned to
them:
1.1.1 "Commencement Date" means the date on which work
commences which shall be the Effective Date.
1.1.2 "Conditions" means these Conditions of Contract.
1.1.3 "Contract" means these conditions, the Specification,
the Employer's Drawings and the Contractor's
Drawings, Annexes, the Contract Agreement, Schedule
of Prices, and such further documents as may be
expressly incorporated in the Contract Agreement.
1.1.4 "Contract Agreement" means the document recording the
terms of the Contract between the Employer and the
Contractor and referred to as such in this Contract.
1.1.5 "Contract Price" means the sum stated in the Contract
Agreement payable to the Contractor for the execution
of the Works.
1.1.6 "Contractor" means F.C. Schaffer & Associates, Inc. a
company registered under the Law of LOUISIANA, USA
and its legal successors in title but not (except
with the consent of the Employer) any assignee of the
Contractor.
1.1.7 "Contractor's Drawings" means all drawings, samples,
patterns, models and operation and maintenance
manuals to be submitted by the Contractor in
accordance with Clause 4.
1.1.8 "Contractor's Equipment" means all appliances or
things of whatsoever nature required for the
purposes of the Works but does not include Plant.
1.1.9 "Contractor's Risks" means the risks defined in
Sub-Clause 21.2.
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<PAGE> 22
1.1.10 "Defects Liability Certificate" means the certificate
to be issued by the Engineer to the Contractor in
accordance with Sub-Clause 15.10.
1.1.11 "Defects Liability Period" means one year following
taking over, during which the Contractor is
responsible for making good defects and damage in
accordance with Clause 15.
1.1.12 "Effective Date" means the date when each of the
following conditions has been satisfied:
a) The Employer has obtained any necessary approval
of the Contract by the relevant authorities in
Ethiopia;
b) The Employer has obtained the approval by the
African Development Bank of the award of the Contract
to the Contractor;
c) The Contractor has provided the performance
security and the advance payment guarantee required
to be obtained under the Contract; and
d) The Contractor has received the advance payment;
and
e) The Employer has provided the Letter of
Guarantee required under Sub-Clause 6.7.
1.1.13 "Employer" means the Finchaa Sugar Factory of the
Government of Ethiopia and its legal successors in
title, but not (except with the consent of the
Contractor) any assignee of the Employer.
1.1.14 "Employer's Drawings" means all the drawings and
information provided by the Employer or the Engineer
to the Contractor under the Contract.
1.1.15 "Employer's Risks" means those risks defined in
Sub-Clause 21.2.
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<PAGE> 23
1.1.16 "Engineer" means Tate and Lyle Technical Services, a
Division of BOOKER TATE, Limited United Kingdom, to
act as Engineer for the purposes of the Contract or
such other person as may be appointed by the Employer
to act as the Engineer for the purpose of the
Contract.
1.1.17 "Engineer's Representative" means any representative
of the Engineer appointed from time to time by the
Engineer under Sub-Clause 2.3.
1.1.18 "Final Certificate of Payment", means the certificate
to be issued by the Engineer to the Employer in
accordance with Sub-Clause 18.8.
1.1.19 "Force Majeure" has the meaning assigned to it under
Sub-Clause 22.1.
1.1.20 "Foreign Currency" means any currency other than the
Ethiopian Birr.
1.1.21 "Gross Misconduct" means any act or omission of the
Contractor in violation of the most elementary rules
of diligence which a conscientious contractor in the
same position and under the same circumstances would
have followed.
1.1.22 "Master Schedule" means the schedule for completion
of the Works set forth in Annex 19 of the
Specification.
1.1.23 "Performance Security" means the security to be
provided by the Contractor in accordance with
Sub-Clause 5.4 for the due performance of the
Contract.
1.1.24 "Plant" means machinery, apparatus, materials and all
things to be provided under the Contract for
incorporation in the Works.
1.1.25 "Risk Transfer Date" means the date when the risk of
loss of or damage to the Works passes from the
Contractor to the Employer in accordance with
Sub-Clause 23.2.
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<PAGE> 24
1.1.26 Schedule of Prices" means the completed and priced
Schedule of Prices, or any part or individual
schedule thereof, forming a part of the Contract
documents.
1.1.27 "Section" means a part of the Works specifically
identified as such in the Contract.
1.1.28 "Site" means the place or places, provided or made
available by the Employer where work is to be done by
the Contractor or to which Plant is to be delivered,
together with so much of the area surrounding the
same as the Contractor shall with the consent of the
Employer use in connection with the Works otherwise
than merely for the purposes of access.
1.1.29 "Specification" means that specification of the Works
included in the Contract as Annexes 1-20 and any
modification thereof made under Clause 16 or
submitted by the Contractor and approved by the
Engineer.
1.1.30 "Subcontractor" means any person (other than the
Contractor) named in the Contract for any part of the
Works, or any person to whom any part of the Contract
has been subcontracted and the Subcontractor's legal
successors in title but not any assignee of the
Subcontractor.
1.1.31 "Taking-Over Certificate" means the certificate to be
given by the Engineer to the Contractor in accordance
with Clause 12.
1.1.32 "Tests on Completion" means the tests specified in
Annex 11 of the Contract, or otherwise agreed by the
Engineer and the Contractor to be performed before
the Works or any Section or part thereof are taken
over by the Employer.
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<PAGE> 25
1.1.33 "Time for Completion" means the time stated in the
Contract for completing the Works or any Section
thereof and passing the Tests on Completion
calculated from the Commencement Date unless extended
in accordance with Clause 10.
1.1.34 "Variation Order" means any written order, identified
as such, issued to the Contractor by the Engineer
under Sub-Clause 16.1.
1.1.35 "Works" means all Plant to be provided and work to be
done by the Contractor under the Contract.
1.2 Headings and Titles
The headings and titles in these Conditions shall not be deemed
part thereof or be taken into consideration in the
interpretation or construction of the Contract.
1.3 Interpretation
Words importing persons or parties shall include firms and
corporations and any organization having legal capacity. Words
importing the singular only also include the plural and vice
versa where the context requires.
1.4 Written Communications
Wherever in the Contract provision is made for a communication
to be "written" or "in writing" this means any hand-written,
type-written or printed communication, including telex, cable
and facsimile transmission.
1.5 Notices, Consents and Approvals
Wherever in the Contract provision is made for the giving of
notice, consent, certificate, determination or approval by any
person, such consent or approval shall not be unreasonably
withheld or delayed. Unless otherwise specified, such notice,
consent or approval shall be in writing and the work "notify"
shall be construed accordingly.
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<PAGE> 26
1.6 Costs, Overhead Charges and Profits
Whenever by these Conditions the Contractor is entitled to be
paid cost, such cost shall be properly incurred and shall
include any overhead charges properly allocable thereto but not
profit unless so stated. Any profit entitlement shall be added
to cost as provided for in the Contract.
1.7 Periods
In these Conditions "day" means calendar day, "month" means
calendar month, and "year" means 365 days, all pursuant to the
Gregorian Calendar.
1.8 References
References to clauses are references to the specified Clause or
Sub-Clause of these Conditions of Contract.
2. ENGINEER AND ENGINEER'S
REPRESENTATIVE
2.1 Engineer's Duties and Authority
(a) The Engineer shall carry out the duties specified in the
Contract.
(b) The Engineer may exercise the authority specified in or
necessarily to be implied from the Contract. However he
is required to obtain the specific approval of the
Employer before exercising the authority as indicated
below:
1. Approval of subletting any part of the works under
Sub-Clause 3.1.
2. Certification of additional cost under Sub-Clause
5.9.
3. Determination of extension of time under Sub-Clause
10.3.
4. Issuing a variation order under Clause 16. except:
i) in an emergency situation as reasonably
determined by the Engineer.
ii) where the variation order does not exceed
US$30,000 or its Birr Equivalent at prevailing
rate at the National Bank of Ethiopia.
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<PAGE> 27
5. Fixing rates or prices under Sub-Clause 16.4.
6. Certifying additional payment under Sub-Clause 23.5.
7. Issuing of Taking-Over Certificate under Clause 12.
The Employer will deliver to the Contractor a copy of any
approval or other communication issued to the Engineer pursuant
to this Sub-Clause 2.1 simultaneously with its delivery of such
approval or communication to the Engineer.
2.2 Engineer's Decisions and Instructions
The Contractor shall proceed with decisions and instructions
given by the Engineer in writing in accordance with these
Conditions. The Engineer shall have no authority to relieve
the Contractor of any of his obligations under the Contract.
2.3 Engineer's Representative
The Engineer's Representative shall be appointed by and be
responsible to the Engineer and shall carry out such duties and
exercise such authority as may be delegated to him by the
Engineer in Sub-Clause 2.4.
2.4 Engineer's Power to Delegate
The Engineer may from time to time delegate to the Engineer's
Representative any of the duties vested in the Engineer and may
at any time revoke such delegation. Any such delegation or
revocation shall be in writing and shall not take effect until
a copy thereof has been delivered to the Contractor and the
Employer. Any decision, instruction or approval given by the
Engineer's Representative to the Contractor in accordance with
such delegation shall have the same effect as though it had
been given by the Engineer. However:
(a) any failure of the Engineer's Representative to disapprove
any work, plant or workmanships shall not prejudice the
right of the Engineer thereafter to disapprove such work
plant or workmanships and to give instruction for
rectification thereof;
(b) if the Contractor questions any decision of the Engineer's
Representative, he may refer the matter to the Engineer,
who shall thereupon confirm, reverse or vary such
decision.
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<PAGE> 28
2.5 Confirmation in Writing
The Contractor may require the Engineer to confirm in writing
any decision or instruction of the Engineer. The Contractor
shall notify the Engineer of such requirements without delay.
Such a decision or instruction shall be effective until written
confirmation thereof has been received by the Contractor.
2.6 Replacement of Engineer
The Employer shall have the right to replace the Engineer and
appoint a person to act in replacement who is independent and
impartial. Furthermore, the Employer shall give the Contractor
thirty (30) days/ notice of any replacement of the Engineer, to
allow the Contractor to work towards an orderly transition
between the then-current Engineer and the replacement Engineer.
Any delay in the construction of the Works which is caused by
the replacement of the Engineer shall entitle the Contractor to
an extension of the Time for Completion, as provided in
Sub-Clause 10.3e.
3. ASSIGNMENT, SUB-CONTRACTING AND
VENDORS
3.1 Assignment of Contract
The Contractor shall not, without the prior consent of the
Employer (which consent, notwithstanding the provisions of
Sub-Clause 1.5, shall be at the sole discretion of the
Employer), assign the Contract or any part thereof, or any
benefit or interest therein or there under, otherwise than by:
(a) a charge in favor of the Contractor's bankers or financial
sources for any commitments due or to become due under the
Contract, or
(b) assignment to the Contractor's insurers (in cases where
the insurers have discharged the Contractor's loss or
liability) of the Contractor's right to obtain relief
against any other party liable.
3.2 Subcontracting
The Contractor shall not subcontract the whole of the Works.
Except where otherwise provided by the Contract, the Contractor
shall not subcontract any part of the Works without the prior
consent of the Employer.
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<PAGE> 29
Provided that the Contractor shall not be required to obtain
such consent for:
(a) the provision of local labor and personnel,
(b) the purchase of materials which are in accordance with
the standards specified in the Contract, or
(c) the sub-contracting of the Civil Works to the Blue Nile
Construction Enterprise and the Erection Works to DEMECH.
The Contractor shall be responsible for the acts, defaults and
neglects of any Subcontractor, his agents or employees as fully
as if they were the acts, defaults or neglects of the
Contractor, his agents or employees.
3.3 Vendors.
The Contractor shall not deviate from the Vendor List annexed
to the Contract for purchasing the plant.
4. CONTRACT DOCUMENTS
4.1 Language
The language in which the Contract documents and all documents
issued pursuant thereto shall be drawn up is English. The day
to day communication during the execution of the Contract shall
be in English.
4.2 Priority of Contract Documents.
Unless otherwise provided in the Contract the priority of the
Contract documents shall be as follows:
1. Contact Agreement
2. The Conditions of Contract
3. The Specification Annexes 1-20
4. Annexes A-E associated with the Contract Agreement
5. The Schedules of Prices
6. Any other documents forming part of the Contract
4.3 Documents Mutually Explanatory.
Subject to Sub-Clause 4.2, the Contract documents shall be taken
as mutually explanatory. Any ambiguities or discrepancies shall
be resolved by the Engineer, who shall then instruct the
Contractor thereon.
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<PAGE> 30
If the Contractor considers that compliance with such
instructions will result in any cost which the Contractor could
not reasonably have anticipated, he shall forthwith inform the
Engineer with full supporting details. The Engineer shall
then, if he approves, certify such costs as may be reasonable,
together with profit where appropriate, which shall be added to
the Contract Price.
If on the other hand compliance with such instructions results
in lower costs for the Contractor than he had reason to
anticipate, the Engineer shall certify a deduction from the
Contract Price allowing for profit where appropriate.
4.4 Contractor's Drawings
The Contractor shall submit to the Engineer for his approval,
(a) within the time given in the Contract such drawings,
samples, models or information as may be called for
therein, and in the numbers therein required, and
(b) during the progress of the Works, such drawings of the
general arrangement and details of the Works as specified
in the Contract or as the Engineer may require.
The Engineer shall signify his approval or disapproval
thereof. If he fails to do so within the time given in the
Contract or if no time limit is specified, within 28 days of
receipt, they shall be deemed to be approved.
Approved drawings, samples and models shall be signed or
otherwise identified by the Engineer.
The Contractor shall supply additional copies of approved
drawings as reasonably required by the Engineer.
The Contractor shall obtain the approval of the appropriate
Ethiopian Government Authorities for all Drawings as stated in
Annex 13.
4.5 Consequences of Disapproval of Contractor's Drawings
Any Contractor's Drawings which the Engineer disapproves, shall
be forthwith modified to meet the requirements of the Engineer
and shall be resubmitted.
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<PAGE> 31
4.6 Approved Contractor's Drawings
Approved Contractor's Drawings shall not be departed from
except in accordance with the Engineer's written instructions.
4.7 Inspection of Contractor's Drawings
The Engineer shall have the right at all reasonable times to
inspect, at the Contractor's or Sub-contractor's premises, all
Contractor's Drawings of any part of the Works.
4.8 Erection Information
The Contractor shall provide, within the times stated in the
Contract or in the Master Schedule, drawings showing how the
Plant is to be affixed and any other information required for:
(a) preparing suitable foundations or other means of support,
and
(b) providing suitable access on the Site for the Plant and
any necessary equipment to the place where the Plant is to
be erected, and
(c) making necessary connections to the Plant.
4.9 Operation and Maintenance Manuals
Before the Works are taken over in accordance with Sub-Clause
12.1 the Contractor shall supply operation and maintenance
manuals together with drawings of the Works as built. These
shall be in such detail as will enable the Employer to operate,
maintain, adjust and repair all parts of the Works.
The manuals and drawings shall be in the English language, and
in such form and numbers as reasonably required by the
Engineer.
Unless otherwise agreed, the Works shall not be considered to
be completed for the purposes of Taking Over until such manuals
and drawings have been supplied to the Employer.
4.10 Employer's Use of Contractor's Drawings
The Contractor's Drawings may be used by the Employer for no
other purpose than completing, operating, maintaining,
adjusting and repairing the Works.
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<PAGE> 32
4.11 Contractor's Use of Employer's Drawings
The Employer's Drawings, Specification and other information
submitted by the Employer or the Engineer to the Contractor
shall remain the property of the Employer. They shall not,
without the consent of the Employer, be used, copied or
communicated to a third party by the Contractor unless
necessary for the purposes of the Contract.
4.12 Manufacturer's Drawings
Unless otherwise specified within the Contract, the Contractor
shall not be required to disclose to the Employer or the
Engineer the Contractor's confidential manufacturing drawings,
designs, know-how or manufacturing practices, processes or
operations.
4.13 Errors in Contractor's Drawings
The Contractor shall be responsible for any errors or omissions
in the Contractor's Drawings unless they are due to incorrect
Employer's Drawings or other written information supplied by
the Employer or the Engineer. Approval by the Engineer of the
Contractor's Drawings shall not relieve the Contractor from any
responsibility under this Sub-Clause.
The Contractor shall bear any costs he may incur as a result of
delay in providing Contractor's Drawings and other information
or as a result of errors or omissions therein, for which the
Contractor is responsible.
The Contractor shall at his own cost carry out any alterations
or remedial work necessitated by such errors or omissions for
which he is responsible and modify the Contractor's Drawings
and such other information accordingly.
The performance of his obligations under this Clause shall be
in full satisfaction of the Contractor's liability under this
Clause but shall not relieve him of his liability under
Sub-Clause 25.1.
4.14 Errors by the Employer or Engineer
The Employer shall be responsible for the Employer's Drawings
and for other written information supplied by the Employer or
the Engineer and for the details of special work specified by
either of them provided, however, that the Contractor shall be
responsible for his interpretation of such matters. If such
Employer's
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<PAGE> 33
Drawings, information or details are incorrect and necessitate
alterations of the work, the Employer shall pay the Contractor
the cost of the alterations together with profit as certified
by the Engineer.
4.15 Disruption of Progress
The Contractor shall give notice to the Engineer, with a copy
to the Employer, whenever planning or execution of the works is
likely to be delayed or disrupted unless any further drawing or
instruction is issued by the Engineer within a reasonable time.
The notice shall include details of the drawing or instruction
required and of why and by when it is required and of any delay
or disruption likely to be suffered if it is late.
4.16 Delays and Cost of Delays of Drawings
If, by reason of any failure or inability of the Engineer to
issue, within a time reasonable in all the circumstances, any
drawings or instruction for which notice has been given by the
Contractor in accordance with Sub-clause 4.15, and the
Contractor suffers delay and/or incurs cost then the Engineer
shall, after due consultation with the Employer and the
Contractor, determine:
(a) any extension of time to which the Contractor is entitled
under Clause 10.3 and
(b) the amount of such cost shall be added to the contract
price, and the Engineer shall notify the Contractor
accordingly, with a copy to the Employer.
4.17 Failure by Contractor to Submit Drawings
If the failure or inability of the Engineer to issue any
drawings or instructions is caused in whole or in part by the
failure of the Contractor to submit Drawings or other documents
which he is required to submit under the Contract, the Engineer
shall take such failure by the Contractor into account when
making his determination pursuant to Sub-Clause 4.16.
5. OBLIGATIONS OF THE CONTRACTOR
5.1 General Obligations
The Contractor shall in accordance with the Contract, with due
care and diligence, design, manufacture, deliver to Site,
construct, maintain, erect, test and commission the Plant and
carry out
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the Works within the Time for Completion. The Contractor
shall also provide all necessary Contractor's Equipment,
superintendence, labor, training for the employees of the
Employer, materials and all necessary facilities therefor.
5.2 Obligation to Provide Items and to Execute Works
Except as otherwise provided in the Contract, the Contractor
shall take full responsibility, at no additional cost to the
Employer to provide all items and execute all tasks which are
not specifically mentioned in the Contract, but which are
necessary for the proper normal, efficient, safe and stable
operation of the Plant.
5.3 Availability of Spare Parts
The Contractor shall provide necessary spare parts for at least
15 years from the date of issue of provisional certificate of
acceptance subject to conditions to be agreed at the completion
of the Contract, and after the lapse of this period, the
necessary manufacturing drawings shall be provided to the
Employer free of charge.
5.4 Performance Security
The Contractor shall provide a Performance Security by a First
Class International Bank confirmed by the Commercial Bank of
Ethiopia, in favor of the Employer to the amount of 10% (Ten)
percent of the Contract Price, within 28 days after the
signature of the Contract. Such security shall be in the form
annexed to these Conditions, (Annex A). The cost of complying
with the requirements of this Clause shall be borne by the
Contractor.
5.5 Period of Validity
The Performance Security shall be valid until the Contractor
has executed, completed and remedied defects in the Works in
accordance with the Contract. No claim shall be made against
the Performance Security after the issue of the Defects
Liability Certificate and the Performance Security shall be
returned to the Contractor within 14 days of the issue of the
Defects Liability Certificate.
5.6 Claims under Performance Security
The Employer shall not make a claim under the Performance
Security unless one of the following conditions is satisfied:
a) the Contractor is in breach of the Contract and fails to
remedy the breach within 30 days after receiving written
notice from the
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Employer requiring him so to do. The notice shall state
the intention to claim under the Performance Security, the
amount claimed and the breach relied upon, or
b) the Employer and the Contractor have agreed in writing
that the amount demanded is payable to the Employer, and
the amount has not been paid within 30 days thereafter, or
c) the Employer has obtained an award in arbitration under
the Contract and the amount awarded has not been paid
within 30 days after the award, or
d) the Contractor has gone into liquidation or is bankrupt.
In every case the Employer shall, when making the claim,
send a copy to the Contractor.
5.7 Site Data
The Employer shall have made available to the Contractor,
before the submission by the Contractor of the Tender, such
data on hydrological meteorological and sub-surface conditions
as have been obtained by or on behalf of the Employer from
investigations undertaken relevant to the Works but the
Contractor shall be responsible for his own interpretation
thereof.
The Contractor shall be deemed to have inspected and examined
the Site and its surroundings and information available in
connection therewith and to have satisfied himself (so far as
is practicable, having regard to considerations of cost and
time) before submitting his Tender, as to:
a) the form and nature thereof, including the sub-surface
conditions,
b) the hydrological and climatic conditions,
c) the extent and nature of work and materials necessary for
the execution and completion of the Works and the
remedying of any defects therein,
d) the facilities available at the ports for unloading cargo
and the time taken for such operation.
e) the means of access to the Site and the accommodation he
may require and, in general, shall be deemed to have
obtained all necessary information, subject as above
mentioned, as to
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risks, contingencies and all other circumstances which may
influence or affect his Tender.
The Contractor shall be deemed to have based his Tender on
the data made available by the Employer and on his own
inspection and examination, all as aforementioned.
5.8 Other Local Conditions
The Contractor shall be deemed to have satisfied himself on and
taken account of:
a) all the conditions and circumstances affecting the
Contract Price,
b) the possibility of carrying out the Works as described in
the Contract,
c) the general circumstances at the Site, and
d) the general labor position at the Site.
The Contractor shall not be responsible for the accuracy of
information given in writing by the Employer or the Engineer
but shall be responsible for his interpretation of information
received from whatever source.
5.9 Physical Obstructions and Conditions
If during the execution of the Works on site the Contractor
encounters physical obstructions or conditions of the kind
stipulated in sub-clause 10.3C which could not reasonably have
been foreseen he shall be entitled to recover the additional
cost incurred in consequence provided that the Contractor gives
written notice to the Engineer.
The Engineer shall certify and there shall be added to the
Contract Price the additional cost of:
a) complying with any instruction which the Engineer, after
due consultation with the Employer and the Contractor,
issues to the Contractor in connection therewith, and
b) any necessary measures which the Contractor may take in
the absence of specific instructions from the Engineer.
5.10 Work to be in Accordance with Contract
Unless it is legally or physically impossible, the Contractor
shall execute and complete the Works and remedy any defects
therein in strict accordance with the Contract to the
satisfaction of the Engineer. The Contractor shall comply with
and
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adhere to the Engineer's instructions on any matter, whether
mentioned in the Contract or not, touching or concerning the
Works. The Contractor shall take instructions only from the
Engineer or, subject to the provisions of Clause 2, from the
Engineer's Representative.
5.11 Master Schedule to be Furnished
a) The Contractor shall within 30 days from the Effective
Date submit a Master Schedule for the approval of the
Engineer.
The Master Schedule shall contain the following:
1) the order in which the Contractor proposes to carry
out the Works (including design, manufacture,
delivery to Site, erection, testing and commissioning),
2) the times when submission and approval of the
Contractor's Drawings are required.
3) the times by which the Contractor requires the
Employer or Engineer:
(i) to furnish any Employer's Drawings,
ii) to provide access to the Site, and
iii) to have obtained any import licenses, consents,
wayleaves and approvals necessary for the
purpose of the Works.
Such Master Schedule shall be based on the provisional
Master Schedule issued by the Contractor and incorporated
in the Contract as Annex 19.
b) The Engineer shall approve the Master Schedule within 30
days of receipt.
c) Approval of the Master Schedule (or any modification
thereof with the Engineer's consent) shall not relieve the
Contractor of any of his obligations under the Contract.
d) After approval of the Master Schedule the Contractor shall
adhere to the order of the procedure stated therein unless
he obtains the written permission of the Engineer to
vary such order. The Contractor shall whenever
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required by the Engineer also provide in writing a general
description of the arrangements and methods which the
Contractor proposes to adopt for the execution of the
Works.
e) No alteration of the Master Schedule shall be made without
the approval of the Engineer.
f) If at any time it should appear to the Engineer that the
actual progress of the Works does not conform to the
Master Schedule, the Contractor shall produce, at the
request of the Engineer, a revised Master Schedule showing
the modifications to the agreed Master Schedule necessary
to ensure completion of the Works within the Time for
Completion.
5.12 Cash Flow Estimate and Contract Administration Procedures
Within 30 days of the Effective Date, the Contractor shall
provide to the Engineer:
a) a detailed cash flow estimate in quarterly periods, of
all payments to which the Contractor will be entitled
under the Contract and the Contractor shall subsequently
supply revised cash flow estimates at quarterly intervals.
b) the Contract Administration Procedures Manual as specified
in Annex 20.
5.13 Contractor's Superintendence
The Contractor shall provide all necessary superintendence
during the execution of the Works and as long thereafter as
necessary for the proper fulfilling of the Contractor's
obligations under the Contract. The Contractor, or his
competent and authorized representatives, shall be fluent in
the English language, and their names shall be communicated to
the
Engineer within 30 days after the Effective Date. Such
authorized representative shall receive, on behalf of the
Contractor, instructions from the Engineer or, subject to the
provisions of Clause 2, the Engineer's Representative.
5.14 Contractor's Employees
The Contractor shall provide on the Site in connection with the
execution and completion of the Works and the remedying of any
defects therein:
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a) only such technical assistants as are skilled and
experienced in their respective callings and such foremen
and leading hands as are competent to give proper
superintendence of the Works, and
b) such skilled, semi-skilled and unskilled labor as is
necessary for the proper and timely fulfilling of the
Contractor's obligations under the Contract.
5.15 Objection to Contractor's Employees
The Engineer shall be at liberty to object to and require the
Contractor to remove forthwith from the Works any person
provided by the Contractor who, in the opinion of the Engineer,
misconducts himself, or is incompetent or negligent in the
proper performance of his duties, and such person shall not be
again allowed upon the Works without the consent of the
Engineer. Any person so removed from the Works shall be
replaced as soon as possible.
5.16 Setting Out
The Contractor shall be responsible for:
a) the accurate setting-out of the Works in relation to the
original points, lines and levels of reference given
by the Engineer in writing,
b) the correctness, subject as above mentioned, of the
position, levels, dimensions and alignment of all parts of
the Works, and
c) the provision of all necessary instruments, appliances and
labor in connection with the foregoing responsibilities.
If, at any time during the execution of the Works, any error
appears in the position, levels, dimensions or alignment of any
part of the Works, the Contractor, on being required so to do
by the Engineer, shall, at his own cost, rectify such error to
the satisfaction of the Engineer, unless such error is based on
incorrect data supplied in writing by the Engineer, in which
case the Engineer shall determine an addition to the Contract
Price per Sub-clause 4.14, and shall notify the Contractor
accordingly, with a copy to the Employer.
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The checking of any setting-out of any line or level by the
Engineer shall not in any way relieve the Contractor of his
responsibility for the accuracy thereof and the Contractor
shall carefully protect and preserve all bench-marks,
sight-rails, pegs and other things used in setting-out the
Works.
5.17 Contractor's Equipment
a) All Contractor's equipment imported under the Contract
shall forthwith be sent to the Site and shall not be used
except for the execution of the Works.
b) All Contractor's Equipment provided by the Contractor
shall, when brought on to the Site, be deemed to be
exclusively intended for the execution of the Works and
the Contractor shall not remove the same or any part
thereof, except for the purpose of moving it from one part
of the Site to another or upon completion of the Works,
without the consent in writing of the Engineer.
c) The Contractor shall be liable for loss of or damage to
any of the Contractor's Equipment which may happen
otherwise than through the default of the Employer.
5.18 Safety, Security and Protection of the Environment
The Contractor shall, throughout the execution and completion
of the Works and the remedying of any defects therein:
a) have full regard for the safety of all persons entitled to
be upon the Site and keep the Site (so far as the same is
under his control) and the Works (so far as the same are
not completed or occupied by the Employer) in an orderly
state appropriate to the avoidance of danger to such
persons, and
b) provide and maintain at his own cost all lights, guards,
fencing, warning signs and watching, when and where
necessary or required by the Engineer or by any duly
constituted authority, for the protection of the Works or
for the safety and convenience of the public or others,
and
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c) take all reasonable steps to protect the environment on
and off the Site and to avoid damage or nuisance to
persons or to property of the public or others resulting
from pollution, noise or other causes arising as a
consequence of his methods of operation.
5.19 Clearance of Site
The Contractor shall from time to time during the progress of
the Works clear away and remove all surplus materials and
rubbish. On completion of the works the Contractor shall
remove all Contractor's Equipment and leave the whole of the
Site and the Works clean and in a workmanlike condition, to the
satisfaction of the Engineer. Provided that the Contractor
shall be entitled to retain on Site, until the end of the
Defects Liability Period, such material, Contractor's Equipment
and Temporary Works as are required by him and consented to by
the Engineer for the purpose of fulfilling his obligations
during the Defects Liability Period.
5.20 Opportunities for Other Persons and Contractors
a) The Contractor shall, in accordance with the requirements
of the Engineer, afford all reasonable opportunities to
persons for carrying out their work, to any other
contractors employed by the Employer and to the workmen of
the employer and of any other persons who may be employed
in the execution on or near the Site of any work not
included in the Contract or of any contract which the
Employer may enter into in connection with or ancillary to
the Works. If, however, the Contractor shall, on the
written request of the Engineer or the Engineer's
Representative, make available to any such other person,
any road or ways for the maintenance of which the
Contractor is responsible, or permit the use by any such
of the Contractor's Equipment on the Site, or provide any
other service of whatsoever nature, the Employer shall pay
to the Contractor accordingly. The amount to be paid
shall be certified by the Engineer and added to the
Contract Price.
b) In so far as the execution of the Works requires the
Contractor to work in conjunction with any other
contractor employed by the Employer, such work shall be
carried out as described in the Specification or in such
manner and at such times as the Engineer shall reasonably
instruct in the interests of the timely completion of all
works by all
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contractors on the Site provided the same shall not
obstruct or disturb the progress of the Works.
5.21 Authority for Access
No persons other than the employees of the Contractor and his
Subcontractors shall be allowed on the Site except with the
consent of the Engineer.
5.22 Information for Import Permits and Licenses
The Contractor shall submit to the Employer in good time such
details of all Plant and Contractor's Equipment as will enable
the Employer to obtain all necessary import permits or
licenses.
5.23 Compliance with Laws
The Contractor shall, in all matters arising in the performance
of the Contract, conform in all respects with the provisions of
any law or regulation of any duly constituted authority that
shall be applicable to the Works, and shall keep the Employer
indemnified against all penalties and liability of every kind
for breach of any such law or regulation.
5.24 Patent Rights
The Contractor shall indemnify the Employer against all claims
of infringement of any patent, registered design, copyright,
trade mark or trade name or other intellectual property right
provided that all of the following conditions are satisfied:
(a) The Claim or proceeding arise out of the design,
construction, manufacture or use of the Works or any Plant
supplied by the Contractor.
(b) The right was protected at the date of the Contract in the
Contractor's country or the country in which the Plant is to be
manufactured or erected.
(c) The infringement or allegation of infringement was not
caused by any use of the Works otherwise than for the purpose
indicated by or reasonably to be inferred from the
Specification.
(d) The infringement or allegation of infringement was not
caused by the use of any Plant in association or combination
with any plant not supplied by the Contractor, unless such
association or combination was disclosed to the Contractor
prior to the date of the Tender.
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(e) The infringement or allegation of infringement was not
caused by the Contractor following the design or instructions
of the Employer or the Engineer.
5.25 Claims in respect of Patent Rights
The Contractor shall be promptly notified of any claim under
this Clause made against the Employer. The Contractor may at
his own cost conduct negotiations for the settlement of such
claim, and any litigation that may arise therefrom.
The Employer shall not make any admission which might be
prejudicial to the Contractor unless the Contractor has failed
to take over the conduct of the negotiations or litigation
within a reasonable time after having been so requested.
The Contractor may not, however, conduct such negotiations or
litigation before he has given the Employer such reasonable
security as the Employer may require. The security shall be
for an amount which is an assessment of the compensation,
damages, expenses and costs for which the Employer may become
liable and which are the subject of the indemnity under
Sub-Clause 5.24.
The Employer shall, at the request of the Contractor, provide
all available assistance for the purpose of contesting any such
claim or action, and shall be repaid all reasonable costs
incurred in doing so.
5.26 Employer's Warranty for Patent Rights
If any matter for which the Contractor is not liable to
indemnify the Employer under Sub-Clause 5.24 causes the
infringement or allegation of infringement by the Contractor of
any patent, registered design, trade mark, copyright or other
intellectual property right, the Employer shall indemnify the
Contractor against all claims, damages, expenses and costs
which the Contractor may incur in relation thereto. The
provisions of Sub-Clause 5.24 shall apply mutatis mutandis.
5.27 Royalties
The Contractor shall pay all tonnage and other royalties,
rent and other payments or compensation, if any, for obtaining
stone, sand, gravel, clay or other materials required for the
Works.
5.28 Antiquities
All fossils, coins, articles of value or antiquity and
structures and other remains or things of geological or
archaeological interest discovered on the Site of the Works
shall as between the Employer
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and the Contractor be deemed to be the absolute property of the
Employer. The Contractor shall take reasonable precautions to
prevent his workmen or any other persons from removing or
damaging any such article or thing and shall immediately upon
discovery thereof and, before removal, acquaint the Engineer's
Representative of such discovery and carry out, at the expense
of the Employer, the Engineer's Representative's orders as to
the disposal of the same. If, by reason of such instructions,
the Contractor suffers delay and/or incurs cost, then the
Engineer shall, after due consultation with the Employer and
the Contractor determine:
a) any extension of time to which the Contractor is entitled
under Clause 10 hereof, and
b) the amount of such costs, which shall be added to the
Contract Price.
5.29 Traffic and Special Loads
a) All operations necessary for the execution of the Works
shall, so far as compliance with the requirements of the
Contract permits, be carried on so as not to interfere
unnecessarily or improperly with the convenience of the
public, or the access to, use and occupation of public
or private roads and footpaths to or of properties
whether in the possession of the Employer or of any other
person. The Contractor shall save harmless and indemnify
the Employer in respect of all claims, proceedings,
damages, costs, charges and expenses whatsoever arising
out of, or in relation to, any such matters in so far as
the Contractor is responsible therefor.
b) The Contractor shall use every reasonable means to prevent
any of the roads or bridges communicating with or on the
routes to the Site from being damaged or injured by any
traffic of the Contractor or any Sub-Contractor and, in
particular, shall select routes, choose and use vehicles
and restrict and distribute loads so that any such
extraordinary traffic as will inevitably arise from the
moving of Plant and Contractor's Equipment from and to the
Site shall be limited, as far as reasonably possible, and
so that no unnecessary damage or injury may be occasioned
to such highways and bridges.
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c) Should it be found necessary for the Contractor to move
one or more loads of Plant or Contractor's Equipment over
part of a highway or a bridge, the moving whereof is
likely to damage any such highway or bridge unless special
protection or strengthening is carried out, then the
Contractor shall before moving the load on to such highway
or bridge give notice to the Engineer or Engineer's
Representative of the weight and other particulars of the
load to be moved and his proposals for protecting or
strengthening the said highway or bridge. Unless within
14 days of the receipt of such notice the Engineer shall
by counter-notice direct that such protection or
strengthening is unnecessary, then the Contractor shall
carry out such proposals or any modification thereof that
the Engineer shall require and the costs thereof shall be
paid by the Employer to the Contractor only if the
Contractor could not reasonably have foreseen the same.
6. OBLIGATIONS OF THE EMPLOYER
6.1 Possession of Site
a) The Employer shall, promptly provide the Contractor
possession and access of so much of the Site as may be
required to enable the Contractor to commence and proceed
with the execution of the Works in accordance with the
Master Schedule and otherwise in accordance with such
reasonable proposals of the Contractor as he shall, by
written notice to the Engineer, make and the Employer
shall, from time to time as the Works proceed, give to the
Contractor, possession of such further portions of the
Site as may be required to enable the Contractor to
proceed with the execution of the Works in accordance with
the Master Schedule or with such proposals, as the case
may be.
b) If the Contractor suffers delay or incurs costs from any
failure on the part of the Employer to give possession or
access in accordance with the terms of this Clause, the
Engineer shall grant an extension of time for the
completion of the Works and certify such sum as, in his
opinion, shall be fair to cover the cost incurred, which
sum shall be paid by the Employer.
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6.2 Civil Works on Site
Any building, structure, foundation or means of access on the
Site to be provided by the Employer shall be in a condition
suitable for the reception, movement, installation and
maintenance of the Works within the time or times indicated in
the Master Schedule.
6.3 Permits and Approvals
The Employer shall per the Master Schedule use its best efforts
to assist the Contractor to obtain all consents including
permits-to-work, wayleaves, and approvals at the expense of the
Contractor.
The Employer shall assist the Contractor to obtain all import
permits or licenses whenever required for any part of the Plant
or Works in reasonable time having regard to the time for
delivery of the Plant and completion of the Works.
6.4 Information regarding Laws.
The Employer shall assist the Contractor in ascertaining the
nature and extent of any laws, regulations, orders or by-laws,
and customs in the country where the Plant is to be erected,
which may affect the Contractor in the performance of his
obligations under the Contract.
6.5 Clearance through Customs
The Employer shall use its best efforts in assisting the
Contractor in obtaining clearance through customs for
Contractor's Equipment, materials and other things required for
the Works.
6.6 Permits for Re-Export
The Employer shall use its best efforts to assist the
Contractor in procuring any necessary government consent to the
re-export of the Contractor's Equipment by the Contractor upon
the removal thereof pursuant to the terms of the Contract.
6.7 Letter of Guarantee of Payment for Arbitration Awards
Prior to the Effective Date the Employer shall provide to the
Contractor a letter of guarantee issued by a competent
authority of the Ethiopian Government which requires the
Government to authorize payment of the amount awarded by
arbitration in favour of the Contractor against the Employer
subject to the award stating that the Employer has improperly
drawn upon the Performance
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Security, in the event that the Employer does not pay such
award within forty five (45) days of the awarding thereof.
6.8 Letter of Credit
Within a reasonable time after the Effective Date of the
Contract, the Employer shall establish a Letter of Credit in
favour of the Contractor.
The Letter of Credit shall be irrevocable, divisible and
revolving and shall be issued by a US Bank acceptable to the
Contractor. The Letter of Credit shall be guaranteed by the
African Development Bank's Procedure under its reimbursement
guarantee format (ADB II-B).
The face value of the Letter of Credit for the first year of
its issuance shall be US$ 25,000,000 and thereafter shall
reduce to US$ 12,500,000.
All costs associated with the Letter of Credit shall be borne
by the Contractor.
7. LABOUR
7.1 Engagement of Labour
The Contractor shall make his own arrangements for the
engagement of all labor and for the transport, housing, feeding
and payment thereof.
7.2 Employment of Local Labour
The Contractor shall make every effort to and shall employ the
maximum number of qualified Ethiopian citizens to carry out the
Works. Suitably skilled tradesmen and unskilled labor shall be
drawn from the local population where available.
7.3 Importation of Labour
If the Contractor shall import qualified staff or artisans the
importation and repatriation thereof together with the
importation and repatriation of other labor and personnel shall
be subject to the relevant laws and regulations in force from
time to time and no labor or personnel shall be imported by the
Contractor without first obtaining the necessary authorizations
from the appropriate authorities. The Contractor shall in his
planning take due account of the time required to complete all
formalities and to obtain necessary documents.
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The Employer shall assist the Contractor in the obtaining of
visas, work permits and other authorizations for the
Contractor's essential labor and personnel.
7.4 Use of Alcohol and Drugs
The Contractor shall not, otherwise than in accordance with the
laws and regulations for the time being in force, import, sell,
give, barter or otherwise dispose of any alcoholic liquor, or
drugs or permit or allow any such importation, sale, gift,
barter or disposal by his Sub-Contractors, agents or employees.
7.5 Prohibition of Firearms
The Contractor shall not import, buy locally, give, barter or
otherwise dispose of to any person any arms or ammunition of
any kind or permit or allow the same as aforesaid, except as
authorized by appropriate Ethiopian government authorities.
7.6 Preservation of Peace
The Contractor shall at all times take all reasonable
precautions to prevent any unlawful, riotous or disorderly
conduct by or amongst his employees and for the preservation of
peace and protection of persons and property in the
neighborhood of the Works against the same.
7.7 Working Hours
The Contractor shall, in all dealing with labor in his
employment have due regard to the hours and conditions of work
prescribed by law and to all recognized festivals, days of rest
and religious or other customs.
No work shall be carried out on the Site outside normal working
hours or on the locally recognized days of rest, unless:
a) the Contract so provides, or
b) the work is unavoidable or necessary for the saving of
life or property or for the safety of the Works, in which
case the Contractor shall immediately advise the Engineer,
or
c) the Engineer gives his consent.
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7.8 Outbreak of Illness
In the event of any outbreak of illness of an epidemic nature,
the Contractor shall comply with and carry out such regulations
and orders as may be made by the Government, or the local
medical or other authorities for the purpose of dealing with
and overcoming the same. The costs associated with the
outbreak of such illness shall be the responsibility of the
Employer.
7.9 Prevention of Disease
The Contractor shall take such precautions as necessary to
reduce the danger to health and general nuisance occasioned by
mosquitos and other animal pests. At the Site, as requisite,
the Contractor shall provide his employees with suitable
prophylactics for the prevention of disease and take steps to
prevent the formation of stagnant pools of water. He shall
comply with all regulations of the medical authorities in these
respects and shall in particular arrange to spray thoroughly
with approved insecticide all buildings, sheds and temporary
structures erected on the Site. He shall warn his employees of
the existence and danger of health hazards whenever applicable.
7.10 Responsibility for Safety
The Contractor shall appoint some person to deal with the
safety and protection against accidents of his labor and
personnel at the Site. Such person shall be qualified for this
work and shall have authority to issue instructions and to
institute protective measures to prevent accidents to the
satisfaction of the Engineer. The Contractor shall within
twenty-four hours of the occurrence of any accident, at the
Site or in connection with the execution of the Works, report
such accident to the Engineer's Representative. The Contractor
shall also report such accident to the competent authority
whenever such report is required by law.
7.11 Removal of Temporary Facilities
The Contractor shall at his own cost provide, maintain and
remove on completion of the Contract, all camps and housing
necessary to properly accommodate his personnel and labor,
together with all associated services including all necessary
water supplies and installations for drinking and other
purposes, sanitation, drainage, refuse disposal, fencing and
fire-fighting equipment. All buildings and all sheds and
temporary structures which the Contractor may erect for his own
purposes
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shall be erected only on land placed at the Contractor's
disposal by the Employer. Such facilities shall in respect of
design, situation, layout, water supply, washing and cooking
facilities, lighting, sanitary and health arrangements and
welfare be appropriate in all respects for their purpose, shall
comply with all relevant laws and regulations and be subject to
the approval of the Engineer.
7.12 First Aid Facilities
The Contractor shall provide, equip and maintain throughout the
construction period and so far as may be necessary during the
Period of Maintenance, in a position on the Site and approved
by the Engineer suitable and sufficient first-aid facilities
for the general use of his and Sub-Contractor's personnel and
labor.
7.13 Responsibility for Costs
Unless specifically provided herein, all costs that may be
incurred by the Contractor in giving effect to the provisions
of this Clause, shall be deemed to be included in the Contract
Price.
7.14 Responsibilities of Sub-Contractors
The Contractor shall be responsible for the observance by his
Sub-Contractors of the provisions of this Clause.
7.15 Reporting Requirements
The Contractor shall, if required by the Engineer, deliver to
the Engineer's Representative or at his office a record in
detail, in such form and at such intervals as the Engineer may
prescribe, showing the supervisory staff and the numbers of the
several classes of labor from time to time employed by the
Contractor on the Site and such information respecting
Contractor's Equipment as the Engineer may require.
7.16 Availability of Facilities to Other Contractors
The Contractor shall make available, without charge, to the
personnel (designated by the Engineer and not exceeding three
in number at any one time) of another contractor employed by
the Employer to supervise the erection of mills and caneyard
equipment, all such facilities as are to be provided for under
this Clause.
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7.17 Provision of Information-Labour Laws
The Employer shall assist the Contractor in provision of
information regarding applicable labor laws as necessary to
allow the Contractor to comply with the provisions of Clause 7,
including without limitation, the requirements regarding
permissible working hours, the dispensation of alcoholic liquor
and drugs, prompt handling of the importation and repatriation
of foreign labor, and the applicable laws and regulations
regarding the construction of accommodations for personnel and
labor.
8. MATERIALS, PLANT AND WORKMANSHIP
8.1 Quality of Plant
All Plant shall be:
a) of the respective kinds described in the Contract and in
accordance with the Engineer's instructions, and
b) subjected from time to time to such tests as the Engineer
may reasonably require at the place of manufacture,
fabrication or preparation, or on the Site or at such
other place or places as may be specified in the Contract,
or at all or any of such places.
The Contractor shall use his best endeavors to use
materials and products originating in Ethiopia.
The Contract shall provide such assistance, labor,
electricity, fuels, stores, apparatus and instruments as
are normally required for examining, measuring and testing
any materials or Plant and shall supply samples of
materials, before incorporation in the Works, for testing
as may be selected and required by the Engineer.
Where the manner of manufacture and execution is not set
out in the Contract, the work shall be executed in a
proper and workmanlike manner in accordance with
recognized good practice.
The cost of making any test shall be borne by the
Contractor only if such test is clearly intended by or
provided for in the Contract
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8.2 Certificate of Testing
When Plant has passed the tests referred to in this Clause, the
Engineer shall furnish to the Contractor a certificate or
endorse the Contractor's test certificate to that effect.
8.3 Inspection of Operation
The Engineer, and any person authorized by him in writing,
shall at all reasonable times have access to the Site and to
all workshops and places where materials or Plant are being
manufactured, fabricated or prepared for the Works and the
Contractor shall afford every facility for and every assistance
in obtaining the right to such access.
8.4 Inspection and Testing
The Engineer shall be entitled, during manufacture, fabrication
or preparation to inspect and test the materials and plant to
be supplied under the Contract. If materials or Plant are
being manufactured, fabricated or prepared in workshops or
places other than those of the Contractor, the Contractor shall
obtain permission for the Engineer to carry out such inspection
and testing in those workshops or places. Such inspection or
testing shall not release the Contractor from any obligation
under the Contract.
8.5 Dates for Inspection and Testing
The Contractor shall agree with the Engineer on the time and
place for the inspection or testing of any materials or plant
as provided in the Contract. The Engineer shall give the
Contractor not less than 24 hours notice of his intention to
carry out the inspection or to attend the tests. If the
Engineer, or his duly authorized representative, does not
attend on the date agreed, the Contractor may, unless otherwise
instructed by the Engineer, proceed with the tests, which shall
be deemed to have been made in the presence of the Engineer.
The Contractor shall forthwith forward to the Engineer duly
certified copies of the test readings. If the Engineer has not
attended the tests, he shall accept the said readings as
accurate.
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8.6 Rejection
If, as a result of the inspection, examination or testing
referred to in Clause 8, the Engineer decides that any Plant is
defective or otherwise not in accordance with the Contract, he
may reject such Plant and shall notify the Contractor in
writing thereof immediately. The notice shall state the
Engineer's objections with reasons. The Engineer shall not
reject any Plant for minor defects which do not affect the
commercial operation of the Plant.
The Contractor shall within reasonable time make good the
defect or ensure that any rejected Plant complies with the
Contract.
If the Engineer requires such Plant to be retested, the tests
shall be repeated under the same terms and conditions. All
costs incurred by the Employer and certified by the Engineer as
the result of the repetition of the tests shall be deducted
from the Contract Price.
8.7 Removal of Improper Plant
The Engineer shall have authority to issue instructions from
time to time, for:
a) the removal from the Site, within such time or times as
may be specified in the instruction, of any materials or
Plant which, in the opinion of the Engineer, are not in
accordance with the Contract,
b) the substitution of proper and suitable materials or
Plant, and
c) the removal and proper re-execution, notwithstanding any
previous test thereof or interim payment therefor, of any
work which, in respect of:
(i) materials, Plant or workmanship, or
(ii) design by the Contractor or for which he is
responsible, is not, in the opinion of the Engineer,
in accordance with the Contract.
8.8 Default of Contractor in Compliance
In case of default on the part of the Contractor in carrying
out such instruction within the time specified therein or, if
none, within a reasonable time, the Employer shall be entitled
to employ and
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pay other persons to carry out the same and all costs
consequent thereon or incidental thereto shall, after due
consultation with the Employer and the Contractor, be
determined by the Engineer and shall be recoverable from the
Contractor by the Employer, and may be deducted by the Employer
from any moneys due or become due to the Contractor and the
Engineer shall notify the Contractor accordingly, with a copy
to the Employer.
8.9 Examination of Work Before Covering Up
No part of the Works shall be covered up or put out of view
without the approval of the Engineer and the Contractor shall
afford full opportunity for the Engineer to examine and measure
any such part of the Works which is about to be covered up or
put out of view and to examine foundations before any part of
the Works is placed thereon. The Contractor shall give due
notice to the Engineer whenever any such assembly, work or
foundation is or are ready or about to be ready for examination
and the Engineer shall, without unreasonable delay, unless he
considers it unnecessary and advises the Contractor
accordingly, attend for the purpose of examining and measuring
such assembly or work or of examining such foundations.
8.10 Uncovering & Making Openings
The Contractor shall uncover any part of the Works or make
openings in or through the same as the Engineer may from time
to time direct and shall reinstate and make good such part to
the satisfaction of the Engineer. If any such part has been
covered up or put out of view after compliance with the
requirement of the preceding Sub-Clause and is found to be
executed in accordance with the Contract, the Engineer shall,
after due consultation with the Employer and the Contractor,
determine the amount of the Contractor's costs in respect of
such of uncovering, making openings in or through, reinstating
and making good the same, which shall be added to the Contract
Price, and shall notify the Contractor accordingly, with a copy
to the Employer. In any other case all costs shall be borne by
the Contractor.
8.11 Plant - Free Issue
Where the Employer is providing without charge to the
Contractor (Free Issue) Plant for incorporation in the Works,
such Plant shall remain the property of the Employer. The
Contractor shall maintain such plant in good order and
condition and shall
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take full responsibility for the care thereof. Waste or loss
of such Plant arising from bad workmanship or from the neglect
of the Contractor shall be made good at the expense of the
Contractor.
8.12 Permission to Deliver
The Contractor shall apply in writing to the Engineer for
permission to deliver any Plant or Contractor's Equipment to
the Site. No Plant or Contractor's Equipment may be delivered
to the Site without the Engineer's written permission.
Authorization for shipment under Annex C is deemed as
permission to deliver such Plant and Equipment.
The Contractor shall be responsible for the reception on Site
of the Plant and Contractor's Equipment.
8.13 Warranty
a) The Contractor warrants that the Plant supplied under the
Contract are in accordance with the specification, new,
unused, of the most recent or current models and
incorporate all recent improvements in design and
materials. The Contractor further warrants that all Plant
supplied under this Contract shall have no defect arising
from design, materials or workmanship or from any act or
omission of the Contractor that may develop under normal
use of the supplied Plant in the conditions prevailing at
the site of Finchaa Sugar Factor.
b) This Warranty shall remain valid for 12 months after
Taking-over Certificate is issued for the Plant or, any
portion thereof as the case may be.
c) The Employer shall promptly notify the Contractor in
writing of any claims arising under this Warranty.
d) Upon receipt of such notice the Contractor shall, with all
reasonable speed, repair or replace the defective plant or
parts thereof, without costs to the Employer.
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e) If the Contractor, having been notified, fails to remedy
the defect(s) within a reasonable period, the Employer may
proceed to take such remedial action as may be necessary,
at the Contractor's risk and expense and without prejudice
to any other rights which the Employer may have against
the Contractor under the Contract.
9. SUSPENSION OF WORKS, DELIVERY
OR ERECTION
9.1 Order to Suspend
The Engineer may at any time instruct the Contractor to:
a) suspend progress of the Works, or
b) suspend delivery of Plant or Contractor's Equipment which
is ready for delivery to the Site at the time for delivery
specified in the Master Schedule, or if no time is
specified, at the time appropriate for it to be delivered,
or
c) suspend the erection of Plant which has been delivered to
the Site.
When the Contractor is prevented from delivering or erecting
Plant in accordance the Master Schedule the Engineer shall be
deemed to have instructed a suspension except when such
prevention is caused by the Contractor's default.
The Contractor shall during suspension protect and secure the
Works or Plant affected at the Contractor's works or elsewhere
or at the Site, as the case may be, against any deterioration,
loss or damage.
9.2 Cost of Suspension
The additional cost incurred by the Contractor in protecting,
securing and insuring the Works or Plant and in following the
Engineer's instructions under Sub-Clause 9.1 and in resumption
of the work, shall be added to the Contract Price.
9.3 Payment in Event of Suspension
The Contractor shall be entitled to payment for Plant which has
not been delivered to Site if the work on Plant or delivery of
Plant has been suspended for more than 30 days. After 30 days
of
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suspension, the Contractor shall be entitled to payment of the
value of such Plant as at the date of suspension.
A certificate of payment shall be issued on condition that:
a) the Contractor has marked the Plant as the Employer's
property in accordance with the Engineer's instructions,
and
b) the suspension is not due to the Contractor's default.
9.4 Prolonged Suspension
If suspension of the Works under Sub-Clause 9.1 has continued
for more than 90 days, and the suspension is not due to the
Contractor's default, the Contractor may by notice to the
Engineer require permission to proceed within 30 days.
If permission is not granted within that time, the Contractor
may treat the suspension as an omission under Clause 16 of the
Section it affects, or if the suspension affects the whole of
the Works, terminate the Contract and the provisions of Clause
27 shall apply.
9.5 Resumption of Work
If the Contractor chooses not to treat prolonged suspension as
an omission or termination under Sub-Clause 9.4, the Employer
shall upon the request of the Contractor, take over the
responsibility for protection, storage, security and insurance
of the suspended Works and the risk of loss or damage thereto
shall thereupon pass to the Employer.
After receipt of permission or an order to proceed, the
Contractor shall, after due notice to the Engineer, examine the
Works and the Plant affected by the suspension. The Contractor
shall make good any deterioration or defect in or loss of the
Works or Plant that may have occurred during the suspension.
The cost properly incurred by the Contractor which would not
have been incurred but for the suspension shall be added to the
Contract Price.
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The Contractor shall not be entitled to payment for costs
incurred in making good any deterioration, defect or loss
caused by faulty workmanship or materials or by the
Contractor's failure to take the measures specified in
Sub-Clause 9.1.
If the Employer has taken over risk and responsibility for the
suspended Works under this Sub-Clause, risk and responsibility
shall revert to the Contractor 14 days after receipt of the
permission or order to proceed.
10. COMMENCEMENT AND COMPLETION OF WORKS
10.1 Commencement of Works
The Contractor shall commence the Works on the Effective Date.
Thereafter, the Contractor shall proceed with the Works with
due expedition and without delay.
10.2 Time for Completion
The Works shall be completed and shall have passed the Tests on
Completion within 28 months from the Commencement Date as
extended, to the extent necessary, pursuant to Sub-Clause 10.3.
10.3 Extension of Time for Completion
The Contractor may claim an extension of the Time for
Completion if he is or will be delayed in completing the Works
by any of the following causes:
a) extra or additional work ordered in writing under Clause
16,
b) exceptional adverse weather conditions,
c) physical obstructions or conditions which could not
reasonably have been foreseen by the Contractor,
d) Employer's or Engineer's instructions, otherwise than by
reason of the Contractor's default,
e) the failure of the Employer to fulfill any of his
obligations under the Contract,
f) delay by any other contractor engaged by the Employer,
g) any suspension of the Works under Clause 9, except when
due to the Contractor's default,
h) any industrial dispute,
i) the Employer's Risks,
j) Force Majeure,
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k) any impediment or prevention by the Employer not already
mentioned in Sub-Clause 10.3,
l) Any delay resulting from loss, destruction or theft of
plant/equipment and/or Contractor's plant/equipment, from
time of shipment to time of arrival at Site and while
stored at site, such theft or pilferage being the subject
of an insurance claim.
The Contractor shall give to the Engineer notice of this
intention to make a claim for an extension of time within 14
days of the circumstances for such a claim becoming known to
the Contractor. The notice shall be followed as soon as
possible by the claim with full supporting details.
The Engineer shall, after due consultation with the Employer
and the Contractor, grant the Contractor from time to time,
either prospectively or retrospectively, such extension of Time
for Completion as may be justified. The Engineer shall notify
the Employer and the Contractor accordingly.
The Contractor shall be entitled to such extension whether the
delay occurs before or after the Time for Completion.
Where an extension of time has been granted under Sub-Clause
10.3, the additional cost of maintaining the Performance
Security in place must be borne by the Employer, and the period
and value of Performance Security for such extended time must
be subject to mutual agreement between the Employer and
Contractor.
10.4 Rate of Progress
If for any reason, which does not entitle the Contractor to an
extension of time, the rate of progress of the Works or any
Section is at any time, in the opinion of the Engineer, too
slow to comply with the Time for Completion, the Engineer shall
so notify the Contractor who shall thereupon take such steps as
are necessary, subject to the consent of the Engineer, to
expedite progress so as to comply with the Time for Completion.
The Contractor shall not be entitled to any additional payment
for taking such steps. If, as a result of any notice given by
the Engineer under this Clause,
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the Contractor considers that it is necessary to do any work at
night or on locally recognized holiday or days of rest, he
shall be entitled to seek the consent of the Engineer (of which
consent cannot be unreasonably refused) so to do.
Provided that if any steps, taken by the Contractor in meeting
his obligations under this Clause, involve the Employer in
additional supervision costs, such costs shall, after due
consultation with the Employer and the Contractor, be
determined by the Engineer and shall be recoverable from the
Contractor by the Employer, and may be deducted by the Employer
from any monies due or to become due to the Contractor and the
Engineer shall notify the Contractor accordingly, with a copy
to the Employer.
10.5 Delay in Completion and Liquidated Damages
If the Contractor fails to complete the Works within the Time
for Completion, the Employer shall be entitled to a reduction
in the Contract Price as Liquidated Damages.
The reduction shall be 0.07% (seven hundredths of one percent)
per day of the Contract Price which is attributable to such
part of the works as cannot in consequence of the failure be
put to the intended use. The reduction shall be computed for
each day between the Time for Completion and the actual date of
completion.
If, before the completion of the whole of the works any part or
section of the Works has been certified by the Engineer as
completed and occupied or used by the Employer, the liquidated
damages for delay shall, for any period of delay after such
certificate and in the absence of alternative provisions in the
Contract be reduced in the proportion which the value of the
part or section so certified bears to the value of the whole of
the works.
The reduction shall in no case exceed five (5) percent of the
Contract Price.
Except as provided in Sub-Clause 10.7, such reduction shall be
to the exclusion of any other remedy of the Employer in respect
of the Contractor's failure to complete within the Time for
Completion.
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10.6 Bonus for Early Completion
If the Contractor completes the Works in less time than that
established in the Time for Completion, the Contractor shall be
entitled to a bonus as specified in Annex E.
10.7 Prolonged Delay
If the Employer has become entitled to the maximum reduction
under Sub-Clause 10.5 for any part of the Works, he may by
notice require the Contractor to complete. Such notice shall
fix a final time for completion which shall be reasonable.
If the Contractor fails to complete within such time, and this
is not due to a cause for which the Employer or some other
contractor employed by the Employer is responsible, the
Employer may by further notice to the Contractor either:
a) require the Contractor to complete, or
b) may himself complete at the Contractor's cost provided
that he does so in a reasonable manner, or
c) terminate the Contract.
If the Employer terminates the Contract, he shall be entitled
to recover from the Contractor any loss he has suffered up to
the maximum amount stated in the Contract. If no maximum
amount is stated, the Employer shall not be entitled to recover
more than that part of the Contract Price which is attributable
to that part of the Works which cannot by reason of the
Contractor's failure be put to the intended use.
The Employer shall give credit for the value of any part of the
Works which he retains.
11. TESTS ON COMPLETION
11.1 Notice of Tests
The Contractor shall give to the Engineer 21 days' notice of the
date after which he will be ready to make the Tests on
Completion. Unless otherwise agreed, the Tests shall take
place within 10 days after the said date on such day or days as
the Engineer shall notify the Contractor.
11.2 Time for Tests
If the Engineer fails to appoint a time within 21 days after
having been asked to do so, or does not attend at the time and
place appointed, the
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Contractor shall be entitled to proceed with the Tests in his
absence. The Tests shall then be deemed to have been made in
the presence of the Engineer and the results of the Tests
shall be accepted as accurate.
11.3 Delayed Tests
If the Tests are being unduly delayed by the Contractor the
Engineer may by notice require the Contractor to make the Tests
within 10 days after the receipt of such notice. The
Contractor shall make the Tests on such days within that period
as the Contractor may fix and of which he shall give notice to
the Engineer.
If the Contractor fails to make the Tests within 10 days the
Engineer may himself proceed with the Tests. All Tests so made
by the Engineer shall be at the risk and cost of the Contractor
and the cost thereof shall be deducted from the Contract Price.
The Tests shall then be deemed to have been made in the
presence of the Contractor and the results of the Tests shall
be accepted as accurate.
11.4 Facilities for Tests on Completion
The Employer shall provide free of charge such labor,
materials, electricity, fuel, water, stores, apparatus and
other things as may be reasonably required by the Contractor to
carry out the Tests.
11.5 Notice of Test Results
The Engineer must give the Contractor written notice of the
Engineer's interpretation of the results of each Test within
15 days of the test date. If the Employer fails to provide
such written notice to the Contractor within the time
specified, the Plant should be deemed to have passed the Test.
11.6 Retesting
If the Work or any Section fails to pass the Tests, the
Engineer or the Contractor may require such Tests to be
repeated within a reasonable time on the same terms and
conditions. All costs to which the Employer may be put by the
repetition of the Tests under this Sub-Clause shall be deducted
from the Contract Price.
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11.7 Disagreement as to Result of Tests
If the Engineer and the Contractor disagree on the
interpretation of the Test results, each shall give a statement
of his views to the other within 14 days after such
disagreement arises. The statement shall be accompanied by all
relevant evidence.
11.8 Consequences of Failure to Pass Tests on Completion
If the works or any Section fails to pass the Tests on the
repetition thereof under Sub-Clause 11.6, the Engineer, after
due consultation with the Employer and the Contractor, shall
allow the Contractor if he desires to conduct a third test
within seven days after the Contractor has received notice that
such plant failed the second test and if the plant then fails
Test or Contractor elects not to re-test for the third time,
the Engineer shall:
a) Reject the Works or Section in which event the Employer
shall have the same remedies against the Contractor as are
provided under Sub-Clause 15.5(a) or
b) Issue a Taking-Over Certificate, if the Employer so
wishes, notwithstanding that the Works are not complete.
The Contract Price shall then be reduced by such amount as
may be agreed by the Employer and the Contractor or,
failing agreement, as may be determined by arbitration.
11.9 Test Certificate
As soon as the Works or any Section thereof has passed the
Tests, the Engineer shall issue a Certificate to the Contractor
and the Employer to that effect.
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11.10 Test by Employer's Operators
Before issuing of the Taking-Over Certificate, the Employer's
operators shall run the Plant with materials under the
direction and supervision of the Contractor.
12. TAKING OVER
12.1 Taking Over
The Works or any Section thereof specified under Annex 11.7(c)
shall be taken over by the Employer when they have been
substantially completed in accordance with the Contract, except
in minor respects that do not affect the use of the works for
their intended purpose, have passed the Tests on Completion
prescribed by the Contract and a Taking-Over Certificate has
been issued or deemed to have been issued in accordance with
Sub-Clause 12.2.
12.2 Taking-Over Certificate
The Contractor may apply by notice to the Engineer for a
Taking-Over Certificate not earlier than 14 days before the
Works will in the Contractor's opinion be complete and ready
for taking over under Sub-Clause 12.1.
The Engineer shall within 21 days after the receipt of the
Contractor's application either:
a) issue the Taking-Over Certificate to the Contractor, with
a copy to the Employer, stating the date on which the
Works were substantially complete and ready for taking
over, or
b) reject the application giving his reasons and specifying
the work required to be done by the Contractor to enable
the Taking-Over Certificate to be issued.
If the Engineer fails either to issue the Taking-Over
Certificate or to reject the Contractor's application
within the period of 21 days, he shall be deemed to have
issued the Taking-Over Certificate on the last day of that
period.
The Contractor shall be entitled to apply for separate
Taking-Over Certificates for each such section.
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12.3 Use Before Taking Over
The Employer and/or the Engineer shall not use any part of the
Works unless a Taking-Over Certificate has been issued by the
Engineer in respect thereof.
If nevertheless, the Employer and/or Engineer uses any Section
of the Works, that Section which is used shall be deemed to
have been Taken Over at the date of such use. The Engineer
shall on request of the Contractor issue a Taking-Over
Certificate accordingly.
If the Employer and/or Engineer uses the Works before taking
over, the Contractor shall be given the earliest opportunity to
take such steps as may be necessary to carry out the Tests on
Completion.
The provisions of Sub-Clause 10.5 shall not apply to any
Section of the Works while being so used by the Employer.
Clause 15 shall apply as if the Section had been taken over on
the date it was used by the Employer.
12.4 Interference with Tests on Completion
If the Contractor is prevented from carrying out the Tests on
Completion by a cause for which the Employer or the Engineer,
or other contractors employed by the Employer are responsible,
the Employer shall be deemed to have taken over the Works on
the date when the Tests on Completion would have been completed
but, for such prevention. The Engineer shall issue a
Taking-Over Certificate accordingly.
The Works shall not be deemed to have been taken over if they
are not substantially in accordance with the Contract.
If the Works are taken over under this Clause, the Contractor
shall nevertheless carry out the Tests on Completion during the
Defects Liability Period. The Engineer shall require the Tests
on Completion to be carried out by 14 days notice and in
accordance with the relevant provisions of Clause 11.
Any additional costs to which the Contractor may be put in
making the Tests on Completion during the Defects Liability
Period, shall be added to the Contract Price.
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13. PERFORMANCE TESTS
13.1 Carrying Out Tests
The Performance Tests prescribed under the Contract shall be
carried out after the Works have been taken over by the
Employer.
The Performance Tests shall demonstrate that the plant is
capable of performing as designed and specified in the
Contract.
13.2 Notice
The Employer has to give to the Contractor, with a copy to the
Engineer, 21 days notice in writing of the date after which the
Employer will be ready to make the initial Performance Tests.
Unless otherwise agreed in writing the tests shall take place
within 10 days after the said date on such day or days as the
Contractor shall notify the Employer in writing.
13.3 Facilities for Performance Tests
The Employer shall provide free of charge such labour,
materials, electricity, fuel, water, stores apparatus and all
things as may be requisite and reasonably demanded to carry out
such tests efficiently.
13.4 Procedure for Performance Tests
Performance Tests shall be carried out by the Employer and the
Engineer under the supervision of the Contractor pursuant to
such instructions as the Contractor may give in the course of
carrying out such Tests. The Performance Tests shall be
carried out as far as practicable under the conditions detailed
in the Specification.
13.5 Cessation of Performance Tests
Every Performance Test shall be carried out to completion
unless either the Employer, or the Engineer on his behalf or
the Contractor shall order it to be stopped because its
continuance would endanger life or cause damage to the Plant.
Cessation of a Performance Test does not constitute a Test.
13.6 Adjustments and Modifications
If the Works or any portion thereof fails to pass any
Performance Test or repeat Performance Test or if any
Performance Test or repeat Performance Test is stopped before
its completion, such test shall
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be repeated as soon as practicable thereafter. In agreement
with the Engineer the Employer shall permit the Contractor to
make adjustments and modifications to any part of the Works
before the repetition of any Performance Test and shall, if
necessary, shut down any part of the Works for such purpose and
re-start it after any adjustments or modifications have been
made. All such adjustments and modifications shall be made by
the Contractor as soon as practicable in agreement with the
Engineer at his own expense. The Contractor shall if so
required by the Engineer submit details of the adjustments or
modifications which he proposes to make to the Engineer for his
approval.
13.7 Costs of Performance Tests
All reasonable expenses to which the Employer may be put by the
repetition of Performance Tests shall be deducted from the
Contract Price unless the repetition of the Performance Tests
are necessitated by lack of suitable cane, failure or problems
with the cane yard or mill room equipment or other cause out of
the control of Contractor.
13.8 Evaluation of Performance Tests
The results of Performance Tests shall be compiled and
evaluated jointly by the Employer, the Engineer and the
Contractor on consequences of failure to pass the Performance
Tests. Subject to all other conditions of the Contract the
Contractor shall not be responsible for any failure to pass
Performance Tests caused by deficiencies in equipment supplied
to the Contractor by Employer.
Provided the Contractor has met all other performance related
conditions of the Contract the Contractor shall not be held
responsible for any failure to meet performance guarantees if
the mill crushing rate during the 72 hour test period shall
vary from 4000 metric tones per day by more than 10% or if the
rate exceeds 4400 metric tones per 24 grinding hours or if the
crushing is not at a reasonable uniform rate over each of the
72 elapsed hours of the test.
13.9 Failure to Pass the Performance Tests
If the Works or any part there of shall fail to pass any
Performance Tests on the repetition thereof, the Employer shall
be entitled;
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a) to order a repetition of the Performance Tests at the
expense of the Contractor, or
b) to issue an acceptance certificate pursuant to the
provisions of Clause 14 if the Employer so wishes, and
recover from the Contractor any loss suffered by the
Employer by reason of the Works failing to achieve any
guaranteed performance, or
c) to reject the Works or any part thereof where the
Contractor shall with all speed and at this own expense
make good the deficiency. In case the Contractor shall
fail so to do the Employer may, provided he does so
without undue delay, take such steps, at the expense of
the Contractor, as may in all the circumstances be
reasonable to make good such deficiency. Any Plant
provided by the Employer to replace defective Plant shall
comply with the Contract and shall be obtained at
reasonable prices. The Contractor shall be entitled to
remove and retain all Plant that the Employer may have
replaced at the Contractor's expense.
13.10 Postponement and Adjustments of Modifications
If the Works fail to pass any Performance Test and the
Contractor in consequence proposes to make an adjustment or
modification thereto, the Employer may notify the Contractor
that he does not wish such adjustment or modification to be
made until a time that is convenient to him. In such event the
Contractor shall become entitled to the issue of an acceptance
certificate as if the Works has passed the Performance Test in
question, but the Contractor shall remain liable to carry out
the adjustment or modification and to satisfy the Performance
test within a reasonable time of being notified to do so by the
Employer. If however the Employer fails to give any such
notice within twelve months of the acceptance of the Works, the
Contractor shall be relieved of any such obligation and the
Works shall be deemed to have passed such Performance Test.
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14. ACCEPTANCE
14.1 Issue of Acceptance Certificate
Subject to the provisions of Clause 13, the Employer shall
issue to the Contractor a certificate (herein called an
"acceptance certificate") stating that the Works are accepted
by the Employer as from the date thereof as soon as:
a) the Works have been taken over by the Employer,
b) the Works have passed all the Performance Tests, and
c) the Works are currently free from any defects which the
Contractor is bound to make good.
In the event the Employer fails to issue to the Contractor an
Acceptance Certificate within 14 days of the earliest date
after which all Sections of the Works have satisfied all
Performance Tests, the Acceptance Certificate shall be deemed
to have been issued by the Employer for purpose of this Sub-
Clause.
14.2 Provisional Acceptance Certificate
If the Contractor is prevented from satisfying either paragraph
(a) or paragraph (b) of the preceding Sub-Clause within three
months of the taking-over of the Works by any matter which is
wholly beyond the Contractor's control he may apply to the
Employer for the issue of a provisional acceptance certificate
in respect of the Works. The Employer shall thereupon issue
such certificate to the Contractor if the Employer is of the
opinion that but for the matter of prevention the Contractor
would have become entitled to an acceptance certificate under
the preceding Sub-Clause.
14.3 Uncompleted Performance Tests and Work
The issue of an provisional acceptance certificate shall
constitute a provisional acceptance by the Employer of the
Works. All uncompleted work and all unsatisfied or uncompleted
Performance Tests shall be carried out as soon as practicable.
If matters wholly beyond the Contractor's control continue to
prevent the carrying out of all the uncompleted work throughout
the remainder of the relevant Defects Liability Period then at
the expiry of such period uncompleted work shall be treated as
having been omitted pursuant to a
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variation order of the Engineer and shall be valued
accordingly. If matters wholly beyond the Contractor's control
continue to prevent the Carrying out of the Performance Tests
throughout the remainder of the relevant Defects Liability
Period then unless it is otherwise established that the Works
were throughout the said Defects Liability Period incapable of
passing any or all of such Performance Tests by reason of some
default of the Contractor, such tests shall at the end of the
Defects Liability Period be deemed to have been satisfied.
14.4 Revoking of Provisional Acceptance Certificate
If the Works shall fail to pass any of the Performance Tests
when carried out in pursuance of the preceding Sub-Clause, the
Employer may by further certificate (herein called a
"revocation certificate") issued to the Contractor revoke the
provisional acceptance certificate.
14.5 Defects Liability
Upon acceptance of the Works by the Employer under this Clause
the only remaining obligations of the Contractor in respect
thereof shall be his obligation to make good any defects during
the Defects Liability Period unless such acceptance is by
virtue of a provisional acceptance certificate.
15. DEFECTS LIABILITY
15.1 Defects Liability Period
When any Section of the Work is taken over separately from the
Works the Defects Liability Period for the Section shall
commence on the date it was taken over.
15.2 Making Good Defects
The Contractor shall subject to Sub-Clause 15.1, be responsible
for making good any defect in or damage to any part of the
Works which may appear or occur during the Defects Liability
Period and which arises from, either:
a) Any defective materials, workmanship or design, or
b) Any act or omission of the Contractor during the Defects
Liability Period.
The Contractor shall make good the defect or damage as soon as
practicable and at his own cost.
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15.3 Notice of Defects
If any such defect appears or damage occurs, the Employer or
the Engineer shall forthwith notify the Contractor thereof. If
the Employer and the Engineer fail to notify the Contractor as
soon as practical of any defect, and the Employer continues to
use the Works prior to notice to the Contractor such that the
works are further damaged by the Employer's use, then the
Contractor will not be liable for repairing any additional
damages caused by the Employer's delay in notifying the
Contractor of the defect.
15.4 Extension of Defects Liability Period
The provisions of this Clause shall apply to all replacements
or renewals carried out by the Contractor as if the
replacements and renewals had been taken over on the date they
were completed.
The Defects Liability Period for the Works shall be extended by
a period equal to the period during which the Works cannot be
used by reason of a defect or damage. If only part of the
Works is affected the Defects Liability Period shall be
extended only for that part.
In neither case shall the Defects Liability Period be extended
by more than one year.
When erection or delivery of Plant has been suspended under
Sub-Clause 9.1, the Contractor's obligation under this
Sub-Clause 15.4 shall not apply to any defects occurring more
than three years after it would have been delivered but for the
suspension.
15.5 Failure to Remedy Defects
If the Contractor fails to remedy a defect or damage within a
reasonable time as approved by the Engineer, the Employer may
fix a final time for remedying the defect or damage.
If the Contractor fails to do so, the Employer may:
a) Carry out the work himself or by others at the
Contractor's risk and cost, provided that he does so in a
reasonable manner. The costs properly incurred by the
Employer in remedying the defect or damage shall be
deducted from the Contract Price, but the Contractor shall
have no responsibility for such work, or
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b) Require the Contractor to grant the Employer a reasonable
reduction in the Contract Price to be agreed or fixed by
arbitration under Sub-Clause 34.
15.6 Removal of Defective Work
If the defect or damage is such that repairs cannot be
expeditiously carried out on the Site, the Contractor may with
the consent of the Engineer or the Employer remove from the
Site for the purposes of repair any part of the Works which is
defective or damaged.
15.7 Further Tests/Performance Tests
If the replacements or renewals are such that they may affect
the performance of the Works, the Employer may request that
Performance Tests be repeated to the extent necessary. The
request shall be made by notice within 28 days after the
replacement or renewal. The Tests shall be carried out in
accordance with Clause 13. If the Employer fails to request
the repetition of Tests within the 28 day time period specified
in this Sub-Clause the Employer's right to require such Tests
shall be terminated.
15.8 Right of Access
Until the Final Certificate of Payment has been issued, the
Contractor shall have the right of access to all parts of the
Works and to records of the working and performance of the
Works.
Such right of access shall be during the Employer's normal
working hours at the Contractor's risk and cost. Access shall
also be granted to any duly authorized representative of the
Contractor whose name has been communicated in writing to the
Engineer.
Subject to the Engineer's approval which will not be
unreasonably withheld, the Contractor may also at his own risk
and cost make any tests which he considers desirable.
15.9 Contractor to Search
The Contractor shall, if required by the Engineer in writing,
search for the cause of any defect, under the direction of the
Engineer. Unless the defect is one for which the Contractor is
liable under this Clause, the cost of the work carried out by
the Contractor in searching for the cause of the defect shall
be added to the Contract Price.
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15.10 Defects Liability Certificate
When the Defects Liability Period for the Works or any Section
thereof has expired and the Contractor has fulfilled all his
obligations under the Contract for defects in the Works or that
Section, the Engineer shall issue within 28 days to the
Employer and the Contractor a Defects Liability Certificate to
that effect. If the Engineer fails to issue the Defects
Liability Certificate within 28 days of the Contractor's
fulfillment of his obligations under the Contract such Defects
Liability Certificate shall be deemed issued without further
action of the Engineer or Employer.
15.11 Defects in Free Issue Equipment
The Contractor shall not be liable for any defects resulting
from Free-Issue equipment specified and furnished by the
Employer or the Engineer subject the Condition of the Contract.
15.12 Exclusive Remedies
Except in the case of Gross Misconduct, the Employer's remedies
under this Clause shall be in place of and to the exclusion of
any remedy in relation to defects whatsoever.
16. VARIATIONS
16.1 Engineer's Right to Vary
The Engineer may by Variation Order to which the Contractor
shall comply at any time before the Works are taken over,
instruct the Contractor to alter, amend, omit, add to or
otherwise vary any part of the Works.
The Contractor may, however, at any time propose variations of
the Works to the Engineer.
The Contractor shall carry out such variations and be bound by
the same conditions, so far as applicable, as though the said
variations were stated in the Specification. Provided that no
such variation shall, except with the consent in writing of the
Contractor and the Employer, be such as will, with any
variations already directed to be made, involve a net addition
to or deduction from the Contract Price of more than 5 percent
thereof. In any case in which the Contractor has received any
such direction from the Engineer which either then or later
will, in the opinion of the Contractor, involve an increase or
decrease in the
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Contract Price, the Contractor shall as soon as reasonably
possible and before proceeding therewith advise the Engineer in
writing to that effect. The amount to be added to or deducted
from the Contract Price shall be ascertained and determined in
accordance with the rates stated in the schedule of prices so
far as the same may be applicable, and where rates are not
stated or are not applicable such amount shall be such sum as
is determined by the Engineer to be reasonable in the
circumstances.
16.2 Variations in Excess of 5%
If, with the consent in writing of the Contractor and the
Employer, the total value of all variations ordered under the
provisions of this Clause exceeds 5 percent of the Contract
Price, the Contract Price shall be amended by such sum as shall
be agreed upon between the Employer and the Contractor.
16.3 Variation Order Procedure
Prior to any Variation Order under Sub-Clause 16.1 the Engineer
shall notify the Contractor of the nature and form of such
variation.
As soon as possible after having received such notice, the
Contractor shall submit to the Engineer:
a) a description of work, if any, to be performed and a
program for its execution,
b) the Contractor's proposal for any necessary modifications
to the Master Schedule according to Sub-Clause 10.3 or to
any of the Contractor's obligations under the Contract,
and
c) the Contractor's proposals for adjustment to the Contract
Price.
Following the receipt of the Contractor's submission the
Engineer shall, after due consultation with the Employer and
the Contractor, decide as soon as possible whether or not the
variation shall be carried out.
If the Engineer decides that the variation shall be carried
out, he shall issue a Variation Order clearly identified as
such in accordance with the Contractor's submission or as
modified by agreement. If the Engineer and the Contractor are
unable to agree the adjustment of the Contract Price, the
provisions of Sub-Clause 16.4 shall apply.
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16.4 Disagreement on Adjustment of the Contract Price
If the Contractor and the Engineer are unable to agree on the
adjustment of the Contract Price, the adjustment shall be
determined in accordance with the rates specified in the
Schedule of Prices.
If the rates contained in the Schedule of Prices are not
directly applicable to the specific work in question, suitable
rates shall be established by the Engineer reflecting the level
of pricing in the Schedule of Prices.
Where rates are not contained in the said Schedule, the amount
shall be such as is in all the circumstances reasonable. Due
account shall be taken of any over-or under-recovery of
overheads by the Contractor in consequence of the variation.
The Contractor shall also be entitled to be paid:
a) the cost any partial execution of the Works rendered
useless by any such variation,
b) the cost of making necessary alterations to Plant already
manufactured or in the course of manufacture or of any
work done that has to be altered in consequence of such a
variation,
c) any additional costs incurred by the Contractor by the
disruption of the progress of the Works as detailed in the
Program, and
d) the net effect of the Contractor's finance costs,
including interest, caused by the variation.
The Engineer shall on this basis determine the rates or prices
to enable on-account payment to be included in certificates of
payment.
16.5 Variations on Manufacture and Drawings
If the Engineer shall make any variation in any part of the
Works such reasonable notice in writing shall be given to the
Contractor as will enable him to make his arrangements
accordingly. In cases where Plant is already manufactured or
in the course of manufacture, or any work done or Drawings made
require to be altered, a reasonable sum in respect thereof
shall be allowed by the Engineer. If, in the opinion of the
Contractor, any such variation is likely to prevent or
prejudice the Contractor from or in fulfilling any of his
obligations under the Contract, he shall notify the Engineer
thereof in writing and the Engineer shall decide forthwith
whether or not the same shall be
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carried out. If the Engineer confirms his instructions in
writing the said obligations shall be modified to such an
extent as may be justified. Until the Engineer so confirms his
instructions they shall be deemed not to have been given.
16.6 Contractor to Proceed
On receipt of a Variation Order, the Contractor shall forthwith
proceed to carry out the variation and be bound to these
Conditions in so doing as if such variation was stated in the
Contract.
The work shall not be delayed pending the granting of an
extension of the Time for Completion or an adjustment to the
Contract Price under Sub-Clause 16.4.
16.7 Records of Cost
In any case where the Contractor is instructed to proceed with
a variation prior to the determination of the adjustment to the
Contract Price in respect thereof the Contractor shall keep
records of the cost of undertaking the variation and of time
expended thereon. Such records shall be open to inspection by
the Engineer at all reasonable times.
16.8 Monthly Variations Statement
The Contractor shall send to the Engineer, once in every month,
an account giving particulars, as full and detailed as
possible, of all claims for any additional payment to which the
Contractor may consider himself entitled and of all extra or
additional work ordered by the Engineer which he has executed
during the preceding month. No claim for payment will be
considered unless included in such account. Provided always
that the Engineer shall be entitled to authorize payment to be
made notwithstanding the Contractor's failure to comply with
this condition, if the Contractor has at the earliest
practicable opportunity, not exceeding 15 days notified the
Engineer that he intends to make a claim. When the engineer
has received a Contractor's claim for additional payment as
mentioned above he shall after due consultation with the
Employer and the Contractor determine whether the Contractor is
entitled to additional payment and notify the parties
accordingly.
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17. OWNERSHIP OF PLANT
Plant supplied pursuant to the Contract shall become the property of
the Employer at whichever is the earlier of the following times,
namely:
a) When the Plant is delivered to the Site pursuant to the
Contract, and
b) When the Contractor has become entitled to require that the
Contract Value of the Plant be included in an interim
certificate and has received payment thereof.
18. CERTIFICATES AND PAYMENT
18.1 Methods of Application
Applications by the Contractor for payment shall be made and in
accordance with Annex C of the Contract to the Engineer as
follows:
(a) in respect of the progress of the Works accompanied by
such evidence of the value of the work done as the
Engineer may require,
(b) in respect of Plant to be shipped, identifying the Plant
concerned and accompanied by such evidence of shipment and
of payment of freight and insurance and by such other
documents as the Engineer may require, and
(c) for additional payment in accordance with Clause 19.
Any other applications for payment shall state the amounts
claimed and the detailed particulars in respect of which the
application is made.
18.2 Issue of Certificate of Payment
Within 30 days after receiving an application for payment which
the Contractor was entitled to make the Engineer shall issue a
Certificate of Payment to the Employer showing the amount due,
with a copy to the Contractor.
A certificate of payment, other than the Final Certificate of
Payment, shall not be withheld on account of:
(a) defects of a minor character which are not such as to
affect the use of the Works, or
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(b) any part of the payment applied for being disputed. In
such case a certificate of payment for the undisputed
amount shall be issued.
Provided always that no interim certificate shall be
issued at any one time for a sum less than the equivalent
of US$ Two Hundred & Fifty Thousand.
18.3 Corrections to Certificates of Payment
The Engineer may in any certificate of payment make any
correction or modification that should properly be made in
respect of any previous certificate.
18.4 Payment
The Employer shall pay the amount certified within 45 days from
the date of issue of each certificate of payment to the
Contractor.
18.5 Delayed Payment
If payment of any sum payable under Sub-Clause 18.4 is delayed,
the Contractor shall be entitled to receive interest on the
amount unpaid during the period of delay. The interest shall
be at the rate of 7.46% per annum on the US Dollar component
and at the prevailing bank interest rate on the Ethiopian Birr
component of the invoice. The Contractor shall be entitled to
such payment without formal notice and without prejudice to any
other right or remedy.
18.6 Remedies on Failure to Certify or Make Payment
The Contractor shall be entitled to stop the Works by giving 14
days notice to the Engineer and the Employer, if either:
a) the Engineer fails to issue a certificate of payment upon
proper application by the Contractor, or
b) the Employer fails to make any payment as provided in this
Clause.
The cost to the Contractor occasioned by the stoppage and the
subsequent resumption of work, shall be added to the Contract
Price.
The Contractor shall also be entitled to terminate the Contract
by giving 28 days notice to the Engineer and the Employer in
any case where the Engineer has failed to issue a certificate
of
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18.7 Application for Final Certificate of Payment
The Contractor shall make application to the Engineer for the
Final Certificate of Payment within 28 days after the issue of
Defects Liability Certificate or if more than one, the last
Defects Liability Certificate.
The application for the Final Certificate of Payment shall be
accompanied by a final account prepared by the Contractor. The
final account shall give full details of the value of all Plant
supplied and work done under the Contract together with:
a) such additions to or deductions from the Contract Price as
have been agreed, and
b) all claims for additional payment to which the Contractor
may consider himself entitled.
Where the Contractor has been required to carry out
replacements or renewals to the Works, the obligations of the
Contractor under Clause 15 shall continue as provided therein,
but the right of the Contractor to apply for a Final
Certificate of Payment in respect of the works or a portion
thereof other than the portions affected by such replacements
or renewals shall not be affected by that fact, and after the
Contractor has ceased to be under any obligation under Clause
15 in respect of the portions affected by replacements or
renewals he may apply for a Final Certificate of Payment in
respect thereof.
18.8 Issue of Final Certificate of Payment
The Engineer shall issue to the Employer with a copy to the
Contractor, the Final Certificate of Payment within 28 days
after receiving an application in accordance with Sub-Clause
18.7.
If the Contractor has not applied for a Final Certificate of
Payment within the time specified in Sub-Clause 18.7 the
Engineer shall request the Contractor to do so within a further
period of 28 days. If the Contractor fails to make such an
application, the Engineer shall issue the Final Certificate of
Payment for such amount as he deems correct.
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18.9 Final Certificate of Payment Conclusive
A Final Certificate of Payment shall be conclusive evidence of
the value of the Works, that the Works are in accordance with
the Contract and that the Contractor has performed all his
obligations under the Contract.
Payment of the amount certified in the Final Certificate of
Payment shall be conclusive evidence that the Employer has
performed all his obligations under the Contract.
A Final Certificate of Payment or payment shall not be
conclusive:
(a) to the extent that fraud or dishonesty relates to or
affects any matter dealt with in the certificate, or
(b) if any arbitration or court proceedings under the Contract
have been commenced by either party before the expiry of
84 days after the issue of the Final Certificate of
Payment.
18.10 Advance Payment
After the advance payment guarantee referred to in the
Sub-Clause 18.11 and the Performance Security referred to in
Sub-Clause 5.4 have been received by the Employer, an advance
payment in the amount of twenty percent of the Contract Price
shall be made to the Contractor by the Employer and shall be
recovered by deducting from subsequent payments due to the
Contractor twenty percent (20%) of each such payment. If the
full value of the advance payment has not been recovered by the
Employer at the date upon which the Engineer shall have issued
the Taking-Over Certificate any amount of the advance payment
not so recovered shall be deducted from the amount of the last
Interim Certificate which is released to the Contractor.
18.11 Advance Payment Guarantee
The Contractor shall provide an advance payment guarantee for
20% twenty percent of the Contract Price from a first class
international bank to be confirmed by the Commercial Bank of
Ethiopia.
18.12 Terms of Payment
The Employer shall pay the Contract Price to the Contractor in
the manner provided for in Annex C to the Contract.
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If any Section or portion of the Works shall be taken over
separately from the remaining Works, the payments herein
provided for on or after the issuance of the Taking-Over
Certificate for such Works shall be made in respect of the
Section or portion taken over, and references to the Contract
Price shall mean such part of the Contract Price as shall be in
the absence of agreement be apportioned thereto by the
Engineer.
In determining the amount of any payment under this Clause in
respect of any Section of the Works due account shall be taken
of all payments previously made in respect of the same portion.
18.13 Retention
The Employer shall be entitled to retain 5 (five) percent of
the Dollar component and the Birr component of the value of the
Local Works as indicated in the Schedule of Prices excluding
General Items, until the Employer has issued to the Contractor
the Final Certificate of Payment as referenced in Sub-Clause
18.8.
There will be no retention of money on any other parts of
the Works except for that indicated herein.
19. CLAIMS
19.1 Procedure
In any case where under these Conditions there are
circumstances which the Contractor considers entitle him to
claim additional payment, the Contractor shall:
a) If he intends to make any claim for additional payment
give to the Engineer notice of his intention to make such
claim within 28 days after the said circumstances became
known to the Contractor stating the reasons for his
claim, and
b) As soon as reasonably practical after the date of such
notice submit to the Engineer full and detailed
particulars of his claim but not later than 182 days after
such notice unless otherwise agreed by the Engineer. In
any event such particulars shall be submitted no later
than the application for the Final Certificate of Payment.
The Contractor shall
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thereafter promptly submit such further particulars as the
Engineer may reasonably require to assess the validity of
the claim.
19.2 Assessment
When the Engineer has received full and detailed particulars of
the Contractor's claim in accordance with Sub-Clause 19.1 and
such further particulars as he may reasonably have required he
shall after due consultation with the Employer and the
Contractor determine whether the Contractor is entitled to
additional payment and notify the parties accordingly.
The Engineer may reject any claim for additional payment which
does not comply with the requirements of Sub-Clause 19.1.
20. CURRENCY OF PAYMENT
The local component of the Contract Price shall be paid in Ethiopian
Birr and the foreign component shall be paid in US Dollars. Any
payment in respect of variations or additions to the Contract Price
shall be in the currency in which the related cost is incurred by the
Contractor.
21. RISK AND RESPONSIBILITY
21.1 Allocation of Risk and Responsibility
The Risks of loss of or damage to physical property and of
death and personal injury which arise in consequence of the
performance of the Contract shall be allocated between the
Employer and the Contractor as follows:
a) the Employer's Risks as specified in Sub-Clause 21.2
b) the Contractor's Risks as specified in Sub-Clause 21.3
21.2 Employer's Risks
The Employer's Risks are:
a) use or occupation of the Works or any part thereof by the
Employer;
b) use or occupation of the site by the Works or any part
thereof, of for the purposes of the Contract; or
interference, whether temporary or permanent with any
right of way, light, air or water or with any easement,
wayleaves or
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right of a similar nature which is the inevitable result
of the construction of the Works in accordance with the
Contract;
c) the right of the Employer to construct the Works or any
part thereof on, over, under, in or through any land;
d) damage (other than that resulting from the Contractor's
method of construction) which is the inevitable or
unavoidable result of the construction of the Works in
accordance with the Contract;
e) the act, neglect or omission or breach of contract or of
statutory duty of the Engineer, the Employer or other
contractors engaged by the Employer or of their respective
employees or agents;
f) rebellion, revolution, insurrection, military or usurped
power or civil war;
g) riot, commotion or disorder, unless solely restricted to
the employees or the Contractor or his Sub-Contractor and
arising from the Conduct of the Works; and
h) any operation of the forces of nature against which an
experienced contractor could not reasonably have been
expected to take precautions.
The Employer shall be liable for all the risks under this
Sub-Clause and all risks which an experienced Contractor could
not have foreseen, or if foreseeable, against which measures to
prevent loss, damage or injury from occurring could not
reasonably have been taken by such Contractor.
21.3 Contractor's Risks
The Contractor's Risks are all risks other than those
identified as the Employer's Risks.
The Contractor shall be liable for all his risks.
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22. FORCE MAJEURE
22.1 Definition of Force Majeure
Force Majeure means any circumstances beyond the control of the
parties, including but not limited to:
a) war and other hostilities, (whether war be declared or
not), invasion, act of foreign enemies, mobilization,
requisition or embargo;
b) ionizing radiation or contamination by radio-activity from
any nuclear fuel or from any nuclear waste from the
combustion of nuclear fuel, radio-active toxic explosives,
or other hazardous properties of any explosives, or other
hazardous properties of any explosive nuclear assembly or
nuclear components thereof;
c) rebellion, revolution, insurrection, military or usurped
power and civil war;
d) riot, commotion or disorder, except where solely
restricted to employees of the Contractor.
e) Pressure waves caused by aircraft or other aerial devices
travelling at sonic or super-sonic speeds.
22.2 Effect of Force Majeure
Neither party shall be considered to be in default or in breach
of his obligations under the Contract to the extent that
performance of such obligations is prevented by any
circumstances of Force Majeure which arise after the date when
the Contract becomes effective. The Employer shall indemnify
and save harmless the Contractor from any destruction of or
damage to the Works or the Contractor's Equipment arising from
Force Majeure and against and from all claims, proceedings,
damages, costs, charges and expenses whatsoever arising
therefrom or in connection therewith.
22.3 Notice of Occurrence
If either party considers that any circumstances of Force
Majeure have occurred which may affect performance of his
obligations he shall promptly notify the other party and the
Engineer thereof.
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22.4 Performance to Continue
Upon the occurrence of any circumstances of Force Majeure the
Contractor shall endeavor to continue to perform his
obligations under the Contract so far as reasonably
practicable. The Contractor shall notify the Engineer of the
steps he proposes to take including any reasonable alternative
means for performance which is not prevented by Force Majeure.
The Contractor shall not take any such steps unless directed so
to do by the Engineer.
22.5 Additional Costs caused by Force Majeure
If the Contractor incurs additional costs in complying with the
Engineer's directions under Sub-Clause 22.4, the amount thereof
shall be certified by the Engineer and added to the Contract
Price.
22.6 Damage Caused by Force Majeure
If in consequence of Force Majeure the Works or Contractor's
Equipment shall suffer loss or damage the Contractor shall be
entitled to have the value of the work done without regard to
the loss or damage that has occurred, included in a Certificate
of Payment.
22.7 Termination in Consequence of Force Majeure
If circumstances of Force Majeure have occurred and shall
continue for a period of 182 days then, notwithstanding that
the Contractor may by reason thereof have been granted an
extension of Time for Completion of the Works, either party
shall be entitled to serve upon the other 28 days' notice to
terminate the Contract. If at the expiry of the period of 28
days Force Majeure shall still continue the Contract shall
terminate.
22.8 Payment on Termination for Force Majeure
If the Contract is terminated under Sub-Clause 22.7 the
contractor shall be paid the value of the work done.
The Contractor shall also be entitled to receive:
a) the amounts payable in respect of any preliminary items so
far as the work or service comprised therein has been
carried out and a proper proportion of any such item in
which the work or service comprised has only been
partially carried out,
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b) the cost of materials or goods ordered for the Works
or for use in connection with the Works which have been
delivered to the Contractor or of which the Contractor is
legally liable to accept delivery. Such materials or
goods shall become the property of and be at the risk of
the Employer when paid for by the Employer and the
Contractor shall place the same at the Employer's
disposal,
c) the amount of any other expenditure which in the
circumstances was reasonably incurred by the Contractor in
the expectation of completing the whole of the Works,
d) the reasonable cost of removal of Contractor's Equipment
from the Site and the return thereof to the Contractor's
works in his country or to any other destination at no
greater cost, and
e) the reasonable cost of repatriation of the Contractor's
staff and workmen employed wholly in connection with the
Works at the date of such termination.
22.9 Release from Performance
If circumstances of Force Majeure including without limitation
an outbreak of war, whether declared or not, in any part of the
world which materially affects the execution of the Works,
occur and in consequence thereof under the law governing the
Contract the parties are released from further performance of
the Contract, the sum payable by the Employer to the Contractor
shall be the same as that which would have been payable under
Sub-Clause 22.8 if the Contract had been terminated under
Sub-Clause 22.7.
22.10 Force Majeure Affecting Engineer's Duties
The provisions of Clause 22 shall also apply in circumstances
where the Engineer is prevented from performing any of his
duties under the Contract by reason of Force Majeure.
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23. CARE OF THE WORKS AND PASSING OF RISK
23.1 Contractor's Responsibility for the Care of the Works
The Contractor shall be responsible for the care of the Works
or any Section thereof from the Commencement Date until the
Risk Transfer Date applicable thereto under Sub-Clause 23.2.
The Contractor shall also be responsible for the care of any
part of the Works upon which any outstanding work is being
performed by the Contractor during the Defects Liability Period
until completion of such outstanding work.
23.2 Risk Transfer Date
The Risk Transfer Date in relation to the Works or a Section
thereof is the earliest of either:
a) the date of issue of the Taking-Over Certificate, or
b) the date when the Engineer is deemed to have issued the
Taking-Over Certificate or the Works are deemed to have
been taken over in accordance with Clause 12, or
c) the date of expiry of the notice of termination when the
Contract is terminated by the Employer or the Contractor
in accordance with these Conditions.
The risk of Loss of or damage to the Works or any Section
thereof shall pass from the Contractor to the Employer on the
Risk Transfer Date applicable thereto.
23.2 Loss or Damage Before Risk Transfer Date
Loss of or damage to the Works or any Section thereof
occurring before the Risk Transfer Date shall:
a) to the extent caused by any of the Contractor's Risks, be
made good forthwith by the Contractor at his own cost, and
b) to the extent caused by any of the Employer's Risks, be
made good by the Contractor at the Employer's expense if
so required by the Engineer within 28 days after the
occurrence of the loss or damage. The price for making
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good such loss and damage shall be in all circumstances
reasonable and shall be agreed by the Employer and the
Contractor, or in the absence of agreement, shall be fixed
by arbitration under Clause 34.
24. DAMAGE TO PROPERTY AND INJURY TO PERSONS
24.1 Contractor's Liability
Except as provided under Sub-Clause 24.3, the Contractor shall
be liable for and shall indemnify the Employer against all
losses, expenses and claims in respect of any loss of or damage
to physical property (other than the Works), death or personal
injury occurring before the issue of the last Defects Liability
Certificate to the extent caused by:
a) defective design, material or workmanship of the
Contractor, or
b) negligence or breach of statutory duty of the Contractor,
his Subcontractors or their respective employees and
agents.
24.2 Employer's Liability
The Employer shall be liable for and shall indemnify the
Contractor against all losses, expenses or claims in respect of
loss of or damage to any physical property or of death or
personal injury whenever occurring, to the extent caused by any
of the Employer's Risks.
24.3 Accidents
In the case of any acts or defaults of the Engineer, the
Employer or other contractors engaged by the Employer or by
their respective employees or agents, the Employer shall be
liable for and shall indemnify the Contractor and his
Sub-Contractors against all losses, expenses and claims arising
in connection therewith.
25. LIMITATION OF LIABILITY
25.1 Liability for Indirect or Consequential Damage
Neither party shall be liable to the other for any loss of
profit, loss of use, loss of production, loss of contracts or
for any other indirect or consequential damage that may be
suffered by the other, except:
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a) as expressly provided in Clause 10.5 and 10.7, and
b) those provisions of these Conditions whereby the
Contractor is expressly entitled to receive profit.
25.2 Maximum Liability
The liability of the Contractor to the Employer under these
Conditions shall in no case exceed the Contract Price.
25.3 Liability after Expiration of Defects Liability Period
The Contractor shall have no liability to the Employer for any
loss of or damage to the Employer's physical property which
occurs after the expiration of the Defects Liability Period
unless caused by Gross Misconduct of the Contractor.
25.4 Exclusive Remedies
The Employer and the Contractor intend that their respective
rights, obligations and liabilities as provided for in these
Conditions shall alone govern their rights under the Contract
and in relation to the Works.
Accordingly, the remedies provided under the Contract in
respect of or in consequence of:
(a) any breach of contract, or
(b) any negligent act or omission, or
(c) death or personal injury, or
(d) loss or damage to any property
are, save in the case of Gross Misconduct, to be to the
exclusion of any and other remedy that either may have against
the other under the law governing the Contract or otherwise.
25.5 Mitigation of Loss or Damage
In all cases the party claiming a breach of Contract or a right
to be indemnified in accordance with the Contract shall be
obliged to take all reasonable measures to mitigate the loss or
damage which has occurred or may occur.
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25.6 Foreseen Damages
Where either the Employer or the Contractor is liable in
damages to the other these shall not exceed the damage which
the party in default could reasonably have foreseen at the date
of the Contract.
26. INSURANCE
26.1 The Works
The Contractor shall insure the Works in the joint names of the
Contractor and the Employer to their full replacement value:
a) From the Effective Date until the Risk Transfer Date
against any loss or damage caused by any of the
Contractor's Risks and customarily insurable.
b) During the Defects Liability period against any loss or
damage which is caused either:
i) by the Contractor in completing any outstanding work
or complying with his obligations under Clause 15 or
ii) by any of the Contractor's Risks which occurred prior
to the Risk Transfer Date.
26.2 Contractor's Equipment
The Contractor shall insure Contractor's Equipment and motor
vehicles for its full replacement value whilst in transit to
the Site, from commencement of loading until completion of
unloading at the Site and while on the Site against all loss or
damage caused by any of the Contractor's Risks.
26.3 Third Party Liability
The Contractor shall insure against liability to third parties
for any death or personal injury and loss of or damage to any
physical property arising out of the performance of the
Contract and occurring before the issue of the last Defects
Liability Certificate.
Such insurance shall be effected before the Contractor begins
any work on the Site. The insurance shall be for not less than
two million US Dollars.
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26.4 Employees
The contractor shall insure and maintain insurance against his
liability under Sub-Clause 24.3.
26.5 General Requirements of Insurance Policies
The Contractor shall:
a) produce the policies or certificates of any insurance
which he is required to effect under the Contract together
with receipts for the premiums,
b) effect all insurance for which he is responsible with an
insurer and in terms approved by the Employer, and
c) make no material alterations to the terms of any insurance
without the Employer's approval. If an insurer makes any
material alteration to the terms the Contractor shall
forthwith notify the Employer, and
d) in all respects comply with any conditions stipulated in
the insurance policies which he is required to place under
the Contract.
26.6 Remedies on the Contractor's Failure to Insure
If the Contractor fails to produce evidence of insurance
coverage as stated in Sub-Clause 26.5(a) then the Employer may
effect and keep in force such insurance. Premiums paid by the
Employer for this purpose shall be deducted from the Contract
Price.
26.7 Amounts not Recovered
Any amounts not recovered from the insurers shall be borne by
the Employer or Contractor in accordance with their
responsibilities under Clause 21.
27. DEFAULT
27.1 Notice of Default
If the Contractor is not executing the Works in accordance with
the Contract or is neglecting to perform his obligations
thereunder so as seriously to affect the carrying out of the
Works, the Engineer may give notice to the Contractor requiring
him to make good such failure or neglect.
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27.2 Contractor's Default
If the Contractor:
a) has failed to comply within a reasonable time with a
notice under Sub-Clause 27.1 or,
b) assigns the Contract or subcontracts the whole of the
Works without the Employer's written consent, or
c) becomes bankrupt or insolvent, has a receiving order made
against him or compounds with his creditors, or carries on
business under a receiver, trustee or manager for the
benefit of his creditors or goes into liquidation,
The Employer may, after having given 14 days notice to the
Contractor, terminate the Contract and expel the Contractor from
this Site.
Any such expulsion and termination shall be without prejudice to
any other rights or powers of the Employer, the Engineer or the
Contractor under the Contract.
The Employer may upon such termination complete the Works
himself or by any other contractor.
27.3 Valuation at Date of Termination
The Engineer shall, as soon as possible after such termination,
certify the value of the Works and all sums then due to the
Contractor as at the date of termination in accordance with
Clause 18.
27.4 Payment After Termination
The Employer shall not be liable to make any further payments to
the Contractor until the Works have been completed. When the
Works are so complete, the Employers shall be entitled to
recover from the Contractor the extra costs, if any, of
completing the Works after allowing for any sum due to the
Contractor under Sub-Clause 27.3. If there is no such extra
cost the Employer shall pay any balance due to the Contractor.
27.5 Effect on Liability for Delay
The Contractor's liability under Sub-Clause 10.5 and 10.7 shall
immediately cease when the Employer expels him from the Site
without prejudice to any liability thereunder that may have
already occurred.
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27.6 Employer's Default
The Contractor may, by giving 14 days notice to the Employer
and the Engineer, terminate the Contract if the Employer:
a) fails to pay the Contractor the amount due under any
certificate of the Engineer within 45 days after the
amount became payable, or
b) interferes with or obstructs the issue of any certificate
of the Engineer, or
c) becomes bankrupt or insolvent, has a receiving order made
against him, compounds with his creditors, or carries on
business under a receiver, trustee or manager for the
benefit of his creditors or goes into liquidation, or
d) consistently fails to meet his contractual obligations, or
e) appoints a person to act with or in replacement of the
Engineer without written notice to the Contractor.
Any such termination shall be without prejudice to any other
rights of the Contractor under the Contract.
27.7 Removal of Contractor's Equipment
On such termination, the Contractor shall be entitled to
remove immediately all Contractor's Equipment which is on the
Site.
27.8 Payment on Termination for Employer's Default
In the event of such termination the Employer shall pay the
Contractor an amount calculated in accordance with Sub-Clause
22.8.
The Employer shall pay in addition the amount of any loss or
damage, including loss of profit which the Contractor may have
suffered in consequence of termination.
28. URGENT REMEDIAL WORK
If, by reason of any accident, or failure, or other event occurring
to, in, or in connection with the Works, or any part thereof, either
during the execution of the Works, or during the Defects Liability
Period, any remedial or other work is, in the opinion of the Engineer
urgently necessary, for the safety of the Works and the
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Contractor, after appropriate notice given the circumstances, is
unable or unwilling at once to do such work, the Employer shall be
entitled to employ and pay other persons to carry out such work as
the Engineer may consider necessary. If the work or repair so done
by the Employer is work which, in the opinion of the Engineer, the
Contractor was liable to do at this own cost under the Contract, then
all reasonable costs consequent thereon or incidental thereto shall,
after due consultation with the employer and the Contractor, be
determined by the Engineer and shall be recoverable from the
Contractor by the Employer, and may be deducted by the Employer from
any monies due or to become due to the contractor and the Engineer
shall notify the Contractor accordingly, with a copy to the Employer.
Provided that the Engineer shall, as soon after the occurrence of any
such emergency as may be reasonably practicable, notify the
Contractor thereof in writing.
29. ESCALATION
29.1 Local Currency Component of the Contract Price
The Contract Price shall be adjusted to take account of any
increase or decrease in costs of labour, materials, transport
or other costs of execution of the Works, resulting from
changes in legislation or in its generally accepted
interpretation of the Country where the Site is located, and/or
other price changes as specified in Annex D of the Contract.
Legislation means any law, order, regulation or by-law having
the force of law, which affects the Contractor in the
performance of his obligations under the Contract from the date
of Contract signature.
29.2 Foreign Currency Component of the Contract Price
There shall be no price adjustment in the foreign currency
component of the Contract Price except as elsewhere provided
for in the Contract.
30. CUSTOMS AND TAXES
30.1 Customs, Import Duties and Taxes
The Employer shall pay or secure exemption from payment all
customs, import duties and taxes in consequence of the
importation of Plant. If the Contractor is required to pay
such customs, import duties and taxes, the Employer shall
reimburse the amount thereof.
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30.2 Clearance through Customs
The Employer shall assist the Contractor in obtaining clearance
through the customs of all Plant and Contractor's Equipment and
in procuring any necessary government consent to the re-export
of Contractor's Equipment when it is removed from the Site.
30.3 Taxation
The Employer undertakes to pay and settle promptly on behalf of
the Contractor and his foreign national employees any Company
and Personal Income Taxes imposed under any law, decree or
regulation of the Government of Ethiopia or any subordinate
authority. The Contractor shall only pay sales taxes on
locally bought goods and services and personal income taxes for
his Ethiopian national personnel.
30.4 Customs and Taxes on Contractor's Equipment
The Contractor may, in accordance with Ethiopian customs
regulations import the Contractor's Equipment specified in
Annex 18 for the execution and maintenance of the Works and
export same on completion of the Works or Section thereof.
The Employer shall pay all duty or tax, if any, which may be
imposed by the Government of Ethiopia in connection with the
Contractor's importation and export of such Contractor's
Equipment. The Contractor may however with the prior consent
of the Employer and upon payment of the required customs duty
and tax in accordance with customs regulations and tax laws,
elect to sell within Ethiopia such Contractor's Equipment on
completion of the Works or Section thereof.
31. EXPLOSIVES
The importation into Ethiopia, transportation, storage and use of
explosives shall be strictly in accordance with all applicable
regulations. The Employer is to provide the Contractor with all
applicable regulations. The use of explosives shall be kept to a
minimum and shall only be in a manner approved by the Engineer. No
approval of the Engineer shall relieve the Contractor of any of his
responsibilities under the Contract.
The Contractor shall notify the Engineer of personnel on his staff
who are qualified and competent to use explosives and only those
persons shall be permitted to use explosives.
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The Contractor shall provide and operate an efficient system to warn
all persons likely to be endangered by the use of explosives. The
system shall include procedures to indicate clearly the beginning and
end of any period of danger.
32. PUBLICITY
Unless the Contractor shall first have obtained the permission in
writing of the Engineer, the Contractor shall not at any time take
any photographs of the Site or of the Works or of any part thereof
and shall take all steps to ensure that no such photograph shall at
any time be taken or published or otherwise circulated by any person
employed by the Contractor or any Sub-Contractor. The Contractor
shall be allowed to take photographs of the plant on periodic basis
to document and monitor construction progress. All requests for
information concerning the Works by the news media or any individual
shall be referred to the Employer. All plans for publicity by the
Contractor, any Sub-Contractor or supplier shall be submitted to the
Employer for prior approval. Nothing contained herein shall restrict
or prohibit the Contractor from disclosing any information which the
Contractor believes in good faith is needed to comply with any laws
or regulations of the United States of America.
33. NOTICES
33.1 Notices to Contractor
All certificates, notices or written orders to be given to the
Contractor by the Employer or the Engineer under the Contract
shall be sent by airmail post, cable, telex or facsimile
transmission to or left at the Contractor's principal place of
business or such other address as the Contractor shall nominate
in writing for that purpose, or may be handed over to the
Contractor's representative.
33.2 Notices to Employer and Engineer
Any notice to be given to the Employer or to the Engineer
under the Contract shall be sent by airmail post, cable, telex
or facsimile transmission to or left at the respective
addresses nominated by the Employer in writing for that purpose
or handed over to the Engineer's or the Employer's
representative authorized to receive it.
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33.3 Minutes of Meetings
Instructions or notices to the Contractor and notices from the
Contractor to the Engineer or the Employer recorded in a minute
or protocol signed by the authorized representatives of the
giver and recipient of such notice or instruction shall be
valid notice or instruction for the purpose of the Contract.
34. SETTLEMENT OF DISPUTE
If any dispute or difference of any kind whatsoever shall arise
between the Employer and the Contractor or the Engineer and the
Contractor in connection with, or arising out of the contract, or the
execution of the Works, whether during the progress of the Works or
after the termination, abandonment or breach of the contract, it
shall in the first place, be referred to and settled by the Engineer
who shall, within a period of 90 days after being requested by
either party to do so, give written notice of his decision to the
Employer and the Contractor. Formal notice of arbitration must be
given to the other party, and where required, to the appropriate
arbitration body, no later than 84 days after the issue of the Final
Certificate of Payment. Subject to arbitration, as hereinafter
provided, such decision in respect of every matter so referred shall
be final and binding upon the Employer and the Contractor and shall
forthwith be given effect to by the Employer and by the Contractor,
who shall proceed with the execution of the Works with all due
diligence whether he or the Employer requires arbitration, as
hereinafter provided, or not. If the Engineer has given written
notice of his decision to the Employer and the Contractor and no
claim to arbitration has been communicated to him by either the
Employer or the Contractor within a period of 90 days from receipt of
such notice, the said decision shall remain final and binding upon
the Employer and the Contractor. If the Engineer shall fail to give
notice of his decision, as aforesaid within a period of 90 days after
being requested aforesaid; or if either the Employer or the
Contractor be dissatisfied with any such decision, then and in any
such case either the Employer or the Contractor may within 90 days
after receiving notice of such decision, or within 90 days after the
expiration of the first-named period of 90 days, as the case may be,
require that the matter or matters in dispute be referred to
arbitration as hereinafter provided. All disputes or differences in
respect of which the decision, if any, of the Engineer has not become
final and binding as aforesaid shall be finally settled by
arbitration by three arbitrators in accordance
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with the UNCITRAL Arbitration Rules for the time being in force. The
said arbitrator shall have full power to open up, revise and review
any decision, opinion, direction, certificate or valuation of the
Engineer. Neither party shall be limited in the proceedings before
such arbitrator to the evidence or arguments put before the Engineer
for the purpose of obtaining his said decision. No decision given by
the Engineer in accordance with the foregoing provisions shall
disqualify him from being called as a witness and giving evidence
before the arbitrator on any matter whatsoever relevant to the
dispute or difference referred to the arbitrator as aforesaid. The
reference to arbitration may proceed notwithstanding that the Works
shall not then be or be alleged to be complete, provided always that
the obligations of the Employer, the Engineer and Contractor shall
not be altered by reason of the arbitration being conducted during
the progress of the Works. The arbitration award shall be binding
upon the parties. The arbitration proceedings shall take place in
London, England. The language of the arbitral proceedings shall be
English.
35. APPLICABLE LAW
The law which is to apply to the Contract and according to which the
Contract shall be construed is the Law of Ethiopia.
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ANNEX A
FORM OF PERFORMANCE SECURITY
To be issued by a first class international bank and confirmed by the
Commercial Bank of Ethiopia.
The General Manager
Finchaa Sugar Factory
P.O. Box 5734
Addis Ababa
Ethiopia
Finchaa Sugar Factory
Contract FP3: Design, Supply, Construction and Commissioning of Sugar Factory
and Ethanol Plant
Whereas it is a condition of the Contract awarded by you to [name of
Contractor] ('the Contractor') for the execution of the above-named works that
the Contractor shall furnish you with a performance security.
Whereas [name and address of Contractor's bank requested us to issue such a
performance security in your favour for an aggregate sum of [equivalent of 10%
of the Contract Price.]
Now, therefore, in fulfilment of the obligations of the Contractor under the
Contract, we hereby undertake irrevocably, unconditionally and without reserve,
regardless of any objections or protests by the Contractor or third parties and
expressly refusing any profit in or becoming party to any dispute or
termination of the Contract, to pay to you at your first demand against receipt
of your written statement that the Contractor has not fulfilled his contractual
obligations, a sum not exceeding [equivalent of 10% of the Contract Price].
Your claim if any, must be delivered to and duly received by us on or before
the expiry date of this guarantee, after which date this guarantee will
automatically become null and void whether returned to us or not.
This performance security shall come into force on the date of its issuance and
shall remain in full force and effect until issuance by you of a certificate
that the Contractor has completed all his obligations under the Contract.
<PAGE> 100
ANNEX B
FORM OF ADVANCE PAYMENT GUARANTEE
To be issued by a first class international bank and confirmed by the
Commercial Bank of Ethiopia.
The General Manager
Finchaa Sugar Factory
P.O. Box 5734
Addis Ababa
Ethiopia
Finchaa Sugar Project
Contract FP3: Design, Supply, Construction and Commissioning of Sugar Factory
and Ethanol Plant
Whereas according to the terms of the above-named contract it has been
stipulated that twenty percent of the Contract Price amounting to 20% [twenty
percent] shall be paid by you to the Contractor on the condition that a bank
guarantee in an equal amount has been obtained to secure such advance payment;
Whereas [name and address of bank or insurance company] has requested us to
give the said bank guarantee on its behalf in your favour for the
above-mentioned sum;
Now, therefore, in consideration of the foregoing we hereby undertake and
guarantee to pay to you unconditionally and irrevocably any sum up to a maximum
amount of [equivalent of twenty percent of Contract Price] at your first demand
against receipt of your written statement that the Contractor is in substantial
default under the terms of the Contract and of a bank certificate
substantiating that the amount of the advance payment has been transferred to
the account of the Contractor, without requiring any further justification or
issuance of a notice or action through administrative, legal, judicial or any
other authorities.
Our liability under this guarantee shall reduce pro rata to your recovery of
the advance payment from subsequent payments due to the Contractor until the
date when our liability is reduced to nil and demand for payment must be
received by us on or before such date, after which this guarantee will
automatically become null and void whether returned to us or not.
[Dated, signed and sealed by the relevant bank].
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ANNEX C
METHOD OF PREPARATION OF CONTRACTOR'S PAYMENT
APPLICATIONS AND CERTIFICATES FOR PAYMENT
1. This Annex describes the method of preparation of Payment Applications and
Certificates of Payment in accordance with Clause 18 of the Conditions of
Contract.
2. General Items
The method of payment of general items will be as follows:
a) The value of the General Items in Section 1 of the Schedule of
Prices, shall be calculated as the same percentage of the sum of the
certified value of the local works undertaken and the certified value
of plant shipped, as a percentage of the Contract Value of those
sections, on a monthly basis. A deduction of 20% will be made from
every certificate to recover the Advance Payment.
b) Payment will be made for the US Dollar component through the Letter
of Credit method as indicated in Sub-clause 6.8 and payment for the
Ethiopian Birr component shall be paid directly from the Employer.
3. Delivery of Plant (C.I.F. Assab)
The method of Payment of the Delivery of Plant C.I.F. Assab will be as
follows:
a) After factory mechanical and electrical design work is complete the
Contractor will prepare a detailed Plant list.
b) The Contractor and the Engineer will estimate values for all items on
the Plant list to the total Contract Value.
c) In the Contractor's application for permission to deliver, the
Contractor will estimate the Contract Value to be shipped in relation
to the agreed Plant list. The Engineer will grant the permission to
deliver.
The value of that payment certificate will be paid to the Contractor
as 100% of the Value of the Plant shipped minus a deduction of 20%
for recovery of the Advance Payment.
d) The Contractor will be paid by presentation of the following
documents to the US Bank issuing the Letter of Credit and shall also
supply sufficient copies as shall be specified in the Contract
Administration Procedures Manual in Annex 20 to the Employer.
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No. of Copies
1. Copy of Original Bill of Lading 2
2. Chamberized Commercial Invoice 2
3. Packing List including List of 2
Measurements or Weights
4. Certificate of Origin 2
5. Insurance Certificate 2
6. Inspection Certificate 2
7. Engineer's Permission to Deliver 2
e) Payment will be made through the Letter of Credit Method as
indicated in Sub-clause 6.8.
4. Transport from Assab to Finchaa Project site
The method of payment for the transport of the Plant from the port of
Assab to Finchaa Sugar Project Site shall be as follows:
a) The Contractor shall prepare a detailed schedule of estimated
tonnages for shipment of plant. This schedule will be approved by
the Engineer.
b) The Contractor shall be paid on a monthly basis on a direct
proportion of tonnage arrived at Assab Port against the total
estimated tonnage in relation to the Total Item for C.I.F. (Birr)
cost in the Schedule of Prices. A deduction of 20% will be made for
recovery of Advance payment.
c) The Contractor shall be paid directly by the Employer.
5. Civil/Structural Works (Local Works)
The method of payment for Civil/Structural Works shall be as follows:
a) After the Civil/Structural Design has been completed, the Contractor
shall prepare detailed estimated percentage based on bills of
quantities on each section of the Works. This estimate will be
approved by the Engineer.
b) The Contractor shall prepare an application for payment based on the
work done from estimated percentage based on a monthly period. This
will be approved by the Engineer who will issue a certificate for
payment.
<PAGE> 103
This certificate shall have deductions for 5% of its value in the
respective currencies for Retention (Sub-clause 18.13) and 20% for
recovery of Advance Payment.
c) Payment will be made for the US Dollar component through the Letter
of Credit method as indicated in Sub-Clause 6.8 and Payment in
Ethiopian Birr will be paid directly by the Employer by cheque.
6. Erection Works (Local Works)
The method of payment for the Erection Works shall be as follows:
a) After the Erection works have been designed the Contractor shall
prepare a detailed estimated percentage based on the bills of
quantities of each Section of the Erection works.
b) The Contractor shall prepare an application for payment based on the
work done from estimated percentage based on a monthly period. This
will be approved by the Engineer who will issue a certificate for
payment.
This certificate shall have deductions for 5% of its value for
Retention (Sub-clause 18.13) and 20% for recovery of Advance Payment.
c) Payment will be made for the US Dollar component through the Letter
of Credit method as indicated in Sub-Clause 6.8 and Payment in
Ethiopian Birr will be paid directly by the Employer.
<PAGE> 104
ANNEX D
ESCALATION - METHOD OF PAYMENT
1. In accordance with Sub-clause 29.1, the Contract Price shall be adjusted
for changes in costs in the local currency element of the Contract
(Ethiopian Birr).
2. The method of determining the Escalation is as follows:
a) General Items
The value of the General Items for each monthly application for
payment by the Contractor shall be adjusted for the increase or
decrease in the exchange rate at the government auction on the
nearest date to the application for payment as follows:
Escalation General = Monthly Value of X (Auction Rate - 6.29)
---------------------
Items General Items 6.29
The current auction exchange rate is 6.29 Ethiopian Birr to 1 US
Dollar.
b) Listed Items
Escalation on the local currency element of the Works will be paid
only on the following items.
<TABLE>
Item Current Unit Price Remark
---- ------------------ ------
<S> <C> <C> <C>
1. Cement 310.00 Birr/Tonne EX-Mugher
2. Mild Steel Reinforcement 4.10 Birr/Kg. Govt. Shop A.A
3. Fuel - Diesel 1.50 Birr/litre EX-Retail A.A
- Petrol 2.00 Birr/litre EX-Retail A.A
4. Timber 1294.47 Birr/Cu.m EX-SIDAMO (Govt)
5. Oil 30/40 8.33 Birr/litre EX-Shell A.A
90/140 8.80 Birr/litre EX-Shell A.A.
6. Grease 12.07 Birr/Kg. EX-Shell A.A
7. Transport (Assab-Addis) 0.36 Birr/Tonne Km.
8. Port Charges Only if changed by legislation
9. Labour Only if changed by legislation
</TABLE>
These prices will be referred to as Base Prices at the date of Contract
Signature. When there is change in price for any of the above items, the
Contractor shall submit the invoices for the purchases of the items for
that month.
The adjustment will be made for escalation calculated as follows:
Escalation Listed = Quantity of Items X [Current - Base]
Items Purchased X [Unit Price - Unit Price]
<PAGE> 105
c) The Escalation for both General and Listed Items will be included in
the Monthly payment Applications and Certificates.
d) In the event that the listed items, with the exception of Transport,
cannot be purchased through the Government system and that the
Contractor has to purchase through the free market system, any
adjustment in price will be subject to the approval of the Engineer.
In this event the Escalation will be calculated upon the difference
between the base price and the free market price.
The Contractor is free to use the "Free Market" for Inland Transport,
but will only be reimbursed Escalation against the Base price shown,
with the approval of the Engineer.
e) There shall be no escalation for the Contractor's Profit.
<PAGE> 106
ANNEX E
BONUS FOR EARLY COMPLETION
Under Article 10.6 of the Contact, the Contractor is entitled to be paid a
Bonus should he complete the Works in less Time than that established under
Article 10.2, Time for Completion.
Any Bonus earned under Clause 10.6 will be due and payable to the Contractor
within 30 days of the issuance of the Certificate specified in Article 12.2.
The Bonus will be a fixed amount and will be paid in Ethiopian Birr, for each
day or part thereof of advance Completion at the rate of BIRR 32,400 (thirty
two thousand four hundred Birr) per day.
The maximum total amount of Bonus payable to the Contractor shall not exceed
Birr 2,000,000 (two million Birr).
<PAGE> 1
EXHIBIT 10.36
CREDIT AGREEMENT
$35,000,000.00 REVOLVING CREDIT LOAN
DATED AS OF
MAY 15, 1995
BETWEEN
SERV-TECH, INC.,
AS THE COMPANY,
THE SUBSIDIARIES OF THE COMPANY
LISTED AS GUARANTORS HEREIN
AND
TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
AS THE AGENT
AND
THE BANKS NAMED HEREIN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I DEFINITIONS; ACCOUNTING TERMS; INTERPRETATION . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.01 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02 Types of Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 1.03 Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE II THE LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 2.01 The Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 2.02 The Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 2.03 Advances Under the Revolving Credit Loan . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 2.04 Disbursement of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.05 Conversions and Continuances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.06 Voluntary Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.07 Mandatory Repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.08 Method and Place of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.09 Pro Rata Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.10 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.11 Interest Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.12 Interest Rate Not Ascertainable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.13 Change in Legality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2.14 Increased Costs, Taxes or Capital Adequacy Requirements . . . . . . . . . . . . . . . . . 20
Section 2.15 Eurodollar Advance Prepayment and Default Penalties . . . . . . . . . . . . . . . . . . . 21
Section 2.16 Voluntary Reduction of Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.17 Tax Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE III LETTERS OF CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 3.01 Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 3.02 Letter of Credit Requests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 3.03 Letter of Credit Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 3.04 Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 3.05 Conflict Between Applications and Agreement . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE IV FEES; COMMITMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 4.01 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE V CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 5.01 Conditions Precedent to the Initial Advance . . . . . . . . . . . . . . . . . . . . . . . 27
Section 5.02 Conditions Precedent to All Credit Events . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 5.03 Delivery of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE VI REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 6.01 Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 6.02 Authorization and Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 6.03 Governmental Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 6.04 Conflicting or Adverse Agreements or Restrictions . . . . . . . . . . . . . . . . . . . . 31
Section 6.05 Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 6.06 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 6.07 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 6.08 Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 6.09 Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 6.10 Public Utility Holding Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 6.11 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 6.12 Tax Returns and Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 6.13 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 6.14 Purpose of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 6.15 Franchises and Other Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 6.16 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 6.17 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE VII AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 7.01 Information Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 7.02 Books, Records and Inspections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 7.03 Insurance and Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 7.04 Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 7.05 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 7.06 Compliance with Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 7.07 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 7.08 Additional Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE VIII NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 8.01 Change in Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 8.02 Consolidation, Merger or Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 8.03 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 8.04 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 8.05 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 8.06 Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 8.07 Change in Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 8.08 Change of Certain Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 8.09 FINCHAA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 8.10 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 8.11 Minimum Consolidated Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 8.12 Consolidated Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 8.13 Funded Debt Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 8.14 Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 8.15 Fixed Charge Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE IX GUARANTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 9.01 Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 9.02 Continuing Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 9.03 Effect of Debtor Relief Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 9.04 Complete Waiver of Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 9.05 Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 9.06 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 9.07 Full Force and Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE X EVENTS OF DEFAULT AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 10.01 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 10.02 Primary Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 10.03 Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
ARTICLE XI THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 11.01 Authorization and Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 11.02 Agent's Reliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 11.03 Agent and Affiliates;
TCB and Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 11.04 Bank Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<S> <C> <C>
Section 11.05 Agent's Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 11.06 Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 11.07 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
ARTICLE XII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 12.01 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 12.02 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 12.03 No Waiver; Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 12.04 Costs, Expenses and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 12.05 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 12.06 Right of Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 12.07 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 12.08 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 12.09 Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . 56
Section 12.10 Successors and Assigns; Participations . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 12.11 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 12.12 Pro Rata Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 12.13 Separability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 12.14 Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 12.15 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 12.16 Submission to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 12.17 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 12.18 Final Agreement of the Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
</TABLE>
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<PAGE> 6
CREDIT AGREEMENT
THIS CREDIT AGREEMENT dated as of May 15, 1995 (this
"Agreement") is between SERV-TECH, INC., a Texas corporation (the "Company"),
the Subsidiaries of the Company listed on the signature pages hereto as
Guarantors (together with each other person who subsequently becomes a
Guarantor, collectively the "Guarantors"), the banks and other financial
institutions listed on the signature pages hereto under the caption "Banks"
(together with each other person who becomes a Bank, collectively the "Banks")
and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, individually as a Bank ("TCB")
and as agent for the other Banks (in such capacity together with any other
Person who becomes the agent the "Agent").
The Company has requested that the Banks provide the Company
with a credit facility, pursuant to which the Banks will commit to make a
revolving credit loan of up to $35,000,000.00 to the Company to refinance the
Prior Indebtedness, to finance capital expenditures, to provide for the
issuance of Letters of Credit by TCB, and for use as working capital. In
connection therewith, the Agent has agreed to serve as Agent for the Banks and
the Agent and the Company hereby agree that, upon the fulfillment of the
conditions contained in Section 5.01 and the repayment of the Prior
Indebtedness, all documentation evidencing, securing or describing said Prior
Indebtedness shall automatically terminate.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants set forth herein, the Company, the Agent and the Banks agree
as follows:
ARTICLE I
DEFINITIONS; ACCOUNTING TERMS; INTERPRETATION
SECTION 1.01. Definitions. As used in this Agreement, the
following terms shall have the following meanings:
"Accounts" means all accounts, accounts receivable or other
indebtedness owing to the Company or to a Subsidiary of the Company
which is a Guarantor as consideration for goods sold, services
rendered or results from a billing based upon costs incurred on a
project in excess of all prior billings (net of any billings in excess
of such costs), if billed during the immediately succeeding billing
cycle and, in any event, not later than the end of the month following
the month in which same were incurred.
<PAGE> 7
"Advance" means an advance pursuant to a Notice of Advance,
comprised of a single Type of Loan from all the Banks (or resulting
from a conversion or conversions on the same date having, in the case
of Eurodollar Rate Advances, the same Interest Period (except as
otherwise provided in this Agreement)), made by all of the Banks
concurrently to the Company.
"Advance Date" means, with respect to each Advance, the
Business Day upon which the proceeds of such Advance are to be made
available to the Company.
"Affiliate" means, with respect to any Person, any other
Person directly or indirectly controlling (including all directors and
officers of such Person), controlled by, or under direct or indirect
common control with such Person, and any other Person in which such
Person's direct or indirect equity interest is 10% or more of the
total outstanding equity interests of such Person.
"Agent" has the meaning specified in the introduction to this
Agreement.
"Agent's Fee" has the meaning specified in Section 4.01(c).
"Agreement" has the meaning specified in the introduction to
this Agreement.
"Alternate Base Rate" means, for any date, a rate per annum
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to the
greater of (a) the Prime Rate in effect on such day and (b) the
Federal Funds Effective Rate in effect on such day plus 1/2 of 1%.
For purposes hereof, the term "Prime Rate" means, as of a particular
date, the prime rate most recently determined by the Agent and
thereafter entered in the minutes of its Loan and Discount Committee,
automatically fluctuating upward and downward with and at the time of
such determination without notice to the Company or any other Person,
which prime rate may not necessarily represent the lowest or best rate
actually charged to a customer. "Federal Funds Effective Rate" means,
for any day, the weighted average of the rates on overnight federal
funds transactions with members of the Federal Reserve System arranged
by federal funds brokers, as published for such day (or, if such day
is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published
for any day which is a Business Day, the average of the quotations for
such day on such transactions received by the Agent from three federal
funds brokers of recognized standing selected by it. If, for any
reason, the Agent shall have determined (which determination shall be
conclusive absent manifest error) that it is unable to ascertain the
Federal Funds Effective Rate, including the inability or failure of
the Agent to obtain sufficient quotations in accordance with the terms
hereof, the Alternate Base Rate shall be determined without regard to
clause (b) of the first sentence of this definition until the
circumstances giving rise to such inability no
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<PAGE> 8
longer exist. Any change in the Alternate Base Rate due to a change
in the Prime Rate or the Federal Funds Effective Rate shall be
effective on the effective date of such change in the Prime Rate or
the Federal Funds Effective Rate, respectively.
"Alternate Base Rate Advance" means any Advance bearing
interest at a rate determined by reference to the Alternate Base Rate
in accordance with the provisions of Article II.
"Applicable Lending Office" means, with respect to each Bank,
such Bank's Domestic Lending Office in the case of an Alternate Base
Rate Advance and such Bank's Eurodollar Lending Office in the case of
a Eurodollar Rate Advance.
"Application for Letter of Credit" means an application by the
Company to the Issuing Bank requesting it to issue a Letter of Credit,
substantially in the form of Exhibit 1.01B hereto.
"Assignment and Acceptance" has the meaning specified in
Section 12.10 (c).
"Bank" has the meaning provided in the introduction to this
Agreement.
"Bankruptcy Code" has the meaning specified in Section
10.01(e).
"Board" means the Board of Governors of the Federal Reserve
System of the United States (or any successor).
"Borrowing Base" means an amount equal to 80% of the Eligible
Accounts.
"Borrowing Base Certificate" means a certificate calculating
the Borrowing Base, substantially in the form of Exhibit 1.01.
"Business Day" means any day (other than a day which is a
Saturday, Sunday or legal holiday in the State of Texas) on which
banks are open for business in Houston, Texas.
"Capitalized Lease Obligations" means all lease or rental
obligations which, pursuant to GAAP, are capitalized for balance sheet
purposes.
"Change of Control" means any of (i) the acquisition by any
Person or two or more Persons acting in concert, of beneficial
ownership of 50% or more of the outstanding shares of voting stock of
the Company, (ii) a majority of the members of the Board of Directors
of the Company on any date shall not have been members of the
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Board of Directors of the Company on the date 12 months prior to such
date, (iii) all or substantially all of the assets of the Company are
sold in a single transaction or series of related transactions to any
Persons or (iv) the Company merges or consolidates with or into any
other Person.
"Code" means Internal Revenue Code of 1986 and the regulations
promulgated thereunder.
"Commercial Letter of Credit" means a letter of credit issued
to finance the purchase or shipment of goods and payable upon
presentation of appropriate documents of title and receipt in regard
to said goods.
"Commitment" and "Commitments" means the obligation of the
Banks to enter into and perform this Agreement, to make available the
Loans and to issue the Letters of Credit to the Company in the amounts
shown on the signature page of each Bank hereto and all other duties
and obligations of the Banks hereunder.
"Commitment Fee" has the meaning specified in Section 4.01(b).
"Company" has the meaning specified in the introduction to
this Agreement.
"Consolidated Net Income" means, for any period, the net
income (or loss) of the Company and its Subsidiaries for such period
determined on a consolidated basis without giving effect to any
nonrecurring items, extraordinary gains or gains from sales of assets
or write downs in the value of assets owned by the Company and its
Subsidiaries.
"Consolidated Net Worth" means total assets minus total
liabilities.
"Consolidated Tangible Net Worth" means: (a) total assets
minus (b) the sum of (i) all liabilities and (ii) all intangible
assets, including, without limitation, goodwill, patents, trademarks
and similar items.
"Coverage Ratio" means the ratio of Funded Debt to EBITDA.
"Credit Event" means the making of any Advance, the conversion
or continuation of any Advance as a Eurodollar Rate Advance or the
issuance of any Letter of Credit.
"Default" means the occurrence of any event which with the
giving of notice or the passage of time or both could become an Event
of Default.
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"Default Rate" means the lesser of (i) the Highest Lawful Rate
and (ii) the Alternate Base Rate plus two percent (2%).
"Designated Payment Date" means January 1, April 1, July 1 and
October 1, in any calendar year; provided, however, if in any such
year a Designated Payment Date shall be a day which is not a Business
Day, such Designated Payment Date shall be the next succeeding
Business Day, and such extension of time shall be included in
determining the amount to be paid on such date.
"Domestic Lending Office" means, with respect to any Bank, the
office of such Bank designated from time to time as its "Domestic
Lending Office" hereunder.
"EBITDA" means, for any period, the Consolidated Net Income
for such period, plus the aggregate amount which was deducted for such
period in determining consolidated net income in respect of interest
expense (including amortization of debt discount, imputed interest and
capitalized interest), plus depreciation, amortization and provision
for taxes, plus income attributable to any minority interest in any
Person, for so long as said Person remains a Guarantor, but
specifically excluding the special charges taken by the Company on
September 30, 1994.
"Effective Date" means the date on which all conditions to
make an Advance set forth in Section 5.01(a) are first met or waived
in accordance with Section 12.01 hereof.
"Eligible Accounts" means all Accounts, each of which meets
all of the following criteria on the date of determination:
(a) is owned by the Company or a Subsidiary of
the Company which is a Guarantor, free and clear of any claim,
arising in the ordinary course of business;
(b) is not more than ninety (90) days old from
the original invoice date (120 days in the case of Accounts
listed on Schedule 1.01 hereof, which schedule is subject to
change by the Agent in its sole and absolute discretion);
(c) except as allowed under (a) above, does not
include any amount that is either for goods not yet delivered
or services not yet performed or any amount that will be held
back by any party as retainage or assurance of the future
performance of the Company until the Company is entitled to
and does bill for such retainage;
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(d) has not been challenged by the obligor
thereon for any bonafide reason;
(e) in respect of which no notice of the
bankruptcy, insolvency or dissolution of the obligor thereon
is known to the Company;
(f) is not owed by (i) a foreign Person unless
supported by a letter of credit or other insurance
satisfactory to the Agent or (ii) the United States
government; and
(g) is not from an obligor that has 30% or more
of its Accounts to the Company more than 120 days old.;
"Eligible Assignee" means (a) any Bank; (b) a commercial bank
organized under the laws of the United States, or any state thereof,
and having total assets in excess of $1,000,000,000; (c) a commercial
bank organized under the laws of any other country which is a member
of the Organization for Economic Cooperation and Development or any
successor organization, or a political subdivision of any such
country, and having total assets in excess of $1,000,000,000; provided
that such bank is acting through a branch or agency located in the
country in which it is organized or another country which is also a
member of the Organization for Economic Cooperation and Development or
any successor organization; (d) the central bank of any country which
is a member of the Organization for Economic Cooperation and
Development or any successor organization; and (e) any other bank or
similar financial institution approved by the Agent and the Majority
Banks.
"Environmental Laws" means federal, state or local laws, rules
or regulations, and any judicial, arbitral or administrative
interpretations thereof, including any judicial, arbitral or
administrative order, judgment, permit, approval, decision or
determination pertaining to conservation or protection of the
environment in effect at the time in question, including the Clean Air
Act, the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), the Federal Water Pollution Control Act, the
Occupational Safety and Health Act, the Resource Conservation and
Recovery Act, the Safe Drinking Water Act, the Toxic Substances
Control Act, the Superfund Amendment and Reauthorization Act of 1986,
the Hazardous Materials Transportation Act, and comparable state and
local laws, and other environmental conservation and protection laws.
"ERISA" means the Employee Retirement Income Security Act of
1974 and the regulations promulgated thereunder.
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"ERISA Affiliate" means (a) any trade or business (whether or
not incorporated) which is either a member of the same "controlled
group" or under "common control," within the meaning of Section 414 of
the Code and the regulations thereunder, with the Company and (b) any
Subsidiary of the Company.
"Eurocurrency Liabilities" has the meaning specified in
Regulation D as in effect from time to time.
"Eurodollar Lending Office" means, with respect to each Bank,
the branches or affiliates of such Bank designated as its "Eurodollar
Lending Office" from time to time hereunder.
"Eurodollar Rate" means, with respect to any Eurodollar Rate
Advance, the rate (rounded to 1/16 of 1%) at which dollar deposits
approximately equal in principal amount to the entire portion of such
Advance and for a maturity equal to the applicable Interest Period are
offered in immediately available funds to the Agent by prime banks in
whatever Eurodollar interbank market may be selected by the Agent in
its sole and absolute discretion at the time of determination and in
accordance with the then usual practice in such market at
approximately 10:00 a.m. (Houston, Texas time) two Business Days prior
to the commencement of such Interest Period.
"Eurodollar Rate Advance" means any Advance bearing interest
at a rate determined by reference to the Eurodollar Rate in accordance
with the provisions of Article II.
"Events of Default" has the meaning specified in Section
10.01.
"Execution Date" means the date upon which this Agreement
shall have been executed by the Company and the Banks.
"Existing Letters of Credit" means all letters of credit
issued by TCB, outstanding on the Execution Date and described on
Exhibit 3.01(a).
"Federal Funds Effective Rate" has the meaning specified in
the definition of the term "Alternate Base Rate."
"Fees" means all amounts payable pursuant to Section 4.01.
"Financials" has the meaning specified in Section 6.07.
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"FINCHAA Project" means the construction and operation of that
certain FP-3 sugar refinery and ethanol plant, in the Republic of
Ethiopia by F. C. Schaffer, a Subsidiary of the Company.
"Funded Debt" means all indebtedness for borrowed money
evidenced by a written document and subject to periodic, required
payments of interest and/or principal.
"GAAP" means generally accepted accounting principles as in
effect from time to time as set forth in the opinions, statements and
pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants, the Financial Accounting
Standards Board and such other Persons who shall be approved by a
significant segment of the accounting profession and concurred in by
the independent certified public accountants certifying any audited
financial statements of the Company.
"Guaranteed Obligations" has the meaning specified in Section
9.01.
"Guarantors" means all of the Subsidiaries of the Company.
"Guaranty" means the document described in Section 5.01(c), in
the form of Article IX hereof.
"Hazardous Materials" means (a) hazardous waste as defined in
the Resource Conservation and Recovery Act of 1976, or in any
applicable federal, state or local law or regulation, (b) hazardous
substances, as defined in CERCLA, or in any applicable state or local
law or regulation, (c) gasoline, or any other petroleum product or
by-product, (d) toxic substances, as defined in the Toxic Substances
Control Act of 1976, or in any applicable federal, state or local law
or regulation or (e) insecticides, fungicides, or rodenticides, as
defined in the Federal Insecticide, Fungicide, and Rodenticide Act of
1975, or in any applicable federal, state or local law or regulation,
as each such Act, statute or regulation may be amended from time to
time.
"Highest Lawful Rate" means, as to any Bank, the maximum
nonusurious rate of interest that, under applicable law, may be
contracted for, taken, reserved, charged or received by such Bank on
the Loans or under the Loan Documents at any time or from time to
time. If the maximum rate of interest which, under applicable law,
any of the Banks are permitted to charge the Company on the Loans
shall change after the date hereof, to the extent permitted by
applicable law, the Highest Lawful Rate shall be automatically
increased or decreased, as the case may be, as of the effective time
of such change without notice to the Company or any other Person.
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<PAGE> 14
"Indebtedness" means (a) all indebtedness for borrowed money
(whether by loan or the issuance and sale of debt securities) or for
the deferred purchase price of property or services, (b) all
indebtedness created or arising under any conditional sale or other
title retention agreement with respect to property, (c) all
Capitalized Lease Obligations, (d) all guaranties or other contingent
liabilities of any kind (including letter of credit reimbursement
obligations) and (e) all indebtedness, to the extent it would
constitute a liability on a balance sheet prepared in accordance with
GAAP or would be disclosed as a contingent liability in a footnote to
financial statements of such Person prepared in accordance with GAAP.
"Interest Period" has the meaning specified in Section 2.11.
"Interest Rate Agreement" means an interest rate swap
agreement, interest rate cap agreement or similar arrangement entered
into by the Company and the Banks in connection with the Indebtedness
evidenced by this Agreement and the other Loan Documents.
"Investment" means, as applied to any Person, any direct or
indirect purchase or other acquisition by such Person of the assets,
stock or other securities of any other Person, or any direct or
indirect loan, advance or capital contribution by such Person to any
other Person, and any other item which would be classified as an
"investment" on a balance sheet of such Person, including any direct
or indirect contribution by such Person of property or assets to a
joint venture, partnership or other business entity in which such
Person retains an interest.
"Issuing Bank" means TCB, in its capacity as a Bank.
"Letter of Credit Fee" has the meaning specified in Section
4.01(e).
"Letter of Credit Request" has the meaning specified in
Section 3.02(a).
"Letters of Credit" has the meaning specified in Section
3.01(a).
"Lien" means, when used with respect to any Person, any
mortgage, lien, charge, pledge, security interest or encumbrance of
any kind (whether voluntary or involuntary and whether imposed or
created by operation of law or otherwise) upon, or pledge of, any of
its property or assets, whether now owned or hereafter acquired, or
any lease intended as security, any capital lease in the nature of the
foregoing, any conditional sale agreement or other title retention
agreement, in each case, for the purpose, or having the effect, of
protecting a creditor against loss of securing the payment or
performance of an obligation.
"Loan" and "Loans" have the meaning specified in Section 2.01.
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"Loan Documents" means this Agreement and the other documents
described in Article V hereof.
"Majority Banks" means Banks holding at least 66 2/3% of the
Advances outstanding under the Loan, or, if no Advances are
outstanding, Banks holding such percentage of the Commitment.
"Margin" means, with respect to any Eurodollar Rate Advance
for any Margin Period, the rate of interest per annum determined as
set forth below as a function of the Coverage Ratio:
(a) for any Margin Period which commences on a
date when the Coverage Ratio is less than 1 to 1, the Margin
shall be 1%;
(b) for any Margin Period which commences on a
date when the Coverage Ratio is equal to or greater than 1 to
1 but less than 1.5 to 1, the Margin shall be 1.25%;
(c) for any Margin Period which commences on a
date when the Coverage Ratio is equal to or greater than 1.5
to 1, but less than 2 to 1, the Margin shall be 1.5%;
(d) for any Margin Period which commences on a
date when the Coverage Ratio is equal to or greater than 2 to
1, but less than 2.5 to 1, the Margin shall be 1.75%;
(e) for any Margin Period which commences on a
date when the Coverage Ratio is equal to or greater than 2.5
to 1, the Margin shall be 2%;
(f) as of the Execution Date, the Margin is 1.5%;
and
(g) if the Margin cannot be reasonably determined
for any applicable period by the Agent, the Margin shall be
2%.
"Margin Period" means a period commencing on the date on which
the quarterly or annual financial statements of the Company are
delivered pursuant to Section 7.01(a) or Section 7.01(b), as the case
may be, and ending on the next date a financial statement is
delivered.
"Material Adverse Effect" means, relative to any occurrence of
whatever nature (including any adverse determination in any
litigation, arbitration or governmental investigation or proceeding)
(a) a material adverse effect on the financial condition,
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<PAGE> 16
business or operations of the Company and its Subsidiaries taken as a
whole or (b) a material impairment of the collective ability of the
Company to make payment hereunder or under any Note or the right of
any Bank to enforce any of its remedies to collect any amounts owing
under the Loan Documents.
"Maturity Date" means May 31, 1997, unless accelerated
pursuant to Section 10.02.
"Maximum Guaranteed Amount" means for each Guarantor the
greater of (a) 95% of the Adjusted Net Worth of such Guarantor as of
the Execution Date and (b) 95% of the Adjusted Net Worth of such
Guarantor at the earlier of (i) the date of commencement of a case
under Title 11 of the Bankruptcy Code in which such Guarantor is a
debtor and (ii) the date enforcement of the Guaranty is sought. For
purposes hereof, "Adjusted Net Worth" of such Guarantor shall mean, as
of the date of determination, (a) the amount of the present fair
saleable value of the assets of such Guarantor as of the date of such
determination, over (b) the amount of all liabilities of such
Guarantor, contingent or otherwise, as of the date of such
determination, as such terms are defined in accordance with applicable
federal and state laws governing determinations of insolvency of
debtors.
"Multiemployer Plan" means any plan which is a "multiemployer
plan" (as such term is defined in Section 4001(a)(3) of ERISA).
"Note" and "Notes" have the meaning specified in Section 2.02.
"Notice of Advance" has the meaning provided in Section
2.03(a).
"Notice of Conversion" has the meaning provided in Section
2.05.
"Notice of Default" has the meaning specified in Section
10.02.
"Obligations" means all the obligations of the Company now or
hereafter existing under the Loan Documents, whether for principal,
interest, Fees, expenses, indemnification or otherwise.
"Other Activities" has the meaning specified in Section 11.03.
"Other Financings" has the meaning specified in Section 11.03.
"Payment Office" means the office of the Agent located at 1111
Fannin Street, Houston, Texas 77002, or such other office as the Agent
may hereafter designate in writing as such to the other parties
hereto.
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"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to all or any of its functions under ERISA.
"Permitted Investments" means, as to any Person:
(a) securities issued or directly and fully
guaranteed or insured by the United States or any agency or
instrumentality thereof (provided that the full faith and
credit of the United States is pledged in support thereof)
having maturities of not more than twelve months from the date
of acquisition thereof,
(b) time deposits and certificates of deposit
with maturities of not more than twelve months from the date
of acquisition by such Person which deposits or certificates
are either: (a) fully insured by the Federal Deposit Insurance
Corporation or (b) in any Bank or other commercial bank
incorporated in the United States or any U.S. branch of any
other commercial bank, in each case having capital, surplus
and undivided profits aggregating $100,000,000 or more with a
long-term unsecured debt rating of at least A- from Standard &
Poor's Ratings Group or A3 from Moody's Investors Service,
(c) commercial paper issued by any Person
incorporated in the United States rated at least A2 or the
equivalent thereof by Standard & Poor's Ratings Group or at
least P2 or the equivalent thereof by Moody's Investors
Service and, in each case, maturing not more than 270 days
after the date of issuance,
(d) investments in money market mutual funds
having assets in excess of $2,000,000,000 substantially all of
whose assets are comprised of securities of the types
described in clauses (a) through (c) above, and
(e) repurchase or reverse purchase agreements
respecting obligations with a term of not more than seven days
for underlying securities of the types described in clause (a)
above entered into with any bank listed in or meeting the
qualifications specified in clause (b) above.
"Person" means an individual, partnership, corporation
(including a business trust), limited liability company, joint stock
company, trust, unincorporated association, joint venture or other
entity, or a foreign or domestic state or political subdivision
thereof or any agency of such state or subdivision.
"Plan" means any employee pension benefit plan (as defined in
Section 3(2) of ERISA), subject to Title IV of ERISA or Section 412 of
the Code, other than a Multiemployer Plan, with respect to which the
Company or an ERISA Affiliate
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<PAGE> 18
contributes or has an obligation or liability to contribute, including
any such plan that may have been terminated.
"Prior Indebtedness" means all indebtedness and obligations of
any party under that one certain Credit Agreement dated March 26, 1992
between the Company as the borrower and Texas Commerce Bank National
Association as the lender.
"Regulation A" means Regulation A of the Board (respecting
loans to depository institutions), as the same is from time to time in
effect, and all official rulings and interpretations thereunder or
thereof.
"Regulation D" means Regulation D of the Board (respecting
reserve requirements), as the same is from time to time in effect, and
all official rulings and interpretations thereunder or thereof.
"Regulation U" means Regulation U of the Board (respecting
margin credit extended by banks), as the same is from time to time in
effect, and all official rulings and interpretations thereunder or
thereof.
"Regulation X" means Regulation X of the Board (respecting
borrowers who obtain margin credit), as the same is from time to time
in effect, and all official rulings and interpretations thereunder or
thereof.
"Release" means any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching,
dumping or disposing into the environment (including the abandonment
or discarding of barrels, containers and other closed receptacles).
"Rents" means all payments in respect of operating leases,
rental agreements and similar agreements in regard to the lease or
rental of real or personal property.
"Reportable Event" means an event described in Section 4043(b)
of ERISA with respect to a Plan as to which the 30-day notice
requirement has not been waived by the PBGC.
"Requirements of Environmental Laws" means, as to any Person,
the requirements of any applicable Environmental Law relating to or
affecting such Person or the condition or operation of such Person's
business or its properties, both real and personal.
"Reserve Percentage" means, for any Interest Period, the
reserve percentage applicable during such Interest Period under
regulations issued from time to time by the
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<PAGE> 19
Board (or if more than one such percentage is so applicable, the daily
average for such percentages for those days in such Interest Period
during which any such percentage shall be so applicable) for
determining the maximum reserve requirement (including any marginal,
supplemental or emergency reserves) for such Bank in respect of
liabilities or assets consisting of or including Eurocurrency
Liabilities.
"Responsible Officer" means, with respect to the Company, the
chairman of the board of directors, president, any vice president,
chief executive officer, chief operating officer, treasurer or chief
financial officer of the company.
"Standby Letter of Credit" means a letter of credit that is
issued to secure the payment or performance of an obligation and
payable upon notice of a failure or default in regard thereto and that
is not a Commercial Letter of Credit.
"Subsidiary" means and includes, with respect to any Person,
(a) any corporation more than 50% of whose stock of any class or
classes having by the terms thereof ordinary voting power to elect a
majority of the directors of such corporation (irrespective of whether
or not at the time stock of any class or classes of such corporation
shall have or might have voting power by reason of the happening of
any contingency) is at the time owned by such Person, directly or
indirectly and (b) any partnership, association, joint venture or
other entity in which such Person, directly or indirectly, has greater
than 50% of (i) the directors (or Persons performing similar
functions) thereof or (ii) the equity interest.
"Unfunded Current Liability" means, with respect to any Plan,
the amount, if any, by which the present value of the accrued benefits
under the Plan as of the close of its most recent Plan year exceeds
the fair market value of the assets allocable thereto, determined in
accordance with Section 412 of the Code.
"Unutilized Commitment" at any time, means the Commitment less
the outstanding Advances (including fundings under any Letters of
Credit).
SECTION 1.02. Types of Advances. Advances hereunder are
distinguished by "Type". The Type of an Advance refers to the determination
whether such Advance is a Eurodollar Rate Advance or an Alternate Base Rate
Advance.
SECTION 1.03. Accounting Terms. All accounting terms not
defined herein shall be construed in accordance with GAAP, as applicable, and
all calculations required to be made hereunder and all financial information
required to be provided hereunder shall be done or prepared in accordance with
GAAP.
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ARTICLE II
THE LOANS
SECTION 2.01. The Loan. (a) Subject to the terms and
conditions hereof, each Bank severally agrees at any time and from time to time
on and after the Execution Date and prior to the Maturity Date, to make and
maintain a revolving credit loan or loans (each a "Loan" and collectively, the
"Loans") to the Company, which Loans (i) shall, at the option of the Company,
be made and maintained pursuant to one or more Advances comprised of Alternate
Base Rate Advances or Eurodollar Rate Advances; provided that, except as
otherwise specifically provided herein, all Loans comprising all or a portion
of the same Advance shall at all times be of the same Type, (ii) shall be made
in the minimum amount of $500,000.00 and integral multiples thereof, (iii) so
long as no Default or Event of Default exists hereunder, may be repaid and
reborrowed, at the option of the Company in accordance with the provisions
hereof and (iv) shall, in the aggregate, not exceed the lesser of the Borrowing
Base or the maximum total amount of the Commitment. There shall be no further
Advances after the Maturity Date.
(b) The Loans shall be used to provide working capital
and for general corporate purposes, provided none of the proceeds of the Loans
shall be used in any way in connection with the FINCHAA Project except as
specifically herein provided.
SECTION 2.02. The Notes. The Loans shall be evidenced by
Notes in favor of each Bank (individually a "Note" and collectively, the
"Notes"), substantially in the form of Exhibit 2.02 hereto.
SECTION 2.03. Notice of Advance. (a) Whenever the Company
requires an Advance, it shall give written notice thereof (a "Notice of
Advance") (or telephonic notice promptly confirmed in writing) to the Agent (i)
in the case of an Alternate Base Rate Advance, not later than 10:00 a.m.
(Houston, Texas time) on the date of such Advance and (ii) in the case of a
Eurodollar Rate Advance, not later than 11:00 a.m. (Houston, Texas time) three
Business Days prior to the date of such Advance. Each Notice of Advance shall
be irrevocable and shall be in the form of Exhibit 2.03 hereto, specifying (i)
the aggregate principal amount of the Advance to be made, (ii) the date of such
Advance (which shall be a Business Day), (iii) whether it is to be an Alternate
Base Rate Advance or a Eurodollar Rate Advance and (iv) if the proposed Advance
is to be a Eurodollar Rate Advance, the initial Interest Period to be
applicable thereto.
(b) The Agent shall promptly give the Banks written
notice or telephonic notice (promptly confirmed in writing) of each proposed
Advance, of each Bank's proportionate share thereof and of the other matters
covered by each Notice of Advance.
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SECTION 2.04. Disbursement of Funds. (a) No later than
1:00 p.m. (Houston, Texas time) on the Advance Date, each Bank shall make
available its pro rata portion of the amount of such Advance in U.S. dollars
and in immediately available funds at the Payment Office. The Agent shall
credit the amounts so received to the general deposit account of the Company
maintained with the Agent.
(b) Unless the Agent shall have been notified by any Bank
prior to disbursement of the Advance by the Agent that such Bank does not
intend to make available to the Agent such Bank's portion of the Advance to be
made on such date, the Agent may assume that such Bank has made such amount
available to the Agent on such Advance Date and the Agent may, in reliance upon
such assumption, make available to the Company a corresponding amount. If such
corresponding amount is not in fact made available to the Agent by such Bank
and the Agent has made available same to the Company, the Agent shall be
entitled to recover such corresponding amount on demand from such Bank. If
such Bank does not pay such corresponding amount forthwith upon the Agent's
demand therefor, the Agent shall promptly notify the Company, and the Company
shall pay such corresponding amount to the Agent within two (2) Business Days
after demand therefor. The Agent shall also be entitled to recover from such
Bank or the Company, as the case may be, interest on such corresponding amount
from the date such corresponding amount was made available by the Agent to the
Company to the date such corresponding amount is recovered by the Agent, at a
rate per annum equal to the Alternate Base Rate or the Eurodollar Rate plus the
applicable Margin, as appropriate. Nothing herein shall be deemed to relieve
any Bank from its obligation to fulfill its commitments hereunder or to
prejudice any rights which the Company may have against any Bank as a result of
any default by such Bank hereunder.
SECTION 2.05. Conversions and Continuances. The Company
shall have the option to convert on any Business Day all or a portion of the
outstanding principal amount of one Type of Advance into another Type of
Advance, provided, no Advances may be converted into or continued as Eurodollar
Rate Advances if a Default or Event of Default is in existence on the date of
the conversion. Each such conversion shall be effected by the Company giving
the Agent written notice (each a "Notice of Conversion") prior to 11:00 a.m.
(Houston, Texas time) at least (a) three (3) Business Days prior to the date of
such conversion in the case of conversion into or continuance as Eurodollar
Rate Advances and (b) prior to 10:00 a.m. (Houston, Texas time) one Business
Day in the case of a conversion into Alternate Base Rate Advances, specifying
each Advance (or portions thereof) to be so converted and, if to be converted
into or continued as Eurodollar Rate Advances, the Interest Period to be
initially applicable thereto. The Agent shall thereafter promptly notify each
Bank of such Notice.
SECTION 2.06. Voluntary Prepayments. The Company shall
have the right to voluntarily prepay Advances in whole or in part at any time
on the following terms and conditions: (a) no Eurodollar Rate Advance may be
prepaid prior to the last day of its Interest
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<PAGE> 22
Period unless, simultaneously therewith, the Company pays to the Agent for the
benefit of the Banks, all sums necessary to compensate the Banks for all costs
and expenses resulting from such prepayment, as reasonably determined by the
Banks, including but not limited to those costs described in Sections 2.10(f),
2.14, and 2.15 hereof; (b) each partial prepayment shall be in an initial
aggregate principal amount of $500,000.00 and integral multiples thereof; and
(c) each prepayment pursuant to this Section shall be applied first, to the
payment of accrued and unpaid interest, and then, to the outstanding principal
of such Advances in the inverse order of maturity thereof.
SECTION 2.07. Mandatory Repayments. (a) The aggregate
amount of all Advances under the Notes (and all accrued, unpaid interest) shall
be due and payable on the Maturity Date.
(b) The Company shall repay advances on any day on which
the aggregate outstanding principal amount of the Loans exceeds the lesser of
(i) the Commitments and (ii) the then current Borrowing Base, in the amount of
such excess, provided, the Company shall have three (3) days to make such
payment if it is required only by subsection (ii) hereof.
SECTION 2.08. Method and Place of Payment. Except as
otherwise specifically provided herein, all payments under this Agreement due
from the Company shall be made to the Agent for the benefit of the Banks not
later than 11:00 a.m. (Houston, Texas time) on the date when due and shall be
made in lawful money of the United States in immediately available funds at the
Payment Office.
SECTION 2.09. Pro Rata Advances. All Advances under this
Agreement shall be incurred from the Banks pro rata, on the basis of their
respective Commitments. It is understood that no Bank shall be responsible for
any default by any other Bank in its obligation to make Loans hereunder and
that each Bank shall be obligated to make the Loans provided to be made by it
hereunder, regardless of the failure of any other Bank to fulfill its
commitments hereunder.
SECTION 2.10. Interest. (a) Subject to Section 12.08, the
Company agrees to pay interest on the total outstanding principal balance of
all Alternate Base Rate Advances from the date of each respective Advance to
maturity (whether by acceleration or otherwise) at a rate per annum which shall
at all times be equal to the lesser of (i) the Highest Lawful Rate and (ii) the
Alternate Base Rate in effect from time to time. If the Alternate Base Rate is
based on the Prime Rate, interest shall be computed on the basis of the actual
number of days elapsed over a year of 365 or 366 days, as the case may be. If
the Alternate Base Rate is based on the Federal Funds Effective Rate, interest
shall be computed on the basis of the actual number of days elapsed over a year
of 360 days.
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(b) Subject to Section 12.08, the Company agrees to pay
interest on the total outstanding principal balance of all Eurodollar Rate
Advances from the date of each respective Advance to maturity (whether by
acceleration or otherwise) at a rate per annum (computed on the basis of the
actual number of days elapsed over a year of 360 days) which shall, during each
Interest Period applicable thereto, be equal to the lesser of (i) the Highest
Lawful Rate and (ii) the applicable Eurodollar Rate for such Interest Period
plus the applicable Margin. The applicable Eurodollar Rate shall be fixed for
each Interest Period and shall not change during said Interest Period but the
applicable Margin, which is added to said Eurodollar Rate to determine the
total interest payable to the Banks, shall be adjusted, effective on the first
day of each Margin Period, whether or not said adjustment occurs at a time
other than the beginning of an Interest Period.
(c) Subject to Section 12.08, overdue principal and, to
the extent permitted by law, overdue interest in respect of any Advance and all
other overdue amounts owing hereunder shall bear interest for each day that
such amounts are overdue at a rate per annum equal to the Default Rate.
(d) Interest on each Advance shall accrue from and
including the date of such Advance to but excluding the date of any repayment
thereof and shall be payable (i) in respect of Eurodollar Rate Advances (A) on
the last day of the Interest Period (as defined below) applicable thereto and,
in the case of any Interest Period in excess of three months, on each
Designated Payment Date during said Interest Period and on the last day of the
Interest Period and (B) on the date of any voluntary or mandatory repayment or
any conversion or continuance, (ii) in respect of Alternate Base Rate Advances
(A) on each Designated Payment Date commencing February 1, 1995 and (B) on the
date of any voluntary or mandatory repayment and (iii) in respect of each
Advance, at maturity (whether by acceleration or otherwise) and, after
maturity, on demand.
(e) The Agent, upon determining the Eurodollar Rate for
any Interest Period, shall notify the Company thereof. Each such determination
shall, absent manifest error, be final and conclusive and binding on all
parties hereto. In addition, prior to the due date for the payment of interest
on any Advances set forth in the immediately preceding paragraph, the Agent
shall notify the Company of the amount of interest due by the Company on all
outstanding Advances on the applicable due date, but any failure of the Agent
to so notify the Company shall not reduce the Company's liability for the
amount owed.
(f) The Company shall pay to the Agent for the Account of
each Bank, so long as the Banks shall be required under regulations of the
Board to maintain reserves with respect to liabilities or assets consisting of
or including Eurocurrency Liabilities, additional interest on the unpaid
principal amount of each such Eurodollar Rate Advance, from the date of such
Advance until such principal amount is paid in full, at an interest rate per
annum equal at all
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times during the Interest Period for such Advance to the lesser of (i) the
Highest Lawful Rate and (ii) the remainder obtained by subtracting (A) the
Eurodollar Rate for such Interest Period from (B) the rate obtained by dividing
such Eurodollar Rate referred to in clause (A) above by that percentage equal
to 100% minus the Reserve Percentage of such Bank for such Interest Period.
Such additional interest shall be determined by such Bank as incurred and shall
be payable upon demand therefor by the Bank to the Company. Each determination
by such Bank of additional interest due under this Section shall be conclusive
and binding for all purposes in the absence of manifest error.
SECTION 2.11. Interest Periods. (a) At the time the
Company gives any Notice of Advance or Notice of Conversion in respect of the
making of, or conversion into, a Eurodollar Rate Advance, the Company shall
have the right to elect, by giving the Agent on the dates and at the times
specified in Section 2.03 or Section 2.05, as the case may be, notice of the
interest period (each an "Interest Period") applicable to such Eurodollar Rate
Advance, which Interest Period shall be either a one, two, three or six month
period; provided, that:
(i) the initial Interest Period for any Eurodollar Rate
Advance shall commence on the date of such Eurodollar Rate Advance
(including the date of any conversion thereto or continuance thereof
pursuant to Section 2.05); each Interest Period occurring thereafter
in respect of such Eurodollar Rate Advance shall commence on the
expiration date of the immediately preceding Interest Period;
(ii) if any Interest Period relating to a Eurodollar Rate
Advance begins on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period, such Interest Period shall end on the last Business Day of
such calendar month;
(iii) if any Interest Period would otherwise expire on a
day which is not a Business Day, such Interest Period shall expire on
the next succeeding Business Day, provided, that if there are no more
Business Days in that month, the Interest Period shall expire on the
preceding day; and
(iv) no Interest Period for Advances shall extend beyond
the Maturity Date.
(b) If, upon the expiration of any Interest Period applicable to a
Eurodollar Rate Advance, the Company has failed to elect a new Interest Period
to be applicable to such Advance as provided above, the Company shall be deemed
to have elected to convert such Advance into an Alternate Base Rate Advance
effective as of the expiration date of such current Interest Period.
SECTION 2.12. Interest Rate Not Ascertainable. In the event that
the Agent shall determine (which determination shall, absent manifest error, be
final, conclusive and binding upon
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all parties) that on any date for determining the Eurodollar Rate for any
Interest Period, by reason of any changes arising after the date of this
Agreement affecting the Eurodollar interbank market or any Bank's position in
such market, adequate and fair means do not exist for ascertaining the
applicable interest rate on the basis provided for in the definition of
Eurodollar Rate, then, and in any such event, the Agent shall forthwith give
notice to the Company and to the Banks of such determination. Until the Agent
notifies the Company that the circumstances giving rise to the suspension
described herein no longer exist, the obligations of the Banks to make
Eurodollar Rate Advances shall be suspended.
SECTION 2.13. Change in Legality. (a) Notwithstanding anything to
the contrary herein contained, if any change in any law or regulation or in the
interpretation thereof by any governmental authority charged with the
administration or interpretation thereof shall make it unlawful for any Bank or
its Eurodollar Lending Office to make or maintain any Eurodollar Rate Advance
or to give effect to its obligations as contemplated hereby, then, by prompt
written notice to the Company, the Bank may:
(i) declare that Eurodollar Rate Advances will not
thereafter be made by such Bank hereunder, whereupon the Company shall
be prohibited from requesting Eurodollar Rate Advances from such Bank
hereunder unless such declaration is subsequently withdrawn; and
(ii) require that all outstanding Eurodollar Rate Advances
made by such Bank be converted to Alternate Base Rate Advances, in
which event (A) all such Eurodollar Rate Advances shall be
automatically converted to Alternate Base Rate Advances as of the
effective date of such notice as provided in paragraph (b) below and
(B) all payments and prepayments of principal which would otherwise
have been applied to repay the converted Eurodollar Rate Advances
shall instead be applied to repay the Alternate Base Rate Advances
resulting from the conversion of such Eurodollar Rate Advances.
(b) For purposes of this Section, a notice to the Company by the
Agent pursuant to paragraph (a) above shall be effective on the date of receipt
thereof by the Company.
SECTION 2.14. Increased Costs, Taxes or Capital Adequacy
Requirements. (a) If the application or effectiveness of any applicable law or
regulation or compliance by any Bank with any applicable guideline or request
from any central bank or governmental authority (whether or not having the
force of law) (i) shall change the basis of taxation of payments to such Bank
of the principal of or interest on any Eurodollar Rate Advance made by such
Bank or any other fees or amounts payable hereunder (other than taxes imposed
on the overall net income of such Bank or its Applicable Lending Office or
franchise taxes imposed upon it by the jurisdiction in which such Bank or its
Applicable Lending Office has an office, (ii) shall impose, modify or deem
applicable any reserve, special deposit or similar requirement against assets
of, deposits with or
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for the account of, or credit extended by, such Bank (without duplication of
any amounts paid pursuant to Section 2.10(f)) or (iii) shall impose on such
Bank any other condition affecting this Agreement or any Eurodollar Rate
Advance made by such Bank, and the result of any of the foregoing shall be to
increase the cost to such Bank of maintaining its Commitment or of making or
maintaining any Eurodollar Rate Advance or to reduce the amount of any sum
received or receivable by such Bank hereunder (whether of principal, interest
or otherwise) in respect thereof by an amount deemed in good faith by such Bank
to be material, then the Company shall pay to such Bank such additional amount
as will compensate it for such increase or reduction upon demand.
(b) If any Bank shall have determined in good faith that any law,
rule, regulation or guideline regarding capital adequacy, or any change
therein, or any change in the interpretation or administration thereof or
compliance with any request or directive regarding capital adequacy (whether or
not having the force of law) of any such authority, central bank or comparable
agency has or would have the effect of reducing the rate of return on the
capital of such Bank as a consequence of, or with reference to, such Bank's
obligations hereunder to a level below that which it could have achieved but
for such adoption, change or compliance by an amount deemed by such Bank to be
material, then, from time to time, the Company shall pay to the Agent for the
benefit of such Bank such additional amount as will reasonably compensate it
for such reduction upon demand.
(c) Each Bank will notify the Company through the Agent of any
event occurring after the date of this Agreement which will entitle it to
compensation pursuant to this Section, as promptly as practicable after it
becomes aware thereof and determines to request compensation. A certificate
setting forth in reasonable detail the amount necessary to compensate the Bank
in question as specified in paragraph (a) or (b) above, as the case may be and
the calculation of such amount under clause (a)(i), shall be delivered to the
Company and shall be conclusive absent manifest error. The Company shall pay
to the Agent for the account of such Bank the amount shown as due on any such
certificate within ten (10) days after its receipt of the same. The failure on
the part of any Bank to demand increased compensation with respect to any
Interest Period shall not constitute a waiver of the right to demand
compensation thereafter.
SECTION 2.15. Eurodollar Advance Prepayment and Default Penalties.
Subject to Section 12.08, the Company shall indemnify each Bank against any
loss or expense which it may sustain or incur as a consequence of (a) an
Advance of, or a conversion from or into, Eurodollar Rate Advances that does
not occur on the date specified therefor in a Notice of Advance or Notice of
Conversion, (b) any payment, prepayment or conversion of a Eurodollar Rate
Advance required by any other provision of this Agreement or otherwise made on
a date other than the last day of the applicable Interest Period or (c) any
default in the payment or prepayment of the principal amount of any Eurodollar
Advance or any part thereof or interest accrued thereon, as and when due and
payable (at the due date thereof, by notice of prepayment or otherwise). Such
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loss or expense shall include an amount equal to the excess determined by each
Bank of (i) its cost of obtaining the funds for the Advance being paid, prepaid
or converted or not borrowed (based on the Eurodollar Rate) for the period from
the date of such payment, prepayment or conversion or failure to borrow to the
last day of the Interest Period for such Advance (or, in the case of a failure
to borrow, the Interest Period for the Advance which would have commenced on
the date of such failure to borrow) over (ii) the amount of interest (as
determined by each Bank) that would be realized in reemploying the funds so
paid, prepaid or converted or not borrowed for such period or Interest Period,
as the case may be. The Agent, on behalf of the Banks, will notify the Company
of any loss or expense which will entitle the Banks to compensation pursuant to
this Section, as promptly as possible after it becomes aware thereof, but
failure to so notify shall not affect the Company's liability therefor. A
certificate of any Bank setting forth any amount which it is entitled to
receive pursuant to this Section shall be delivered to the Company and shall be
conclusive absent manifest error. The Company shall pay to the Agent for the
account of the Banks the amount shown as due on any certificate within ten (10)
days after its receipt of the same. Without prejudice to the survival of any
other obligations of the Company hereunder, the obligations of the Company
under this Section shall survive the termination of this Agreement and the
assignment of any of the Notes.
SECTION 2.16. Voluntary Reduction of Commitment. Upon at least
three (3) Business Days' prior written notice, the Company shall have the
right, without premium or penalty, to reduce or terminate the Commitment in
part or in whole, provided, that any reduction shall be in the amount of
$500,000.00 or integral multiples thereof.
SECTION 2.17. Tax Forms. With respect to each Bank which is
organized under the laws of a jurisdiction outside the United States, on the
date of the initial Advance hereunder, and from time to time thereafter if
requested by the Company or the Agent, each such Bank shall provide the Agent
and the Company with the forms prescribed by the Internal Revenue Service of
the United States certifying as to such Bank's status for purposes of
determining exemption from United States withholding taxes with respect to all
payments to be made to such Bank hereunder or other documents satisfactory to
the Company and the Agent indicating that all payments to be made to such Bank
hereunder are subject to such tax at a rate reduced by an applicable tax
treaty. Unless the Company and the Agent have received such forms or such
documents indicating that payments hereunder are not subject to United States
withholding tax or are subject to such tax at a rate reduced by an applicable
tax treaty, the Company or the Agent shall withhold taxes from such payments at
the applicable statutory rate in the case of payments to or for any Bank
organized under the laws of a jurisdiction outside the United States.
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ARTICLE III
LETTERS OF CREDIT
SECTION 3.01. Letters of Credit. (a) Subject to and upon
the terms and conditions herein set forth, the Issuing Bank agrees that it
will, at any time and from time to time on or after the Execution Date and
prior to the Maturity Date, following its receipt of a Letter of Credit Request
and Application for Letter of Credit, issue for the account of the Company or
any of the Guarantors and in support of the obligations of the Company or any
of the Guarantors, one or more irrevocable letters of credit (all such letters
of credit together with the Existing Letters of Credit collectively, the
"Letters of Credit"), up to a maximum amount outstanding at any one time for
all Letters of Credit and Existing Letters of Credit of $20,000,000.00,
provided that the Issuing Bank shall not issue any Letter of Credit if at the
time of such issuance: (i) the stated amount of such Letter of Credit shall be
greater than an amount which, when added to all other Letters of Credit
outstandings and all other Advances under the Notes then outstanding, would
exceed the lesser of the Borrowing Base or the Commitments; or (ii) the expiry
date or, in the case of any Letter of Credit containing an expiry date that is
extendible at the option of the Issuing Bank, the initial expiry date of such
Letter of Credit is a date that is later than the Maturity Date, unless such
Letter of Credit is secured by cash.
(b) The Issuing Bank shall neither renew nor permit the
renewal of any Letter of Credit if any of the conditions precedent to such
renewal set forth in Section 5.02 are not satisfied or, after giving effect to
such renewal, the expiry date of such Letter of Credit would be a date that is
later than the twelve months after the Maturity Date.
(c) The Company, the Agent and the Banks acknowledge that
TCB, pursuant to the terms of the Prior Indebtedness, has issued for the
account of the Company, the Existing Letters of Credit. Upon the Execution
Date, (i) the Letters of Credit outstanding shall be that amount equal to the
aggregate stated amount of the Existing Letters of Credit, (ii) the amount
available for Loans and Letters of Credit under the Commitments shall be
reduced by such amount and (iii) the amount available under each Bank's
Commitment shall be reduced by such Bank's percentage participation of such
amount. If the Company or any of the Guarantors desires to extend the
existing expiry date of any Existing Letter of Credit, or request a substitute
letter of credit be issued for any reason in respect of any Existing Letter of
Credit, the Company or any of the Guarantors shall submit to the Issuing Bank a
Letter of Credit Request as provided in Section 3.02(a).
(d) Notwithstanding anything else herein contained, the
Issuing Bank shall not be obligated to issue any Letter of Credit for, or in
support of, the FINCHAA project in any way, directly or indirectly, and any
Letter of Credit issued to or for the account of F. C. Schaffer shall
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be issued only on the condition that it is not in support of, or in any way
connected with, the FINCHAA Project.
SECTION 3.02. Letter of Credit Requests. (a) Whenever the
Company desires that a Letter of Credit be issued for its account or that the
existing expiry date shall be extended, it shall give the Issuing Bank (with
copies to be sent to the Agent and each other Bank) (i) in the case of a Letter
of Credit to be issued, at least five Business Days' prior written request
therefor and (ii) in the case of the extension of the existing expiry date of
any Letter of Credit, at least five days prior to the date on which the Issuing
Bank must notify the beneficiary thereof that the Issuing Bank does not intend
to extend such existing expiry date. Each such request shall be executed by
the Company and shall be in the form of Exhibit 3.02 attached hereto (each a
"Letter of Credit Request") and shall be accompanied by an application for
Letter of Credit therefor, completed to the satisfaction of the Issuing Bank,
and such other certificates, documents and other papers and information as the
Issuing Bank or any Bank (through the Agent) may reasonably request. Each
Letter of Credit shall be denominated in U.S. dollars, shall expire no later
than the date specified in Section 3.01, shall not be in an amount greater than
is permitted under clauses (i) or (ii) of Section 3.01(a) and shall be in such
form as may be reasonably approved from time to time by the Issuing Bank and
the Company.
(b) The making of each Letter of Credit Request shall be
deemed to be a representation and warranty by the Company that such Letter of
Credit may be issued in accordance with, and will not violate the requirements
of this Agreement. Unless the Issuing Bank has received notice from any Bank
before it issues the respective Letter of Credit or extends the existing expiry
date of a Letter of Credit that one or more of the conditions specified in
Article V are not then satisfied, or that the issuance of such Letter of Credit
would violate this Agreement, then the Issuing Bank may issue the requested
Letter of Credit for the account of the Company in accordance with the Issuing
Bank's usual and customary practices. Upon its issuance of any Letter of
Credit or the extension of the existing expiry date of any Letter of Credit, as
the case may be, the Issuing Bank shall promptly notify the Company, the Agent
and each Bank of such issuance or extension, which notice shall be accompanied
by a copy of the Letter of Credit actually issued or a copy of any amendment
extending the existing expiry date of any Letter of Credit, as the case may be.
SECTION 3.03. Letter of Credit Participations. (a) All
Existing Letters of Credit and all Letters of Credit issued subsequent hereto
shall be deemed to have been sold and transferred by the Issuing Bank to each
Bank, and each Bank shall be deemed irrevocably and unconditionally to have
purchased and received from the Issuing Bank, without recourse or warranty, an
undivided interest and participation, (to the extent of such Bank's percentage
participation in the Commitments) in each such Letter of Credit (including
extensions of the expiry date thereof), each substitute letter of credit, each
drawing made thereunder and the
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obligations of the Company under this Agreement and the other Loan Documents
with respect thereto, and any security therefor or guaranty pertaining thereto
including the Guaranty.
(b) In determining whether to pay under any Letter of
Credit, the Issuing Bank shall have no obligation relative to the Banks other
than to confirm that any documents required to be delivered under such Letter
of Credit appear to have been delivered and that they appear to comply on their
face with the requirements of such Letter of Credit.
(c) In the event that the Issuing Bank makes any payment
under any Letter of Credit, the same shall be considered an Alternate Base Rate
Advance without further action by any Person. The Issuing Bank shall promptly
notify the Agent, which shall promptly notify each Bank thereof. Each Bank
shall immediately pay to the Agent for the account of the Issuing Bank the
amount of such Bank's percentage participation of such Advance. If any Bank
shall not have so made its percentage participation available to the Agent,
such Bank agrees to pay interest thereon, for each day from such date until the
date such amount is paid at the lesser of (i) the Federal Funds Effective Rate
and (ii) the Highest Lawful Rate.
(d) The Issuing Bank shall not be liable for, and the
obligations of the Company and the Banks to make payments to the Agent for the
account of the Issuing Bank with respect to Letters of Credit shall not be
subject to, any qualification or exception whatsoever, including any of the
following circumstances:
(i) any lack of validity or enforceability of
this Agreement or any of the other Loan Documents;
(ii) the existence of any claim, setoff, defense
or other right which the Company may have at any time against a
beneficiary named in a Letter of Credit, any transferee of any Letter
of Credit, the Agent, any Issuing Bank, any Bank, or any other Person,
whether in connection with this Agreement, any Letter of Credit, the
transactions contemplated herein or any unrelated transactions
(including any underlying transaction between the Company and the
beneficiary named in any such letter of credit);
(iii) any draft, certificate or any other document
presented under the Letter of Credit proving to be forged, fraudulent,
invalid or insufficient in any respect or any statement therein being
untrue or inaccurate in any respect;
(iv) the surrender or impairment of any security
for the performance or observance of any of the terms of any of the
Loan Documents; or
(v) the occurrence of any Default or Event of
Default.
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1. (e) The Issuing Bank shall not be liable for any
error, omission, interruption or delay in transmission, dispatch or
delivery of any message or advice, however transmitted, in connection
with any Letter of Credit, except for errors or omissions caused by
such Issuing Bank's gross negligence or willful misconduct. IT IS THE
EXPRESS INTENTION OF THE PARTIES HERETO THAT EACH ISSUING BANK, ITS
OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS SHALL BE INDEMNIFIED AND
HELD HARMLESS FROM ANY ACTION TAKEN OR OMITTED BY SUCH PERSON UNDER OR
IN CONNECTION WITH ANY LETTER OF CREDIT OR ANY RELATED DRAFT OR
DOCUMENT ARISING OUT OF OR RESULTING FROM SUCH PERSON'S SALE OR
CONTRIBUTORY NEGLIGENCE. The Company agrees that any action taken or
omitted by an Issuing Bank under or in connection with any Letter of
Credit or the related drafts or documents, if done in accordance with
the standards of care specified in the Uniform Customs and Practice
for Documentary Credits (1993 Revision), International Chamber of
Commerce, Publication No. 500 (and any subsequent revisions thereof
approved by a Congress of the International Chamber of Commerce and
adhered to by the Issuing Banks) and, to the extent not inconsistent
therewith, the Uniform Commercial Code of the State of Texas, shall
not result in any liability of the Issuing Bank to the Company.
SECTION 3.04. Increased Costs. (a) Notwithstanding any
other provision herein, but subject to Section 12.08, if any Bank shall have
determined in good faith that any law, rule, regulation or guideline or the
application or effectiveness of any applicable law or regulation or any change
in applicable law or regulation or any change after the Execution Date in the
interpretation or administration thereof, or compliance by any Bank (or any
lending office of such Bank) with any applicable guideline or request from any
central bank or governmental authority (whether or not having the force of law)
either (i) shall impose, modify or make applicable any reserve, deposit,
capital adequacy or similar requirement against letters of credit issued, or
participated in, by any Bank or (ii) shall impose on any Bank any other
conditions affecting this Agreement or any Letter of Credit; and the result of
any of the foregoing is to increase the cost to any Bank of issuing,
maintaining or participating in any Letter of Credit, or reduce the amount
received or receivable by any Bank hereunder with respect to Letters of Credit,
by an amount deemed by such Bank to be material, then, from time to time, the
Company shall pay to the Agent for the account of such Bank such additional
amount or amounts as will reasonably compensate such Bank for such increased
cost or reduction by such Bank.
(b) Each Bank will notify the Company through the Agent
of any event occurring after the date of this Agreement which will entitle such
Bank to compensation pursuant to subsection (a) above, as promptly as
practicable. A certificate of a Bank setting forth in reasonable detail such
amount or amounts as shall be necessary to compensate such Bank as specified in
subsection (a) above may be delivered to the Company (with a copy to the Agent)
and shall be conclusive absent manifest error. The Company shall pay to the
Agent for the
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account of such Bank the amount shown as due on any such certificate within 30
days after its receipt of the same.
SECTION 3.05. Conflict between Applications and Agreement.
To the extent that any provision of any Application related to any Letter of
Credit is inconsistent with the provisions of this Agreement, the provisions of
this Agreement shall control.
ARTICLE IV
FEES
SECTION 4.01. Fees. (a) The Company agrees to pay to the
Agent on the Execution Date for the account of each Bank a fee (the "Facility
Fee") equal to .1% of the Commitment of all of the Banks in excess of
$20,000,000.00.
(b) The Company agrees to pay to the Agent for the
account of each Bank a commitment fee (the "Commitment Fee") for the period
from and including the Execution Date to the Maturity Date, computed at a rate
equal to .25% per annum and calculated on the basis of a 360 day-year on the
daily average Unutilized Commitment of each Bank. Commitment Fees shall be due
and payable in arrears on each Designated Payment Date commencing on the first
such date following the Execution Date and on the Maturity Date.
(c) The Company agrees to pay to the Agent for its own
account a fee (the "Agent's Fee") of $15,000.00 per annum during the term
hereof.
(d) The Company agrees to pay to the Agent for the
benefit of the Banks a fee (the "Letter of Credit Fee") in respect of all
Letters of Credit issued hereunder equal to 1% of the face amount of such
Letters of Credit which shall be divided 1/8th to the Issuing Bank and 7/8ths
to the Banks, pro rata. Each such payment shall be made quarterly, in advance
on each Designated Payment Date, in respect of all Letters of Credit then
outstanding and shall be considered earned when paid and are non-refundable.
ARTICLE V
CONDITIONS PRECEDENT
SECTION 5.01. Conditions Precedent to the Initial Advance.
The obligation of each Bank to make its initial Advance to the Company is
subject to the condition that the Agent shall have received the following:
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(a) this Agreement executed by the Company;
(b) one Note for each Bank, each executed by the Company
and payable to the order of said Bank in the amount of its Commitment;
(c) a Guaranty, consisting of Article IX hereto, executed
by each of the Subsidiaries of the Company, as Guarantors, for the benefit of
the Banks;
(d) a Notice of Advance with respect to the initial
Advance meeting the requirements of Section 2.03(a), which Advance may be
utilized for the sole purpose of repaying all outstanding obligations under and
terminating the Prior Indebtedness;
(e) a certificate of an officer and of the secretary or
an assistant secretary of the Company certifying, inter alia, (i) true and
complete copies of each of the articles or certificate of incorporation, as
amended and in effect of the Company and each of its Subsidiaries, the bylaws,
as amended and in effect, of the Company and each of its Subsidiaries and the
resolutions adopted by the Board of Directors of the Company and each of its
Subsidiaries (A) authorizing the execution, delivery and performance by the
Company and each of its Subsidiaries of this Agreement and the other Loan
Documents to which it is or will be a party and the Advances to be made
hereunder, (B) approving the forms of the Loan Documents to which it is or will
be a party and which will be delivered at or prior to the date of the initial
Advance and (C) authorizing officers of the Company and each of its
Subsidiaries to execute and deliver the Loan Documents to which it is or will
be a party and any related documents, including, any agreement contemplated by
this Agreement, (ii) the incumbency and specimen signatures of the officers of
the Company and each of its Subsidiaries executing any documents on its behalf
and (iii) that there has been no change in the businesses or financial
condition of the Company which could have a Material Adverse Effect;
(f) favorable, signed opinions addressed to the Agent and
the Banks from Norton, Jacobs & Kuhn, L.L.P., counsel to the Company and the
Guarantors, in form and substance satisfactory to the Agent and the Banks and
their counsel;
(g) the most current, revised budget for the FINCHAA
Project;
(h) the payment to the Agent and the Banks of all
reasonable fees and expenses (including the reasonable fees and disbursements
of Andrews & Kurth L.L.P.) agreed upon by such parties to be paid on the
Execution Date;
(i) certificates of appropriate public officials as to
the existence, good standing and qualification to do business as a foreign
corporation, as applicable, of the Company and its Subsidiaries in each
jurisdiction in which the ownership of its properties or the conduct of its
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business requires such qualifications and where the failure to so qualify would
have a Material Adverse Effect; and
(j) evidence satisfactory to the Agent of the repayment
of the Prior Indebtedness and termination of all parties' rights and
obligations in regard thereto.
The acceptance of the benefits of the initial Credit Event
shall constitute a representation and warranty by the Company to the Agent and
each of the Banks that all of the conditions specified in this Section above
shall have been satisfied or waived as of that time.
SECTION 5.02. Conditions Precedent to All Credit Events.
The obligation of the Banks to make any Advance is subject to the further
conditions precedent that on the date of such Credit Event:
(a) The conditions precedent set forth in Section 5.01
shall have theretofore been satisfied or waived.
(b) The representations and warranties set forth in
Article VI shall be true and correct in all material respects as of, and as if
such representations and warranties were made on, the date of the proposed
Advance (unless such representation and warranty expressly relates to an
earlier date or is no longer true and correct solely as a result of
transactions permitted by the Loan Documents), and the Company shall be deemed
to have certified to the Agent and the Banks that such representations and
warranties are true and correct in all material respects by submitting a Notice
of Advance.
(c) The Company shall have complied with the provisions
of Section 2.03 hereof.
(d) No Default or Event of Default shall have occurred
and be continuing or would result from such Credit Event.
(e) No Material Adverse Effect shall have occurred since
the delivery of the most recent financials.
(f) All Persons that have become Subsidiaries subsequent
to the Execution Date shall have executed a Guaranty.
(g) The Agent shall have received such other approvals,
opinions or documents as the Agent or the Banks may reasonably request.
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The acceptance of the benefits of each such Credit Event shall
constitute a representation and warranty by the Company to the Agent and each
of the Banks that all of the conditions specified in this Section above exist
as of that time.
SECTION 5.03. Delivery of Documents. All of the Notes,
certificates, legal opinions and other documents and papers referred to in this
Article V, unless otherwise specified, shall be delivered to the Agent for the
account of each of the Banks and, except for the Notes, in sufficient
counterparts for each of the Banks and shall be reasonably satisfactory in form
and substance to the Banks.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
In order to induce the Banks to enter into this Agreement and
to make the Advances provided for herein, the Company, as to itself and each of
its Subsidiaries, makes, on or as of the occurrence of each Credit Event
(except to the extent such representations or warranties relate to an earlier
date or are no longer true and correct in all material respects solely as a
result of transactions permitted by the Loan Documents), the following
representations and warranties to the Agent and the Banks:
SECTION 6.01. Organization and Qualification. Each of the
Company and its Subsidiaries (a) is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation
or organization, (b) has the corporate power to own its property and to carry
on its business as now conducted and (c) is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which the failure to be so qualified would have a Material Adverse Effect.
SECTION 6.02. Authorization and Validity. Each of the
Company and its Subsidiaries has the corporate power and authority to execute,
deliver and perform its obligations hereunder and under the other Loan
Documents to which it is a party and all such action has been duly authorized
by all necessary corporate proceedings on its part. The Loan Documents to
which each of the Company and its Subsidiaries is a party have been duly and
validly executed and delivered by such Person and constitute a valid and
legally binding agreement of such Person enforceable in accordance with the
respective terms thereof, except, in each case, as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer or other similar laws relating to or affecting the enforcement of
creditors' rights generally, and by general principles of equity regardless of
whether such enforceability is a proceeding in equity or at law.
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SECTION 6.03. Governmental Consents. No authorization,
consent, approval, license or exemption of or filing or registration with any
court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is necessary for the valid execution,
delivery or performance by the Company or any Subsidiary of any Loan Document.
SECTION 6.04. Conflicting or Adverse Agreements or
Restrictions. Neither the Company nor any Subsidiary is a party to any
contract or agreement or subject to any restriction which would reasonably be
expected to have a Material Adverse Effect. All agreements of the Company
relating to the lending of money or the issuance of letters of credit by any
party are described hereto on Schedule 6.04. Neither the execution nor
delivery of the Loan Documents nor compliance with the terms and provisions
hereof or thereof will be contrary to the provisions of, or constitute a
default under (a) the charter or bylaws of the Company or any of its
Subsidiaries or (b) any applicable law or any applicable regulation, order,
writ, injunction or decree of any court or governmental instrumentality or (c)
any material agreement to which the Company or any of its Subsidiaries is a
party or by which it is bound or to which it is subject.
SECTION 6.05. Title to Assets. Each of the Company and its
Subsidiaries has good title to all material personalty and good and
indefeasible title to all material realty as reflected on the Company's and the
Subsidiaries' books and records as being owned by them, except for properties
disposed of in the ordinary course of business, subject to no Liens, except
those permitted hereunder. All of such assets have been and are being
maintained by the appropriate Person in good working condition in accordance
with industry standards.
SECTION 6.06. Litigation. No proceedings against or
affecting the Company or any Subsidiary are pending or, to the knowledge of the
Company, threatened before any court or governmental agency or department which
involve a reasonable material risk of having a Material Adverse Effect except
those listed on Schedule 6.06 hereof.
SECTION 6.07. Financial Statements. Prior to the Execution
Date, the Company has furnished to the Banks the audited consolidated balance
sheet, income statement and statement of cash flow for itself as of December
31, 1994 (such audited financials, the "Financials"). The Financials have been
prepared in conformity with GAAP consistently applied (except as otherwise
disclosed in such financial statements) throughout the periods involved and
present fairly, in all material respects, the consolidated financial condition
of the Company and its consolidated Subsidiaries as of the dates thereof and
the results of their operations for the periods then ended. As of the
Execution Date, no Material Adverse Effect has occurred in the consolidated
financial condition of the Company and its consolidated Subsidiaries since
December 31, 1994.
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SECTION 6.08. Default. Neither the Company nor any
Subsidiary is in default under any material provisions of any instrument
evidencing any Indebtedness or of any agreement relating thereto, or in default
in any respect under any order, writ, injunction or decree of any court, or in
default in any respect under or in violation of any order, injunction or decree
of any governmental instrumentality, in such manner as to cause a Material
Adverse Effect.
SECTION 6.09. Investment Company Act. Neither the Company
nor any Subsidiary is, or is directly or indirectly controlled by or acting on
behalf of any Person which is, an "investment company," as such term is defined
in the Investment Company Act of 1940, as amended.
SECTION 6.10. Public Utility Holding Company Act. Neither
the Company nor any Subsidiary is a non-exempt "holding company," or subject
to regulation as such, or, to the knowledge of the Company's or such
Subsidiary's officers, an "affiliate" of a "holding company" or a "subsidiary
company" of a "holding company," within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
SECTION 6.11. ERISA. No accumulated funding deficiency (as
defined in Section 412 of the Code or Section 302 of ERISA), whether or not
waived, exists or is expected to be incurred with respect to any Plan. No
liability to the PBGC (other than required premium payments) has been or is
expected by the Company to be incurred with respect to any Plan by the Company
or any ERISA Affiliate. Neither the Company nor any ERISA Affiliate has
incurred any withdrawal liability under Title IV of ERISA with respect to any
Multi-Employer Plans.
SECTION 6.12. Tax Returns and Payments. Each of the
Company and its Subsidiaries has filed all federal income tax returns and other
tax returns, statements and reports (or obtained extensions with respect
thereto) which are required to be filed and has paid or deposited or made
adequate provision in accordance with GAAP for the payment of all taxes
(including estimated taxes shown on such returns, statements and reports) which
are shown to be due pursuant to such returns, except for such taxes as are
being contested in good faith and by appropriate proceedings.
SECTION 6.13. Environmental Matters. Each of the Company
and its Subsidiaries (a) possesses all environmental, health and safety
licenses, permits, authorizations, registrations, approvals and similar rights
necessary under law or otherwise for the Company or such Subsidiary to conduct
its operations as now being conducted (other than those with respect to which
the failure to possess or maintain would not, individually or in the aggregate
for the Company and such Subsidiaries, have a Material Adverse Effect) and (b)
each of such licenses, permits, authorizations, registrations, approvals and
similar rights is valid and subsisting, in full force and effect and
enforceable by the Company or such Subsidiary, and each of the Company
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and its Subsidiaries is in compliance with all terms, conditions or other
provisions of such permits, authorizations, registrations, approvals and
similar rights except for such failure or noncompliance that, individually or
in the aggregate for the Company and such Subsidiaries, would not have a
Material Adverse Effect. Except as disclosed on Schedule 6.13, neither the
Company nor any of its Subsidiaries has received any notices of any violation
of, noncompliance with, or remedial obligation under, Requirements of
Environmental Laws (which violation or non-compliance has not been cured, and
there are no writs, injunctions, decrees, orders or judgments outstanding, or
lawsuits, claims, proceedings, investigations or inquiries pending or, to the
knowledge of the Company or any Subsidiary, threatened, relating to the
ownership, use, condition, maintenance or operation of, or conduct of business
related to, any property owned, leased or operated by the Company or such
Subsidiary or other assets of the Company or such Subsidiary, other than those
violations, instances of noncompliance, obligations, writs, injunctions,
decrees, orders, judgments, lawsuits, claims, proceedings, investigations or
inquiries that, individually or in the aggregate for the Company and such
Subsidiaries, would not have a Material Adverse Effect. Except as disclosed on
Schedule 6.13, there are no material obligations, undertakings or liabilities
arising out of or relating to Environmental Laws to which the Company or any of
its Subsidiaries has agreed, assumed or retained, or by which the Company or
any of its Subsidiaries is adversely affected, by contract or otherwise.
Except as disclosed on Schedule 6.13, neither the Company nor any of its
Subsidiaries has received a written notice or claim to the effect that such
Person is or may be liable to any other Person as the result of a Release or
threatened Release of a Hazardous Material.
SECTION 6.14. Purpose of Loans. (a) The proceeds of the
Advances will be used to refinance existing indebtedness, to repay funding of
Letters of Credit and for working capital purposes.
(b) None of the proceeds of any Advance will be used
directly or indirectly for the purpose of purchasing or carrying any "margin
stock" within the meaning of Regulation U (herein called "margin stock") or for
the purpose of reducing or retiring any indebtedness which was originally
incurred to purchase or carry a margin stock.
SECTION 6.15. Franchises and Other Rights. The Company and
each of its Subsidiaries have all franchises, permits, licenses and other
authority as are necessary to enable them to carry on their respective
businesses as now being conducted where the absence of such would have a
Material Adverse Effect. To the best of its knowledge, the Company is not in
default in respect of any of such operating rights.
SECTION 6.16. Subsidiaries. The Subsidiaries listed on
Schedule 6.16 are all of the Subsidiaries of the Company as of the Execution
Date.
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SECTION 6.17. Solvency. After giving effect to the initial
Advance hereunder and all other Indebtedness of the Company, the Company and
its Subsidiaries, viewed as a consolidated entity have (a) capital sufficient
to carry on their businesses and transactions, (b) assets, the fair market
value of which exceeds their consolidated liabilities (as reflected on the
Financials or on the financial statements most recently delivered to the
Banks), and (c) sufficient cash flow to pay their existing debts as they
mature.
ARTICLE VII
AFFIRMATIVE COVENANTS
The Company, as to itself and each of its Subsidiaries,
covenants and agrees that on and after the date hereof and for so long as this
Agreement is in effect and until the Commitments have terminated:
SECTION 7.01. Information Covenants. The Company will
furnish to each Bank:
(a) As soon as available, and in any event within 45 days
after the close of each of the first three quarters in each fiscal year of the
Company, the consolidated and consolidating balance sheet of the Company and
its Subsidiaries as of the end of such quarterly period and the related
consolidated and consolidating statements of income and cash flows for such
quarterly period and for the portion of the fiscal year ended at the end of
such quarter, setting forth, in each case, comparative consolidated figures for
the related periods in the prior fiscal year, all of which shall be certified
by the chief financial officer or chief executive officer of the Company as
fairly presenting in all material respects, the financial position of the
Company and its Subsidiaries as of the end of such period and the results of
their operations for the period then ended in accordance with GAAP, subject to
changes resulting from normal year-end audit adjustments.
(b) As soon as available, and in any event within 120 days after
the close of each fiscal year of the Company, the audited consolidated and the
unaudited consolidating balance sheets of the Company and its Subsidiaries as
at the end of such fiscal year and the related consolidated and consolidating
statements of income, stockholders equity and cash flows for such fiscal year,
setting forth, in each case, comparative figures for the preceding fiscal year
and certified by KPMG Peat Marwick or other independent certified public
accountants of recognized national standing, whose report shall be without
limitation as to the scope of the audit and reasonably satisfactory in
substance to the Banks.
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(c) Immediately after any Responsible Officer of the Company
obtains knowledge thereof, notice of:
(i) any material violation of, noncompliance with, or
remedial obligations under, Requirements of Environmental Laws,
(ii) any material Release or threatened material Release
of Hazardous Materials affecting any property owned, leased or
operated by the Company or any of its Subsidiaries,
(iii) any event or condition which constitutes a Default or
an Event of Default,
(iv) any condition or event which, in the opinion of
management of the Company, would reasonably be expected to have a
Material Adverse Effect,
(v) any Person having given any written notice to the
Company or taken any other action with respect to a claimed material
default or event under any material instrument or material agreement,
and
(vi) the institution of any litigation which might
reasonably be expected in the good faith judgment of the Company
either to have a Material Adverse Effect or result in a final,
non-appealable judgment or award in excess of $500,000.00 with respect
to any single cause of action, or the institution of any litigation of
any kind by any party with whom the Company has entered into a
franchise agreement;
then, a notice of such event or condition will be delivered to each Bank
specifying the nature and period of existence thereof and specifying the notice
given or action taken by such Person and the nature of any such claimed
default, event or condition and, in the case of an Event of Default or Default,
what action has been taken, is being taken or is proposed to be taken with
respect thereto.
(d) At the time of the delivery of the financial
statement provided for in Sections 7.01(a) and 7.01(b), a certificate of a
Responsible Officer to the effect that no Default or Event of Default exists
or, if any Default or Event of Default does exist, specifying the nature and
extent thereof and the action that is being taken or that is proposed to be
taken with respect thereto, which certificate shall set forth the calculations
required to establish whether the Company was in compliance with the provisions
of Sections 8.11 through 8.15 as at the end of such fiscal period or year, as
the case may be.
(e) Monthly, as soon as available, and in any event
within 45 days after the end of each month, (i) a Borrowing Base Certificate,
(ii) a summary report of all Accounts of the
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Company and its Subsidiaries, (iii) a statement of income and a balance sheet
for F.C. Schaffer, and (iv) a schedule of cash flows and the then currently
available monthly project budget for the FINCHAA Project as an entity, all in
form and substance reasonably satisfactory to the Agent.
(f) Upon request by the Agent such environmental reports,
studies and audits of the Company's procedures and policies, assets and
operations in respect of Environmental Laws as the Agent may reasonably
request.
(g) Promptly upon receipt thereof, a copy of any report
or letter submitted to the Company by its independent accountants in connection
with any regular or special audit of the Company's records.
(h) From time to time and with reasonable promptness,
such other information or documents as the Agent or any Bank through the Agent
may reasonably request.
SECTION 7.02. Books, Records and Inspections. The Company
and its Subsidiaries will maintain, and will permit, or cause to be permitted,
any Person designated by any Bank or the Banks to visit and inspect any of the
properties of the Company and its Subsidiaries, to examine the corporate books
and financial records of the the Company and its Subsidiaries and make copies
thereof or extracts therefrom and to discuss the affairs, finances and accounts
of any such corporations with the officers, employees and agents of the Company
and its Subsidiaries and with their independent public accountants, all at such
reasonable times and as often as the Agent or such Bank may request. Such
inspections shall be made not less often than annually and shall be at the
expense of the Company.
SECTION 7.03. Insurance and Maintenance of Properties. (a)
Each of the Company and its Subsidiaries will keep reasonably adequately
insured by financially sound and reputable insurers all of its material
property, which is of a character, and in amounts and against such risks,
usually and reasonably insured by similar Persons engaged in the same or
similar businesses, including, without limitation, insurance against fire,
casualty and any other hazards normally insured against. Each of the Company
and its Subsidiaries will at all times maintain insurance against its liability
for injury to Persons or property, which insurance shall be by financially
sound and reputable insurers and in such amounts and form as are customary for
corporations of established reputation engaged in the same or a similar
business and owning and operating similar properties, and shall annually
provide the Agent a listing of all such insurance and such other certificates
and other evidence thereof, as the Agent shall reasonably request. A listing
of all presently existing policies of the Company and its Subsidiaries is
attached hereto as Schedule 7.03.
(b) Each of the Company and its Subsidiaries will cause
all of its material properties used or useful in the conduct of its business to
be maintained and kept in good
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condition, repair and working order and supplied with all necessary equipment
and will cause to be made all reasonably necessary repairs, renewals and
replacements thereof, all as in the reasonable judgment of such Person may be
reasonably necessary so that the business carried on in connection therewith
may be properly conducted at all times.
SECTION 7.04. Payment of Taxes. Each of the Company and its
Subsidiaries will pay and discharge all taxes, assessments and governmental
charges or levies imposed upon it or upon its income or profits, or upon any
properties belonging to it, prior to the date on which penalties attach
thereto, except for such amounts that are being contested in good faith and by
appropriate proceedings.
SECTION 7.05. Corporate Existence. Each of the Company and
its Subsidiaries will do all things necessary to preserve and keep in full
force and effect (a) the corporate existence of such Person, and (b) unless the
failure to do so would not have a Material Adverse Effect, the rights and
franchises of each of the Company and its Subsidiaries.
SECTION 7.06. Compliance with Statutes. Each of the
Company and its Subsidiaries will comply with all applicable statutes,
regulations and orders of, and all applicable restrictions imposed by, all
governmental bodies, domestic or foreign, in respect of the conduct of its
business and the ownership of its property, except to the extent the failure to
do so would not reasonably be expected to have a Material Adverse Effect.
SECTION 7.07. ERISA. Immediately after any Responsible
Officer of the Company or any of its Subsidiaries knows or has reason to know
any of the following items are true the Company will deliver or cause to be
delivered to the Banks a certificate of the chief financial officer of the
Company setting forth details as to such occurrence and such action, if any,
the Company or its ERISA Affiliate is required or proposes to take, together
with any notices required or proposed to be given to or filed with or by the
Company or its ERISA Affiliate with respect thereto; that a Reportable Event
has occurred or that an application may be or has been made to the Secretary of
the Treasury for a waiver or modification of the minimum funding standard; that
a Multiemployer Plan has been or may be terminated, reorganized, partitioned or
declared insolvent under Title IV of ERISA; that any required contribution to a
Plan or Multiemployer Plan has not been or may not be timely made; that
proceedings may be or have been instituted under Section 4069(a) of ERISA to
impose liability on the Company or an ERISA Affiliate or under Section 4042 of
ERISA to terminate a Plan or appoint a trustee to administer a Plan; that the
Company or any ERISA Affiliate has incurred or may incur any liability
(including any contingent or secondary liability) on account of the termination
of or withdrawal from a Plan or a Multiemployer Plan; and that the Company or
an ERISA Affiliate may be required to provide security to a Plan under Section
401(a)(29) of the Code; or any other condition exists or may occur with respect
to one or more Plans and/or Multiemployer Plans.
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SECTION 7.08. Additional Subsidiaries. The Company will
immediately cause any Person which becomes a Subsidiary subsequent to the
Execution Date to execute a Guaranty and deliver same to the Agent.
ARTICLE VIII
NEGATIVE COVENANTS
The Company covenants and agrees, as to itself and each of its
Subsidiaries, that on and after the date hereof and for so long as this
Agreement is in effect and until the Commitments have terminated:
SECTION 8.01. Change in Business. The Company will not,
and will not engage in any businesses not of the same general type as those
conducted by the Company on the Execution Date.
SECTION 8.02. Consolidation, Merger or Sale of Assets. The
Company will not, and will not permit any of its Subsidiaries to, wind up,
liquidate or dissolve their affairs, or enter into any transaction of merger or
consolidation, or sell or otherwise dispose of all or any part of their
property or assets (other than sales of inventory and surplus or obsolete
assets in the ordinary course of business provided that any disposal does not
prejudice the Banks in any way), including the capital stock of any Subsidiary,
or purchase, lease or otherwise acquire (in one or a series of related
transactions) all or any part of the property or assets of any Person or all of
the capital stock of any Person, provided the Company may acquire the assets or
stock of companies in businesses related to the Company's business up to a
maximum of $7,500,000.00 in any one transaction, and $10,000,000.00 in the
aggregate for any four-quarter period, computed on a rolling four-quarter
basis.
SECTION 8.03. Indebtedness. Neither the Company nor any
Subsidiary will create, incur, assume or permit to exist any Indebtedness
except:
(a) Indebtedness existing hereunder;
(b) Indebtedness existing on the Execution Date and
described in the Financials or, if not shown, listed on Schedule 8.03(b);
(c) current accounts payable incurred in the ordinary
course of business and commercial (but not standby) letters of credit obtained
for the purpose of providing credit support for such payables;
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(d) Indebtedness arising as a result of the endorsement
in the ordinary course of business of negotiable instruments in the course of
collection;
(e) Indebtedness of F. C. Schaffer, a Subsidiary, up to a
maximum of $26,000,000.00, which Indebtedness may be guaranteed by the Company
for the sole purpose of causing third party financial institutions to issue
Standby Letters of Credit in support of the FINCHAA Project (which Indebtedness
may be guaranteed by the Company);
(f) Indebtedness of F. C. Schaffer only, up to a maximum
of $10,000,000.00 for the sole purpose of causing third party financial
institutions to issue Commercial Letters of Credit in connection with the
FINCHAA Project;
(g) guaranties of any Indebtedness of any Person not to
exceed in the aggregate $2,000,000.00, provided that such limitation shall not
apply to a guaranty of any Indebtedness of F. C. Schaffer, the FINCHAA Project
or any Indebtedness related thereto;
(h) purchase money indebtedness by or for the Company or
any Subsidiary, except by F. C. Schaffer, incurred in connection with the
acquisition of tangible assets from any third party not to exceed $5,000,000.00
in the aggregate during the term hereof; and
(i) renewals and extensions (in the same or lesser
principal amount on similar terms and conditions) of any Indebtedness listed in
subparagraphs (b), (e), (f) and (g) above.
SECTION 8.04. Liens. Neither the Company nor any
Subsidiary will create, incur, assume or suffer to exist any Lien upon or with
respect to any of its property or assets of any kind whether now owned or
hereafter acquired (nor will they covenant with any other Person not to grant
such a lien to the Agent), except
(a) Liens existing on the Execution Date and listed on
Schedule 8.04(a);
(b) Liens for taxes or assessments or other governmental
charges or levies, either not yet due and payable or being contested in good
faith and by appropriate proceedings for which adequate reserves have been
established;
(c) Liens securing Indebtedness permitted under Section
8.03(h) above; and
(d) any renewal, extension or replacement of any Lien
referred to in subparagraph (a) above; provided, that no Lien arising or
existing as a result of such extension, renewal or replacement shall be
extended to cover any property not theretofore subject to the Lien being
extended, renewed or replaced and provided further that the principal amount of
the
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Indebtedness secured thereby shall not exceed the principal amount of the
Indebtedness so secured at the time of such extension, renewal or replacement.
SECTION 8.05. Investments. Except as provided in Sections
8.02 and 8.09, neither the Company nor any Subsidiary will, directly or
indirectly, make or own any Investment in any Person, except:
(a) The Company and its Subsidiaries may make and own
Permitted Investments;
(b) The Company and its Subsidiaries may continue to own
Investments owned by them on the Execution Date as set forth on Schedule
8.05(b);
(c) The Company and its Subsidiaries may make and own
Investments arising out of loans and advances for expenses, travel per diem and
similar items in the ordinary course of business to officers, directors and
employees; and
(d) The Subsidiaries may make Investments permitted under
Section 8.09(b) below.
SECTION 8.06. Restricted Payments. (a) The Company will
not pay any dividends or redeem, retire, purchase or make any other
acquisition, direct or indirect, of any shares of any class of stock of the
Company, or of any warrants, rights or options to acquire any such shares, now
or hereafter outstanding, in excess of $2,000,000.00 during the term hereof,
except to the extent that the consideration therefor consists solely of shares
of stock (including warrants, rights or options relating thereto) of the
Company.
(b) Except in the ordinary course of business, the
Subsidiaries will not declare any dividends, make any loans or advances to, or
otherwise transfer any money or other assets to the Company during the term
hereof, except for dividends, loans or transfers which are simultaneously
transferred to the Banks in repayment of the Obligations.
SECTION 8.07. Change in Accounting. The Company will not
and will not permit any Subsidiary to, change its method of accounting except
for (a) immaterial changes permitted by GAAP in which the Company's auditors
concur or (b) changes required by GAAP. The Company shall advise the Agent in
writing promptly upon making any material change to the extent same is not
disclosed in the financial statements required under Section 7.01 hereof.
SECTION 8.08. Change of Certain Indebtedness. The Company
will not, and will not permit any of its Subsidiaries after the occurrence and
during the continuance of any
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Event of Default to make any voluntary prepayments of principal or interest on
any other of the Company's Indebtedness.
SECTION 8.09. FINCHAA Project. Except as otherwise allowed
under Section 8.03(e) and (f) hereof, neither the Company nor any Subsidiary
will invest in, lend to, guaranty Indebtedness of, transfer assets to, obtain
letters of credit for or otherwise become financially involved with the FINCHAA
Project in any manner, directly or indirectly, through F. C. Schaffer or
otherwise in excess of a loan or capital investment to such project of a
maximum of $5,000,000.00 for all such Persons collectively, provided, the
Company may, in addition, lend to, invest in or transfer funds to F. C.
Schaffer up to an additional $1,000,000.00, provided said funds are not
utilized in the FINCHAA project in any way.
SECTION 8.10. Transactions with Affiliates. The Company
will not, directly or indirectly, engage in any transaction with any Affiliate,
including the purchase, sale or exchange of assets or the rendering of any
service, except in the ordinary course of business or pursuant to the
reasonable requirements of its business and, in each case, upon terms that are
no less favorable than those which might be obtained in an arm's-length
transaction at the time from non-Affiliates.
SECTION 8.11. Minimum Consolidated Tangible Net Worth. The
Company will not permit its Consolidated Tangible Net Worth during the term
hereof to be less than $30,000,000.00, plus (a) 50% of Consolidated Net Income
for each fiscal quarter commencing with the quarter starting on January 1,
1995, and thereafter during the term hereof to the date of determination, plus
(b) 100% of the value of any consideration received in connection with the
issuance of any capital stock by the Company or any Subsidiary subsequent to
the Execution Date and during the term hereof.
SECTION 8.12. Consolidated Net Worth. The Company will not
permit its Consolidated Net Worth to be less than $49,000,000.00, plus (a) 50%
of Consolidated Net Income for each fiscal quarter commencing with the quarter
starting on January 1, 1995, and thereafter during the term hereof to the date
of determination, plus (b) 100% of the value of any consideration received in
connection with the issuance of any capital stock by the Company or any
Subsidiary subsequent to the Execution Date at any time during the term hereof.
SECTION 8.13. Funded Debt Coverage Ratio. The Company will
not permit the ratio of (a) its total Funded Debt (exclusive of guaranties and
other contingent obligations) to (b) consolidated EBITDA, computed quarterly on
a rolling four quarters basis, to be greater than 2.75 to 1.0 at any time
during the term hereof.
SECTION 8.14. Capital Expenditures. The Company will not
permit total consolidated capital expenditures (including Capitalized Lease
Obligations) computed quarterly
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on a rolling four quarters basis to be greater than $7,500,000.00 at any time
during the term hereof.
SECTION 8.15. Fixed Charge Coverage Ratio. The Company will
not permit the ratio of (a) EBITDA minus provisions for taxes to (b) the sum
of: required principal repayments on all Funded Debt, plus required interest
payments, plus actual cash expended and not financed from third party sources
in respect of capital expenditures (including Capitalized Lease Obligations),
plus stock repurchases, plus declared dividends, all calculated for the
preceding four (4) quarters on a consolidated basis, to be less than (i) 1.0 to
1.0 on a rolling four quarter basis for each fiscal quarter, until the fiscal
quarter ending September 30, 1995 and (ii) 1.1 to 1.0 for each fiscal quarter
thereafter.
ARTICLE IX
GUARANTY
SECTION 9.01. Guaranty. In consideration of, and in order
to induce the Banks to make the Loans and the Issuing Bank to issue Letters of
Credit hereunder, the Guarantors hereby absolutely, unconditionally and
irrevocably, jointly and severally guarantee the punctual payment and
performance when due, whether at stated maturity, by acceleration or otherwise,
of the Obligations, and all other obligations and covenants of the Company now
or hereafter existing under this Agreement, the Notes and the other Loan
Documents whether for principal, interest (including interest accruing or
becoming owing both prior to and subsequent to the commencement of any
proceeding against or with respect to the Company under any chapter of the
Bankruptcy Code), Fees, commissions, expenses (including reasonable attorneys'
fees and expenses) or otherwise, and all reasonable costs and expenses, if any,
incurred by the Agent or any Bank in connection with enforcing any rights under
this Guaranty (all such obligations being the "Guaranteed Obligations"), and
agree to pay any and all reasonable expenses incurred by each Bank and the
Agent in enforcing this Guaranty; provided, that, anything herein or in any
other Loan Document to the contrary notwithstanding, the maximum liability of
each Guarantor hereunder and under the other Loan Documents shall in no event
exceed such Guarantor's Maximum Guaranteed Amount as determined at the earlier
of the date of the commencement of a case under Title 11 of the United States
Code in which said Guarantor is a debtor and the date enforcement hereunder is
sought. This Guaranty is an absolute, unconditional, present and continuing
guaranty of payment and not of collectibility and is in no way conditioned upon
any attempt to collect from the Company or any other action, occurrence or
circumstance whatsoever. Each Guarantor agrees that the Guaranteed Obligations
may at any time and from time to time exceed the Maximum Guaranteed Amount of
such Guarantor without impairing this Guaranty or affecting the rights and
remedies of the Banks hereunder.
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SECTION 9.02. Continuing Guaranty. Each Guarantor
guarantees that the Guaranteed Obligations will be paid strictly in accordance
with the terms of this Agreement, the Notes and the other Loan Documents. Each
Guarantor agrees that the Guaranteed Obligations and Loan Documents may be
extended or renewed, and Loans repaid and reborrowed in whole or in part,
without notice to or assent by such Guarantor, and that it will remain bound
upon this Guaranty notwithstanding any extension, renewal or other alteration
of any Guaranteed Obligations or Loan Documents, or any repayment and
reborrowing of Loans. To the maximum extent permitted by applicable law, the
obligations of each Guarantor under this Guaranty shall be absolute,
unconditional and irrevocable, and shall be performed strictly in accordance
with the terms hereof under any circumstances whatsoever, including:
(a) any extension, renewal, modification, settlement,
compromise, waiver or release in respect of any Guaranteed Obligations;
(b) any extension, renewal, amendment, modification,
rescission, waiver or release in respect of any Loan Documents;
(c) any release, exchange, substitution, non-perfection
or invalidity of, or failure to exercise rights or remedies with respect to,
any direct or indirect security for any Guaranteed Obligations, including the
release of any Guarantor or other Person liable on any Guaranteed Obligations;
(d) any change in the corporate existence, structure or
ownership of the Company, any Guarantor, or any insolvency, bankruptcy,
reorganization or other similar proceeding affecting the Company, such
Guarantor, any other Guarantor or any of their respective assets;
(e) the existence of any claim, defense, set-off or other
rights or remedies which such Guarantor at any time may have against the
Company, or the Company or such Guarantor may have at any time against the
Agent, any Bank, any other Guarantor or any other Person, whether in connection
with this Guaranty, the Loan Documents, the transactions contemplated thereby
or any other transaction other than by the payment in full by the Company of
the Guaranteed Obligations after the termination of the Commitments of the
Banks and the expiration or termination of all Letters of Credit;
(f) any invalidity or unenforceability for any reason of
this Agreement or other Loan Documents, or any provision of law purporting to
prohibit the payment or performance by the Company, such Guarantor or any other
Guarantor of the Guaranteed Obligations or Loan Documents, or of any other
obligation to the Agent or any Bank; or
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(g) any other circumstances or happening whatsoever,
whether or not similar to any of the foregoing.
SECTION 9.03. Effect of Debtor Relief Laws. If after
receipt of any payment of, or proceeds of any security applied (or intended to
be applied) to the payment of all or any part of the Guaranteed Obligations,
the Agent or any Bank is for any reason compelled to surrender or voluntarily
surrenders, such payment or proceeds to any Person (a) because such payment or
application of proceeds is or may be avoided, invalidated, declared fraudulent,
set aside, determined to be void or voidable as a preference, fraudulent
conveyance, fraudulent transfer, impermissible set-off or a diversion of trust
funds or (b) for any other reason, including (i) any judgment, decree or order
of any court or administrative body having jurisdiction over the Agent, any
Bank or any of their respective properties or (ii) any settlement or compromise
of any such claim effected by the Agent or any Bank with any such claimant
(including the Company), then the Guaranteed Obligations or part thereof
intended to be satisfied shall be reinstated and continue, and this Guaranty
shall continue in full force as if such payment or proceeds have not been
received, notwithstanding any revocation thereof or the cancellation of any
Note or any other instrument evidencing any Guaranteed Obligations or
otherwise; and the Guarantors, jointly and severally, shall be liable to pay
the Agent and the Banks, and hereby do indemnify the Agent and the Banks and
hold them harmless for the amount of such payment or proceeds so surrendered
and all expenses (including reasonable attorneys' fees, court costs and
expenses attributable thereto) incurred by the Agent or any Bank in the defense
of any claim made against it that any payment or proceeds received by the Agent
or any Bank in respect of all or part of the Guaranteed Obligations must be
surrendered. The provisions of this paragraph shall survive the termination of
this Guaranty, and any satisfaction and discharge of the Company by virtue of
any payment, court order or any federal or state law.
SECTION 9.04. Complete Waiver of Subrogation.
Notwithstanding any payment or payments made by any Guarantor hereunder, or any
set-off or application by the Agent or any Bank of any security or of any
credits or claims, no Guarantor will assert or exercise any rights of the Agent
or any Bank or of such Guarantor against the Company to recover the amount of
any payment made by such Guarantor to the Agent or any Bank hereunder by way of
any claim, remedy or subrogation, reimbursement, exoneration, contribution,
indemnity, participation or otherwise arising by contract, by statute, under
common law or otherwise, and such Guarantor shall not have any right of
recourse to or any claim against assets or property of the Company, whether or
not the obligations of the Company guaranteed hereby have been satisfied. Each
Guarantor hereby expressly waives any right to exercise any claim, right or
remedy which such Guarantor may now have or hereafter acquire against the
Company or any other Guarantor that arises under this Agreement or any other
Loan Document or from the performance by any Guarantor of the Guaranty
hereunder including any claim, remedy or right of subrogation, reimbursement,
exoneration, contribution, indemnification or participation in any claim, right
or remedy of the Agent or any Bank against the Company or any Guarantor,
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or any security that the Agent or any Bank now has or hereafter acquires,
whether or not such claim, right or remedy arises in equity, under contract, by
statute, under common law or otherwise. Each Guarantor agrees not to seek
contribution or indemnity or other recourse from any other Guarantor or other
Person. If any amount shall nevertheless be paid to a Guarantor by the Company
or another Guarantor prior to payment in full of the Guaranteed Obligations,
such amount shall be held in trust for the benefit of the Agent and the Banks
and shall forthwith be paid to the Agent to be credited and applied to the
Guaranteed Obligations, whether matured or unmatured. The provisions of this
paragraph shall survive the termination of this Guaranty, and any satisfaction
and discharge of the Company by virtue of any payment, court order or any
federal or state law.
SECTION 9.05. Subordination. If any Guarantor becomes the
holder of any indebtedness payable by the Company or another Guarantor, each
Guarantor hereby subordinates all indebtedness owing to it from the Company to
all indebtedness of the Company to the Agent and the Banks, and agrees that
during the continuance of any Default or Event of Default it shall not accept
any payment on the same until payment in full of the Obligations of the Company
under this Agreement and the other Loan Documents after the termination of the
Commitments of the Banks and the termination or expiration of the Letters of
Credit, the Notes and all other Loan Documents, and shall in no circumstance
whatsoever attempt to set-off or reduce any obligations hereunder because of
such indebtedness. If any amount shall nevertheless be paid to a Guarantor by
the Company or another Guarantor prior to payment in full of the Guaranteed
Obligations, such amount shall be held in trust for the benefit of the Agent
and the Banks and shall forthwith be paid to the Agent to be credited and
applied to the Guaranteed Obligations, whether matured or unmatured.
SECTION 9.06. Waiver. Each Guarantor hereby waives
promptness, diligence, notice of acceptance and any other notice with respect
to any of the Guaranteed Obligations and this Guaranty and waives presentment,
demand of payment, notice of intent to accelerate, notice of dishonor or
nonpayment and any requirement that the Agent or any Bank institute suit,
collection proceedings or take any other action to collect the Guaranteed
Obligations, including any requirement that the Agent or any Bank protect,
secure, perfect or insure any Lien against any property subject thereto or
exhaust any right or take any action against the Company or any other Person or
any collateral (it being the intention of the Agent, the Banks and each
Guarantor that this Guaranty is to be a guaranty of payment and not of
collection). It shall not be necessary for the Agent or any Bank, in order to
enforce any payment by any Guarantor hereunder, to institute suit or exhaust
its rights and remedies against the Company, any other Guarantor or any other
Person, including others liable to pay any Guaranteed Obligations, or to
enforce its rights against any security ever given to secure payment thereof.
Each Guarantor hereby expressly waives to the maximum extent permitted by
applicable law each and every right to which it may be entitled by virtue of
the suretyship laws of the State of Texas, including any and all rights it may
have pursuant to Rule 31, Texas Rules of Civil Procedure, Section 17.001 of the
Texas Civil
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Practice and Remedies Code and Chapter 34 of the Texas Business and Commerce
Code. Each Guarantor hereby waives marshaling of assets and liabilities,
notice by the Agent or any Bank of any indebtedness or liability to which such
Bank applies or may apply any amounts received by such Bank, and of the
creation, advancement, increase, existence, extension, renewal, rearrangement
or modification of the Guaranteed Obligations. Each Guarantor expressly
waives, to the extent permitted by applicable law, the benefit of any and all
laws providing for exemption of property from execution or for valuation and
appraisal upon foreclosure.
SECTION 9.07. Full Force and Effect. This Guaranty is a
continuing guaranty and shall remain in full force and effect until all of the
Obligations of the Company under this Agreement and the other Loan Documents
and all other amounts payable under this Guaranty have been paid in full (after
the termination of the Commitments of the Banks and the termination or
expiration of the Letters of Credit). All rights, remedies and powers provided
in this Guaranty may be exercised, and all waivers contained in this Guaranty
may be enforced, only to the extent that the exercise or enforcement thereof
does not violate any provisions of applicable law which may not be waived.
ARTICLE X
EVENTS OF DEFAULT AND REMEDIES
SECTION 10.01. Events of Default. The following events
shall constitute Events of Default ("Events of Default") hereunder:
(a) any installment of principal or payment of interest
on any Note or any payment of any Fee shall not be paid on the date on which
such payment is due and such failure is not remedied within three (3) days; or
(b) any representation or warranty made or, for purposes
of Article VI, deemed made by the Company or any Subsidiary herein or in any of
the Loan Documents or other document, certificate or financial statement
delivered in connection with this Agreement or any other Loan Document shall
prove to have been incorrect in any material respect when made or deemed made
or reaffirmed, as the case may be; or
(c) the Company shall fail to perform or observe or cause
any Subsidiary to fail to perform or observe any duty or covenant contained in
this Agreement or in any of the Loan Documents and such failure is not remedied
with thirty (30) days if it relates to a covenant contained in Article VII
hereof or ten (10) days if it relates to a covenant contained in Article VIII
hereof; or
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(d) the Company or any Subsidiary shall (i) fail to make
(whether as primary obligor or as guarantor or other surety) any principal
payment of or interest or premium, if any, on any instrument of Indebtedness
allowed hereunder (other than the Notes) outstanding beyond any period of grace
provided with respect thereto or (ii) shall fail to duly observe, perform or
comply with any agreement with any Person or any term or condition of any
instrument of Indebtedness in excess of $500,000.00, if such failure is to
cause, or to permit the holder or holders to cause, such obligations to become
due prior to any stated maturity; or
(e) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent jurisdiction
seeking (i) relief in respect of the Company or any Subsidiary, or of a
substantial part of the property or assets of the Company or any Subsidiary,
under Title 11 of the United States Code, as now or hereafter in effect, or any
successor thereto (the "Bankruptcy Code"), or any other federal or state
bankruptcy, insolvency, receivership or similar law, (ii) the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar official for
the Company or any Subsidiary or for a substantial part of the property or
assets of the Company or any Subsidiary or (iii) the winding-up or liquidation
of the Company or any Subsidiary; and such proceeding or petition shall
continue undismissed for 60 days or an order or decree approving or ordering
any of the foregoing shall be entered; or
(f) the Company or any Subsidiary shall (i) voluntarily
commence any proceeding or file any petition seeking relief under the
Bankruptcy Code or any other federal or state bankruptcy, insolvency,
receivership or similar law, (ii) consent to the institution of, or fail to
contest in a timely and appropriate manner, any proceeding or the filing of any
petition described in clause (e) above, (iii) apply for or consent to the
appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for the Company or any Subsidiary or for a substantial part of
the property or assets of the Company or any Subsidiary, (iv) file an answer
admitting the material allegations of a petition filed against it in any such
proceeding, (v) make a general assignment for the benefit of creditors, (vi)
become unable, admit in writing its inability or fail generally to pay its
debts as they become due or (vii) take any action for the purpose of effecting
any of the foregoing; or
(g) a judgment or order, which with other outstanding
judgments and orders against the Company and its Subsidiaries equal or exceed
$500,000.00 in the aggregate (to the extent not covered by insurance as to
which the respective insurer has acknowledged coverage), shall be entered
against the Company or any Subsidiary and (i) within 30 days after entry
thereof such judgment shall not have been paid or discharged or execution
thereof stayed pending appeal or, within 30 days after the expiration of any
such stay, such judgment shall not have been paid or discharged or (ii) any
enforcement proceeding shall have been commenced (and not stayed) by any
creditor or upon such judgment; or
(h) a Change of Control shall occur.
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SECTION 10.02. Primary Remedies. In any such event, and at
any time after the occurrence of any of the above described events, the Agent
may, by written notice to the Company (a "Notice of Default") take any or all
of the following actions (without prejudice to the rights of any Bank to
enforce any other rights it may have against the Company, provided that, if an
Event of Default specified in Section 10.01(e) or Section 10.01(f) shall occur,
the following shall occur automatically without the giving of any Notice of
Default): (a) declare the Commitments terminated, whereupon the Commitments
shall forthwith terminate immediately and any Commitment Fee shall forthwith
become due and payable without any other notice of any kind; (b) declare the
principal of and any accrued and unpaid interest in respect of all Advances,
and all obligations owing hereunder, to be, whereupon the same shall become,
forthwith due and payable without presentment, demand, notice of demand or of
dishonor and non-payment, protest, notice of protest, notice of intent to
accelerate, declaration or notice of acceleration or any other notice of any
kind, all of which are hereby waived by the Company; and (c) exercise any
rights or remedies under any document securing any of the Loan Documents. In
the event that no Default has occurred solely because of any grace period
referred to herein or in Section 2.07(b), the Company shall, nonetheless, not
be entitled to any Advances during said period.
SECTION 10.03. Other Remedies. Upon the occurrence and
during the continuance of any Event of Default, the Agent may proceed to
protect and enforce its and the Banks' rights, either by suit in equity or by
action at law or both, whether for the specific performance of any covenant or
agreement contained in this Agreement or in any other Loan Document or in aid
of the exercise of any power granted in this Agreement or in any other Loan
Document; or may proceed to enforce the payment of all amounts owing to the
Banks under the Loan Documents and any accrued and unpaid interest thereon in
the manner set forth herein or therein; it being intended that no remedy
conferred herein or in any of the other Loan Documents is to be exclusive of
any other remedy, and each and every remedy contained herein or in any other
Loan Document shall be cumulative and shall be in addition to every other
remedy given hereunder and under the other Loan Documents or now or hereafter
existing at law or in equity or by statute or otherwise.
ARTICLE XI
THE AGENT
SECTION 11.01. Authorization and Action. Each Bank hereby
irrevocably appoints and authorizes the Agent to act on its behalf and to
exercise such powers under this Agreement and the other Loan Documents as are
specifically delegated to or required of the Agent by the terms hereof,
together with such powers as are reasonably incidental thereto. The Agent may
perform any of its duties hereunder by or through its agents and employees.
The duties of the Agent shall be mechanical and administrative in nature; the
Agent shall not have
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by reason of this Agreement or any other Loan Documents a fiduciary
relationship in respect of any Bank; and nothing in this Agreement or any other
Loan Document, expressed or implied, is intended to, or shall be so construed
as to, impose upon the Agent any obligations in respect of this Agreement or
any other Loan Document except as expressly set forth herein or therein. As to
any matters not expressly provided for by this Agreement, the Notes or the
other Loan Documents (including enforcement or collection of the Notes), the
Agent shall not be required to exercise any discretion or take any action, but
shall be required to act or to refrain from acting (and shall be fully
protected in so acting or refraining from acting) upon the instructions of the
Majority Banks, and such instructions shall be binding upon the Banks and all
holders of Notes and the Obligations; provided, that the Agent shall not be
required to take any action which exposes the Agent to personal liability or
which is contrary to this Agreement or applicable law.
SECTION 11.02. Agent's Reliance. (a) Neither the Agent nor
any of its directors, officers, agents or employees shall be liable for any
action taken or omitted to be taken by it or them under or in connection with
this Agreement, the Notes or any of the other Loan Documents (i) with the
consent or at the request of the Majority Banks or (ii) in the absence of its
or their own gross negligence or willful misconduct (IT BEING THE EXPRESS
INTENTION OF THE PARTIES HERETO THAT THE AGENT AND ITS DIRECTORS, OFFICERS,
AGENTS AND EMPLOYEES SHALL HAVE NO LIABILITY FOR ACTIONS AND OMISSIONS UNDER
THIS SECTION RESULTING FROM THEIR SOLE ORDINARY OR CONTRIBUTORY NEGLIGENCE).
(b) Without limitation of the generality of the
foregoing, the Agent: (i) may treat the payee of each Note and the Obligations
as the holder thereof until the Agent receives written notice of the assignment
or transfer thereof signed by such payee and in form satisfactory to the Agent;
(ii) may consult with legal counsel (including counsel for the Company),
independent public accountants and other experts selected by it and shall not
be liable for any action taken or omitted to be taken in good faith by it in
accordance with the advice of such counsel, accountants or experts; (iii) makes
no warranty or representation to any Bank and shall not be responsible to any
Bank for any statements, warranties or representations made in or in connection
with this Agreement, any Note or any other Loan Document; (iv) except as
otherwise expressly provided herein, shall not have any duty to ascertain or to
inquire as to the performance or observance of any of the terms, covenants or
conditions of this Agreement, any Note or any other Loan Document or to inspect
the property (including the books and records) of the Company; (v) shall not be
responsible to any Bank for the due execution, legality, validity,
enforceability, collectibility, genuineness, sufficiency or value of this
Agreement, any Note, any other Loan Document or any other instrument or
document furnished pursuant hereto or thereto; (vi) shall not be responsible to
any Bank for the perfection or priority of any Lien securing the Obligations;
and (vii) shall incur no liability under or in respect of this Agreement, any
Note or any other Loan Document by acting upon any notice, consent, certificate
or other instrument or writing (which may be by telegram, telecopier, cable or
telex) reasonably believed by it to be genuine and signed or sent by the proper
party or parties.
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SECTION 11.03. Agent and Affiliates; TCB and Affiliates.
Without limiting the right of any other Bank to engage in any business
transactions with the Company or any of its Affiliates, with respect to their
commitments, the Loans made by them and the Notes issued to them, TCB and each
other Bank who may become the Agent shall have the same rights and powers under
this Agreement and its Notes as any other Bank and may exercise the same as
though it was not the Agent; and the term "Bank" or "Banks" shall, unless
otherwise expressly indicated, include TCB and any such other Bank, in their
individual capacities. TCB, each other Person who becomes the Agent and their
respective Affiliates may be engaged in, or may hereafter engage in, one or
more loan, letter of credit, leasing or other financing activity not the
subject of this Agreement (collectively, the "Other Financings") with the
Company, any Subsidiary or any of its Affiliates, or may act as trustee on
behalf of, or depositary for, or otherwise engage in other business
transactions with the Company, any Subsidiary or any of its Affiliates (all
Other Financings and other such business transactions being collectively, the
"Other Activities") with no responsibility to account therefor to the Banks.
Without limiting the rights and remedies of the Banks specifically set forth
herein, no other Bank by virtue of being a Bank hereunder shall have any
interest in (a) any Other Activities, (b) any present or future guaranty by or
for the account of the Company not contemplated or included herein, (c) any
present or future offset exercised by the Agent in respect of any such Other
Activities, (d) any present or future property taken as security for any such
Other Activities or (e) any property now or hereafter in the possession or
control of the Agent which may be or become security for the obligations of the
Company hereunder and under the Notes by reason of the general description of
indebtedness secured, or of property contained in any other agreements,
documents or instruments related to such Other Activities; provided, however,
that if any payment in respect of such guaranties or such property or the
proceeds thereof shall be applied to reduction of the obligations evidenced
hereunder and by the Notes, then each Bank shall be entitled to share in such
application according to its pro rata portion of such obligations.
SECTION 11.04. Bank Credit Decision. Each Bank
acknowledges and agrees that it has, independently and without reliance upon
the Agent or any other Bank and based on the financial statements referred to
in Section 7.01 and such other documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement. Each Bank also acknowledges and agrees that it will, independently
and without reliance upon the Agent or any other Bank and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this
Agreement and the other Loan Documents.
SECTION 11.05. Agent's Indemnity. (a) The Agent shall not
be required to take any action hereunder or to prosecute or defend any suit in
respect of this Agreement, the Notes or any other Loan Document unless
indemnified to the Agent's satisfaction by the Banks against loss, cost,
liability and expense. If any indemnity furnished to the Agent shall become
impaired, it may call for additional indemnity and cease to do the acts
indemnified against until
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such additional indemnity is given. In addition, the Banks agree to indemnify
the Agent (to the extent not reimbursed by the Company), ratably according to
the respective aggregate principal amounts of the Notes then held by each of
them (or if no Notes are at the time outstanding, ratably according to the
respective amounts of the Commitments), from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever which
may be imposed on, incurred by, or asserted against the Agent in any way
relating to or arising out of this Agreement or any action taken or omitted by
the Agent under this Agreement, the Notes and the other Loan Documents.
Without limitation of the foregoing, each Bank agrees to reimburse the Agent
promptly upon demand for its ratable share of any out-of-pocket expenses
(including reasonable counsel fees) incurred by the Agent in connection with
the preparation, execution, administration, or enforcement of, or legal advice
in respect of rights or responsibilities under, this Agreement, the Notes and
the other Loan Documents to the extent that the Agent is not reimbursed for
such expenses by the Company. The provisions of this Section shall survive the
termination of this Agreement, the payment of the Obligations and/or the
assignment of any of the Notes.
(b) Notwithstanding the foregoing, no Bank shall be
liable under this Section to the Agent for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements due to the Agent resulting from the Agent's gross
negligence or willful misconduct. EACH BANK AGREES, HOWEVER, THAT IT EXPRESSLY
INTENDS, UNDER THIS SECTION, TO INDEMNIFY THE AGENT RATABLY AS AFORESAID FOR
ALL SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS,
JUDGMENTS, SUITS, COSTS, EXPENSES AND DISBURSEMENTS ARISING OUT OF OR RESULTING
FROM THE AGENT'S SOLE ORDINARY OR CONTRIBUTORY NEGLIGENCE.
SECTION 11.06. Successor Agent. The Agent may resign at
any time by giving written notice thereof to the Banks and the Company and may
be removed as Agent under this Agreement, the Notes and the other Loan
Documents at any time with or without cause by the Majority Banks. Upon any
such resignation or removal, the Majority Banks shall have the right to appoint
a successor Agent. If no successor Agent shall have been so appointed by the
Majority Banks, and shall have accepted such appointment, within 30 calendar
days after the retiring Agent's giving of notice of resignation or the Majority
Banks' removal of the retiring Agent, then the retiring Agent may, on behalf of
the Banks, appoint a successor Agent, which shall be a commercial bank
organized under the laws of the United States of America or of any state
thereof and having a combined capital and surplus of at least $50,000,000.
Upon the acceptance of any appointment as Agent hereunder and under the Notes
and the other Loan Documents by a successor Agent, such successor Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Agent, and the retiring Agent shall be discharged
from its duties and obligations under this Agreement, the Notes and the other
Loan Documents. After any retiring Agent's resignation or removal as Agent
hereunder and under the Notes and the other Loan Documents, the provisions of
this Article XI shall inure to its benefit
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as to any actions taken or omitted to be taken by it while it was Agent under
this Agreement, the Notes and the other Loan Documents.
SECTION 11.07. Notice of Default. The Agent shall not be
deemed to have knowledge or notice of the occurrence of any Default or Event of
Default hereunder unless the Agent shall have received notice from a Bank or
the Company referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default." If the Agent
receives such notice, the Agent shall give notice thereof to the Banks;
provided, however, if such notice is received from a Bank, the Agent also shall
give notice thereof to the Company. The Agent shall be entitled to take action
or refrain from taking action with respect to such Default or Event of Default
as provided in Section 11.01 and Section 11.02.
ARTICLE XII
MISCELLANEOUS
SECTION 12.01. Amendments. No amendment or waiver of any
provision of this Agreement, any Note or any other Loan Document, nor consent
to any departure by the Company herefrom or therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Company, as to
amendments, and by the Majority Banks in all cases, and then, in any case, such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given provided, no such amendment shall be effective
unless signed by all of the Banks if it attempts to: (a) change the definition
of "Accounts", "Borrowing Base", "Commitment", "Designated Payment Date",
"Eligible Accounts" "Majority Banks", "Margin" or "Maturity Date"; (b) modify
this Section or Sections 4.01(a), (b) or (d); (c) release any Guarantor; (d)
to waive any Default under Section 10.01(a) or (e) in any other manner change
the repayment terms of the Loans, including required principal payments or
amount or time of interest payments.
SECTION 12.02. Notices. Except with respect to telephone
notifications specifically permitted pursuant to Article II, all notices,
consents, requests, approvals, demands and other communications provided for
herein shall be in writing (including telecopy communications) and mailed,
telecopied, sent by overnight courier or delivered:
(a) If to the Company:
Serv-Tech, Inc.
5200 Cedar Crest Blvd.
Houston, Texas 77087
Telecopy No: (713) 644-2455
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Attention: Mr. David P. Tusa
(b) If to the Agent:
712 Main Street,
Houston, Texas 77002
Telecopy No: (713) 216-6004
Attention: Mr. Curtis D. Karges,
Senior Vice President
with copies to:
Loan Syndication Services
1111 Fannin
9th Floor - M.S. 46
Houston, Texas 77002
Attention: Mr. Gale Manning
and to:
Andrews & Kurth L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
Telecopy No. (713) 220-4295
Attention: Mr. Thomas J. Perich
or, in the case of any party hereto, such other address or telecopy number as
such party may hereafter specify for such purpose by notice to the other
parties.
(c) If to any Bank, to the address specified by such Bank
(or the Agent on behalf of any Bank) to the Company.
All communications shall, when mailed, telecopied or
delivered, be effective when mailed by certified mail, return receipt requested
to any party at its address specified above, or telecopied to any party to the
telecopy number set forth above, or delivered personally to any party at its
address specified above; provided, that communications to the Agent pursuant to
Article II shall not be effective until actually received by the Agent.
SECTION 12.03. No Waiver; Remedies. No failure on the part
of any Bank or the Agent to exercise, and no delay in exercising, any right
hereunder, under any Note or under any other Loan Document shall operate as a
waiver thereof; nor shall any single or partial exercise of any such right, or
any abandonment or discontinuance of any steps to enforce such
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<PAGE> 59
right, preclude any other or further exercise thereof or the exercise of any
other right. No notice to or demand on the Company in any case shall entitle
the Company to any other or further notice or demand in similar or other
circumstances. The remedies herein are cumulative and not exclusive of any
other remedies provided by law, at equity or in any other agreement.
SECTION 12.04. Costs, Expenses and Taxes. The Company
agrees to pay on demand: (a) all reasonable out-of-pocket costs and expenses
of the Agent in connection with the preparation, execution and delivery of this
Agreement, the Notes, the other Loan Documents and the other documents to be
delivered hereunder, including the reasonable fees and out-of-pocket expenses
of counsel for the Agent with respect thereto and with respect to advising the
Agent as to its rights and responsibilities under this Agreement, the Notes and
the other Loan Documents, and any modification, supplement or waiver of any of
the terms of this Agreement or any other Loan Document, (b) all reasonable
costs and expenses of any Bank and any other holder of an interest in the
Notes, and the Obligations of the Company hereunder and under the Loan
Documents, including reasonable legal fees and expenses, in connection with a
default or the enforcement of this Agreement, the Notes and the other Loan
Documents and (c) reasonable costs and expenses incurred in connection with
third party professional services required by the Agent such as appraisers,
environmental consultants, accountants or similar Persons, provided that, prior
to any Event of Default hereunder, the Agent will first obtain the consent of
the Company to such expense, which consent shall not be unreasonably withheld.
Without prejudice to the survival of any other obligations of the Company
hereunder and under the Notes, the obligations of the Company under this
Section shall survive the termination of this Agreement or the replacement of
the Agent and each assignment of the Notes.
SECTION 12.05. Indemnity. (a) The Company shall indemnify
the Agent and each Bank and each Affiliate thereof and their respective
directors, officers, employees and agents from, and hold each of them harmless
against, any and all losses, liabilities, claims or damages (including
reasonable legal fees and expenses) to which any of them may become subject,
insofar as such losses, liabilities, claims or damages arise out of or result
from any actual or proposed use by the Company of the proceeds of any extension
of credit hereunder or any investigation, litigation or other proceeding
(including any threatened investigation or proceeding) relating to the
foregoing or any of the other Loan Documents, and the Company shall reimburse
each Bank and each Affiliate thereof and their respective directors, officers,
employees and agents, upon demand for any expenses (including legal fees)
reasonably incurred in connection with any such investigation or proceeding;
but excluding any such losses, liabilities, claims, damages or expenses
incurred by reason of the gross negligence or willful misconduct of the Person
to be indemnified.
(b) WITHOUT LIMITING ANY PROVISION OF THIS AGREEMENT, IT
IS THE EXPRESS INTENTION OF THE PARTIES HERETO THAT EACH PERSON TO BE
INDEMNIFIED HEREUNDER OR THEREUNDER SHALL BE INDEMNIFIED AND HELD HARMLESS
AGAINST ANY AND ALL LOSSES, LIABILITIES, CLAIMS OR
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DAMAGES: (i) ARISING OUT OF OR RESULTING FROM THE ORDINARY SOLE OR CONTRIBUTORY
NEGLIGENCE OF SUCH PERSON OR (ii) IMPOSED UPON SAID PARTY UNDER ANY THEORY OR
STRICT LIABILITY. Without prejudice to the survival of any other obligations
of the Company hereunder and under the other Loan Documents, the obligations of
the Company under this Section shall survive the termination of this Agreement
and the other Loan Documents and the payment of the Obligations or the
assignment of the Notes.
SECTION 12.06. Right of Setoff. If any Event of Default
shall have occurred and be continuing, each Bank is hereby authorized at any
time and from time to time, to the fullest extent permitted by law, to set off
and apply any and all deposits held and other indebtedness owing by such Bank,
or any branch, subsidiary or Affiliate, to or for the credit or the account of
the Company against any and all the Obligations of the Company now or hereafter
existing under this Agreement and the other Loan Documents and other
obligations of the Company held by such Bank, irrespective of whether or not
such Bank shall have made any demand under this Agreement, its Note or the
Obligations and although the Obligations may be unmatured. The rights of each
Bank under this Section are in addition to other rights and remedies (including
other rights of setoff) which such Bank may have.
SECTION 12.07. Governing Law. This Agreement, all Notes,
the other Loan Documents and all other documents executed in connection
herewith shall be deemed to be contracts and agreements executed by the Company
and each Bank under the laws of the State of Texas and of the United States of
America and for all purposes shall be construed in accordance with, and
governed by, the laws of said state and of the United States of America.
Without limitation of the foregoing, nothing in this Agreement, or in the Notes
or in any other Loan Document shall be deemed to constitute a waiver of any
rights which any Bank may have under applicable federal legislation relating to
the amount of interest which such Bank may contract for, take, receive or
charge in respect of the Loan and the Loan Documents, including any right to
take, receive, reserve and charge interest at the rate allowed by the law of
the state where any Bank is located. The Agent, each Bank and the Company
further agree that insofar as the provisions of Article 5069- 1.04, of the
Revised Civil Statutes of Texas, as amended, are applicable to the
determination of the Highest Lawful Rate with respect to the Notes and the
obligations hereunder and under the other Loan Documents, the indicated rate
ceiling of such Article shall be applicable; provided, however, that to the
extent permitted by such Article, the Agent may from time to time by notice to
the Company revise the election of such interest rate ceiling as such ceiling
affects the then current or future balances of the Loans. The provisions of
Article 5069-15.01 et. seq. do not apply to this Agreement, any Note issued
hereunder or the other Loan Documents.
SECTION 12.08. Interest. Each provision in this Agreement
and each other Loan Document is expressly limited so that in no event
whatsoever shall the amount paid, or otherwise agreed to be paid, to the Agent
or any Bank, or charged, contracted for, reserved, taken
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or received by the Agent or any Bank, for the use, forbearance or detention of
the money to be loaned under this Agreement or any Loan Document or otherwise
(including any sums paid as required by any covenant or obligation contained
herein or in any other Loan Document which is for the use, forbearance or
detention of such money), exceed that amount of money which would cause the
effective rate of interest to exceed the Highest Lawful Rate, and all amounts
owed under this Agreement and each other Loan Document shall be held to be
subject to reduction to the effect that such amounts so paid or agreed to be
paid, charged, contracted for, reserved, taken or received which are for the
use, forbearance or detention of money under this Agreement or such Loan
Document shall in no event exceed that amount of money which would cause the
effective rate of interest to exceed the Highest Lawful Rate. Anything in any
Note or any other Loan Document to the contrary notwithstanding, the Company
shall not be required to pay unearned interest on any Note and the Company
shall not be required to pay interest on the Obligations at a rate in excess of
the Highest Lawful Rate, and if the effective rate of interest which would
otherwise be payable under such Note and such Loan Documents would exceed the
Highest Lawful Rate, or if the holder of such Note shall receive any unearned
interest or shall receive monies that are deemed to constitute interest which
would increase the effective rate of interest payable by the Company under such
Note and the other Loan Documents to a rate in excess of the Highest Lawful
Rate, then (a) the amount of interest which would otherwise be payable by the
Company shall be reduced to the amount allowed under applicable law and (b) any
unearned interest paid by the Company or any interest paid by the Company in
excess of the Highest Lawful Rate shall in the first instance be credited on
the principal of the obligations of the Company (or if all such obligations
shall have been paid in full, refunded to the Company). It is further agreed
that, without limitation of the foregoing, all calculations of the rate of
interest contracted for, reserved, taken, charged or received by any Bank under
the Notes and the Obligations and under the other Loan Documents are made for
the purpose of determining whether such rate exceeds the Highest Lawful Rate,
and shall be made, to the extent permitted by usury laws applicable to such
Bank, by amortizing, prorating and spreading in equal parts during the period
of the full stated term of the Notes and this Agreement and all interest at any
time contracted for, charged or received by such Bank in connection therewith.
SECTION 12.09. Survival of Representations and Warranties.
All representations, warranties and covenants contained herein or made in
writing by the Company in connection herewith and the other Loan Documents
shall survive the execution and delivery of this Agreement, the Notes and the
other Loan Documents, the termination of the Commitments of the Banks and will
bind and inure to the benefit of the respective successors and assigns of the
parties hereto, whether so expressed or not, provided, that the Commitments of
the Banks shall not inure to the benefit of any successor or assign of the
Company.
SECTION 12.10. Successors and Assigns; Participations. (a)
All covenants, promises and agreements by or on behalf of the Company or the
Banks that are contained in this
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Agreement shall bind and inure to the benefit of their respective permitted
successors and assigns. The Company may not assign or transfer any of its
rights or obligations hereunder.
(b) Any of the Banks may assign to or sell participations
to one or more banks of all or a portion of its rights and obligations under
this Agreement and the other Loan Documents (including all or a portion of its
Commitment, the Advances and the Obligations of the Company owing to it and the
Notes); provided, that the participating banks or other entities shall be
entitled to the cost protection provisions contained in Article II and Section
12.04 and the Company shall continue to deal solely and directly with the Agent
in connection with its rights and obligations under this Agreement and the
other Loan Documents. Except with respect to cost protections provided to a
participant pursuant to this paragraph and the items listed in Section 12.01
hereof, no participant shall be a third party beneficiary of this Agreement nor
shall it be entitled to enforce any rights provided to the Banks against the
Company under this Agreement.
(c) A Bank may assign to any other Bank or Banks or to
any Affiliate of a Bank and, with the prior written consent of the Company and
the Agent (which consent shall not be unreasonably withheld), a Bank may assign
to one or more other Eligible Assignees all or a portion of its interests,
rights, and obligations under this Agreement and the other Loan Documents
(including all or a portion of its Commitment and the same portion of the Loans
and other Obligations of the Company at the time owing to it and the Note held
by it); provided, however, that (i) each such assignment shall be in a minimum
principal amount of not less than $5,000,000.00 (unless such assignment shall
be to another Bank) and shall be of a constant, and not a varying, percentage
of all the assigning Bank's Commitment, rights and obligations under this
Agreement, (ii) the parties to each such assignment shall execute and deliver
to the Agent, for its acceptance, an Assignment and Acceptance in form and
substance satisfactory to the Agent (an "Assignment and Acceptance") and any
Note subject to such assignment and (iii) no assignment shall be effective
until receipt by the Agent of a reasonable service fee in respect of said
assignment equal to $2,000.00. Upon such execution, delivery, acceptance and
recording, from and after the effective date specified in each Assignment and
Acceptance, which effective date shall be at least five Business Days after the
execution thereof unless otherwise agreed to by the assigning Bank, the
Eligible Assignee thereunder and the Agent (x) the Eligible Assignee thereunder
shall be a party hereto and to the other Loan Documents and, to the extent
provided in such Assignment and Acceptance, have the rights and obligations of
a Bank hereunder and under the other Loan Documents and (y) the assignor Bank
thereunder shall, to the extent provided in such Assignment and Acceptance, be
released from its obligations under this Agreement and the other Loan Documents
(and, in the case of an Assignment and Acceptance covering all of the remaining
portion of an assigning Bank's rights and obligations under this Agreement and
the other Loan Documents, such Bank shall cease to be a party hereto).
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(d) Notwithstanding any other provision herein, any Bank
may, in connection with any assignment or participation or proposed assignment
or participation pursuant to this Section disclose to the assignee or
participant or proposed assignee or participant, any information relating to
the Company furnished to such Bank by or on behalf of the Company.
SECTION 12.11. Confidentiality. Each Bank agrees to
exercise its best efforts to keep any information delivered or made available
by the Company to it which is clearly indicated to be confidential information,
confidential from anyone other than Persons employed or retained by such Bank
who are or are expected to become engaged in evaluating, approving, structuring
or administering the Loans; provided that nothing herein shall prevent any Bank
from disclosing such information (a) to any other Bank, (b) pursuant to
subpoena or upon the order of any court or administrative agency, (c) upon the
request or demand of any regulatory agency or authority having jurisdiction
over such Bank, (d) which has been publicly disclosed, (e) to the extent
reasonably required in connection with any litigation to which the Agent, any
Bank, the Company or its respective Affiliates may be a party, (f) to the
extent reasonably required in connection with the exercise of any remedy
hereunder, (g) to such Bank's legal counsel and independent auditors and (h) to
any actual or proposed participant or assignee of all or part of its rights
hereunder which has agreed in writing to be bound by the provisions of this
Section. Each Bank will promptly notify the Company of any information that it
is required or requested to deliver pursuant to clause (b) or (c) of this
Section and, if the Company is a party to any such litigation, clause (e) of
this Section .
SECTION 12.12. Pro Rata Treatment. (a) Except as otherwise
specifically permitted hereunder, each payment or prepayment of principal, if
permitted under this Agreement, and each payment of interest with respect to an
Advance shall be made pro rata among the Banks.
(b) Each Bank agrees that if, through the exercise of a
right of banker's lien, setoff or claim of any kind against the Company as a
result of which the unpaid principal portion of the Notes and the Obligations
held by it shall be proportionately less than the unpaid principal portion of
the Notes and Obligations held by any other Bank, it shall be deemed to have
simultaneously purchased from such other Bank a participation in the Notes and
Obligations held by such other Bank, in the amount required to render such
amounts proportional; provided, however, that if any such purchase or purchases
or adjustments shall be made pursuant to this Section and the payment giving
rise thereto shall thereafter be recovered, such purchase or purchases or
adjustments shall be rescinded to the extent of such recovery and the purchase
price or prices or adjustments restored without interest.
SECTION 12.13. Separability. Should any clause, sentence,
paragraph or Section of this Agreement be judicially declared to be invalid,
unenforceable or void, such decision will not have the effect of invalidating
or voiding the remainder of this Agreement, and
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the parties hereto agree that the part or parts of this Agreement so held to be
invalid, unenforceable or void will be deemed to have been stricken herefrom
and the remainder will have the same force and effectiveness as if such part or
parts had never been included herein.
SECTION 12.14. Execution in Counterparts. This Agreement
may be executed in any number of counterparts and by different parties hereto
in separate counterparts, each of which when so executed shall be deemed to be
an original and all of which taken together shall constitute one and the same
agreement.
SECTION 12.15. Interpretation. (a) In this Agreement,
unless a clear contrary intention appears:
(i) the singular number includes the plural
number and vice versa;
(ii) reference to any gender includes each other
gender;
(iii) the words "herein," "hereof" and "hereunder"
and other words of similar import refer to this Agreement as a whole
and not to any particular Article, Section or other subdivision;
(iv) reference to any Person includes such
Person's successors and assigns but, if applicable, only if such
successors and assigns are permitted by this Agreement, and reference
to a Person in a particular capacity excludes such Person in any other
capacity or individually, provided that nothing in this clause is
intended to authorize any assignment not otherwise permitted by this
Agreement;
(v) except as expressly provided to the contrary
herein, reference to any agreement, document or instrument (including
this Agreement) means such agreement, document or instrument as
amended, supplemented or modified and in effect from time to time in
accordance with the terms thereof and, if applicable, the terms
hereof, and reference to any Note or other note includes any Note
issued pursuant hereto in extension or renewal thereof and in
substitution or replacement therefor;
(vi) unless the context indicates otherwise,
reference to any Article, Section, Schedule or Exhibit means such
Article or Section hereof or such Schedule or Exhibit hereto;
(vii) the words "including" (and with correlative
meaning "include") means including, without limiting the generality of
any description preceding such term;
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(viii) with respect to the determination of any
period of time, except as expressly provided to the contrary, the word
"from" means "from and including" and the word "to" means "to but
excluding"; and
(ix) reference to any law, rule or regulation
means such as amended, modified, codified or reenacted, in whole or in
part, and in effect from time to time.
(b) The Article and Section headings herein and the Table
of Contents are for convenience only and shall not affect the construction
hereof.
(c) No provision of this Agreement shall be interpreted
or construed against any Person solely because that Person or its legal
representative drafted such provision.
Section 12.16. Submission To Jurisdiction. (a) Any legal
action or proceeding with respect to this Agreement and the other Loan
Documents may be brought in the courts of the State of Texas, in Harris county
or elsewhere or of the United States for the Southern District of Texas and, by
execution and delivery of this Agreement, each of the Company and each
Guarantor hereby irrevocably accepts for itself and in respect of its property,
unconditionally, the jurisdiction of the aforesaid courts with respect to any
such action or proceeding. The Company and each Guarantor further irrevocably
consent to the service of process out of any of the aforementioned courts in
any such action or proceeding by the mailing of copies thereof by registered or
certified mail, postage prepaid, to it at its address provided in Section 12.02
and with respect to any guarantor, at the address provided on Schedule 6.16
hereto, such service to become effective thirty (30) days after such mailing.
Nothing herein shall affect the right of the agent or any bank to serve process
in any other manner permitted by law or to commence legal proceedings or
otherwise proceed against the company in any other jurisdiction.
(b) Each of the Company and the Guarantors hereby
irrevocably waives any objection which it may now or hereafter have to the
laying of venue of any of the aforesaid actions or proceedings arising out of
or in connection with this Agreement brought in the courts referred to in
clause (a) above and hereby further irrevocably waives and agrees not to plead
or claim in
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any such court that any such action or proceeding brought in any such court has
been brought in an inconvenient forum.
Section 12.17. Waiver of Jury Trial. Each of the Company
and each Guarantor hereby waives, to the extent permitted by applicable law,
any right to a trial by jury in any action or proceeding to enforce or defend
any rights under this Agreement or under any amendment, instrument, document or
agreement delivered or which may in the future be delivered in connection
herewith or arising from or relating to any banking relationship existing in
connection with this Agreement, and agrees, to the extent permitted by
applicable law, that any such action or proceeding shall be tried before a
court and not before a jury.
Section 12.18. Final Agreement of the Parties. This
Agreement (including the schedules and exhibits hereto), the notes and the
other Loan Documents constitute a "Loan Agreement" as defined in Section
26.02(A) of the Texas business and commerce code, and represent the final
agreement between the parties relating to the subject matter hereof and thereof
and may not be contradicted by evidence of prior, contemporaneous or subsequent
oral agreements of the parties. There are no unwritten oral agreements between
the parties.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the date first above written.
SERV-TECH, INC.
By:
----------------------------------------
David P. Tusa
Senior Vice President of
Finance and Administration
GUARANTORS:
ADVANCED REFRACTORY SERVICES, INC.
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CASTING CONCEPTS, INC.
CHEMI-SOLV, INC.
CHEMISOLV HOLDINGS, INC.
CHEMISOLV, LTD.
CON-SEAL, INC.
DELTA MAINTENANCE, INC.
DM ACQUISITION CORPORATION
ENTERPRISE SERVICE CORPORATION
F. C. SCHAFFER & ASSOCIATES, INC.
HARTNEY CORPORATION
HARTNEY INDUSTRIAL SERVICES CORPORATION
HILL TECHNICAL SERVICES, INC.
MAC-TECH, INC.
PETRO RECOVERY SYSTEMS, INC.
PETROCHEM FIELD SERVICES DE VENEZUELA, S.A.
PRS HOLDING, INC.
REFINERY MAINTENANCE INTERNATIONAL LTD.
SECO INDUSTRIES, INC.
SERV-TECH MEXICANA, S. DE R.L.
SERV-TECH DE MEXICO, S. DE R.L.
SERV-TECH EPC - HOUSTON, INC.
SERV-TECH EPC, INC.
SERV-TECH EUROPE, GMBH
SERV-TECH INTERNATIONAL SALES, INC.
SERV-TECH OF NEW MEXICO, INC.
By:
-----------------------------------------
David P. Tusa
Title: Senior Vice President of
Finance and Administration
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GUARANTORS:
SERV-TECH SERVICES, INC.
SERV-TECH SUDAMERICANA, S.A.
ST PIPING, INC.
TALBERT & ASSOCIATES, INC.
TERMINAL TECHNOLOGIES, INC.
TIPCO ACQUISITION CORP.
TOTAL REFRACTORY SYSTEMS, INC.
TURNAROUND MAINTENANCE, INC.
UNITED INDUSTRIAL MATERIALS, INC.
By:
----------------------------------------
David P. Tusa
Senior Vice President of
Finance and Administration
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TEXAS COMMERCE BANK
NATIONAL ASSOCIATION, as Agent and
Individually, as a Bank
By:
----------------------------------------
Curtis D. Karges
Senior Vice President
BANKS:
BANK ONE, TEXAS, NA
By:
----------------------------------------
Barry A. Kelly
Vice President, Unit Manager
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TEXAS COMMERCE BANK
NATIONAL ASSOCIATION, as Agent and
Individually, as a Bank
By:
----------------------------------------
Curtis D. Karges
Senior Vice President
BANKS:
BANK ONE, TEXAS, NA
By:
----------------------------------------
Barry A. Kelly
Vice President, Unit Manager
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AMENDMENT TO CREDIT AGREEMENT
This AMENDMENT TO CREDIT AGREEMENT (this "Agreement"),
effective as of July ____, 1995, by and among SERV-TECH, INC., a Texas
corporation ("Borrower"), the undersigned Subsidiaries of the Borrower, as
Guarantors ("Guarantors"), and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a
national banking association, as Agent (the "Agent") for itself and for BANK
ONE, TEXAS, NA (collectively, the "Banks"). Capitalized terms used herein,
unless otherwise defined, are as defined in the hereafter referenced Credit
Agreement.
WHEREAS, Borrower, the Agent and the Banks have executed that
certain $35,000,000.00 Credit Agreement dated as of May 15, 1995 (the "Credit
Agreement"); and
WHEREAS, in connection therewith, certain Subsidiaries of the
Borrower also executed the Credit Agreement to evidence their guaranty of the
Obligations; and
WHEREAS, Borrower has requested the Banks to modify certain
terms of the Credit Agreement; and
WHEREAS, the Banks have agreed to do so, provided Borrower and
the Guarantors ratify and confirm all of their obligations under the Credit
Agreement and the Loan Documents.
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. Amendment to Section 8.03. Section 8.03(f) of the
Credit Agreement is hereby deleted and the following substituted therefor:
"(f) Additional Indebtedness of F. C. Schaffer up to a
maximum of $10,000,000.00 for the sole purpose of causing third party
financial institutions to issue Commercial Letters of Credit in
support of the FINCHAA Project, which additional Indebtedness may be
guaranteed by the Company."
2. Ratification. Borrower agrees and acknowledges that
except as amended and modified by this Agreement, the Credit Agreement, the
Note and the Loan Documents shall continue in full force and effect. Nothing
in this Agreement releases any right, claim, lien, security interest or
entitlement of the Banks created by or contained in any of such documents nor
is Borrower released from any covenant, warranty or obligation created by or
contained therein.
<PAGE> 72
3. Representations and Warranties. Borrower hereby
represents and warrants to the Banks that (a) this Agreement has been duly
executed and delivered on behalf of the Borrower, (b) this Agreement
constitutes a valid and legally binding agreement enforceable against Borrower
in accordance with its terms, (c) the representations and warranties contained
in the Credit Agreement and the Loan Documents are true and correct on and as
of the date hereof in all material respects as though made as of the date
hereof except as heretofore otherwise disclosed in writing to the Agent (other
than those of such representations and warranties which by their express terms
speak to a date on or before the date hereof), (d) no Default exists under the
Credit Agreement or any of the Loan Documents and (e) the execution, delivery
and performance of this Agreement has been duly authorized by Borrower.
Borrower will, upon request by the Agent, provide satisfactory evidence of
items (a) and (e) above.
4. Counterparts. This Agreement may be signed in any
number of counterparts, each of which shall be construed as an original, but
all of which together shall constitute one and the same instrument.
5. Guarantors' Ratification. The Guarantors execute
this Agreement for the purpose of acknowledging and approving same, ratifying
the Guaranty of each of them and reaffirming that the Guaranties are in full
force and effect and remain the joint and several liability of each Guarantor,
notwithstanding the amendments made herein.
6. Choice of Law. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCEPT TO THE
EXTENT THAT THE LAWS OF THE UNITED STATES OF AMERICA AND ANY RULES, REGULATIONS
OR ORDERS ISSUED OR PROMULGATED THEREUNDER APPLICABLE TO THE AFFAIRS AND
TRANSACTIONS OF ANY BANK OTHERWISE PREEMPT TEXAS LAW, IN WHICH EVENT SUCH
FEDERAL LAW SHALL CONTROL.
7. Final Agreement of the Parties. THIS AGREEMENT, AND
THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS CONSTITUTE A "LOAN AGREEMENT"
AS DEFINED IN SECTION 26.02(A) OF THE TEXAS BUSINESS AND COMMERCE CODE, AND
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
-2-
<PAGE> 73
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the date first above written.
BORROWER:
SERV-TECH, INC.
By:
----------------------------------------
David P. Tusa
Senior Vice President of
Finance and Administration
GUARANTORS:
ADVANCED REFRACTORY SERVICES, INC.
CASTING CONCEPTS, INC.
CHEMI-SOLV, INC.
CHEMISOLV HOLDINGS, INC.
CHEMISOLV, LTD.
CON-SEAL, INC.
DELTA MAINTENANCE, INC.
DM ACQUISITION CORPORATION
ENTERPRISE SERVICE CORPORATION
F. C. SCHAFFER & ASSOCIATES, INC.
HARTNEY CORPORATION
HARTNEY INDUSTRIAL SERVICES CORPORATION
HILL TECHNICAL SERVICES, INC.
MAC-TECH, INC.
PETRO RECOVERY SYSTEMS, INC.
PETROCHEM FIELD SERVICES DE VENEZUELA, S.A.
PRS HOLDING, INC.
REFINERY MAINTENANCE INTERNATIONAL LTD.
-3-
<PAGE> 74
SECO INDUSTRIES
SERV-TECH MEXICANA, S. DE R.L.
SERV-TECH DE MEXICO, S. DE R.L.
SERV-TECH EPC - HOUSTON, INC.
SERV-TECH EPC, INC.
SERV-TECH EUROPE, GMBH
SERV-TECH INTERNATIONAL SALES, INC.
SERV-TECH OF NEW MEXICO, INC.
SERV-TECH SERVICES, INC.
SERV-TECH SUDAMERICANA, S.A.
ST PIPING, INC.
TALBERT & ASSOCIATES, INC.
TERMINAL TECHNOLOGIES, INC.
TIPCO ACQUISITION CORP.
TOTAL REFRACTORY SYSTEMS, INC.
TURNAROUND MAINTENANCE, INC.
UNITED INDUSTRIAL MATERIALS, INC.
By:
----------------------------------------
David P. Tusa
Senior Vice President of
Finance and Administration
-4-
<PAGE> 75
BANKS:
TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
Individually and as Agent
By:
----------------------------------------
Curtis D. Karges
Senior Vice President
BANK ONE, TEXAS, NA
By:
----------------------------------------
Barry A. Kelly
Vice President, Unit Manager
-5-
<PAGE> 76
STATE OF TEXAS }
}
COUNTY OF HARRIS }
The foregoing instrument was acknowledged before me this
_______ day of July, 1995, by David P. Tusa, Senior Vice President of Finance
and Administration of SERV-TECH, INC., a Texas corporation, on behalf of said
corporation and the Subsidiaries named therein.
-----------------------------------
Notary Public, State of Texas
STATE OF TEXAS }
}
COUNTY OF HARRIS }
The foregoing instrument was acknowledged before me this
________ day of July, 1995, by Curtis D. Karges, Senior Vice President of
TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national banking association, on
behalf of said corporation.
-----------------------------------
Notary Public, State of Texas
STATE OF TEXAS }
}
COUNTY OF HARRIS }
The foregoing instrument was acknowledged before me this
_______ day of July, 1995, by Barry A. Kelly, Vice President, Unit Manager of
BANK ONE, TEXAS, NA, a national banking association, on behalf of said
association.
-----------------------------------
Notary Public, State of Texas
-6-
<PAGE> 1
Exhibit 10.37
AGREEMENT FOR
SERV-TECH TURNAROUND SERVICES
MANAGEMENT GROUP
Serv-Tech, Inc. hereby agrees to the following Employee Bonus Plan:
EMPLOYEE BONUS PLAN
1. The Covered Entity will include the following divisions of Serv-Tech's
U.S.Turnaround Maintenance operations: West Lake, Houston (South and
Central), Baton Rouge, St. Louis, West Coast, New Jersey, Central
Equipment, QA/QC, Safety and Purchasing. The Covered Entity excludes
Life Guard(SM) decontamination, specialty welding, heat treating,
refractory and other related turnaround services.
2. The Covered Entity shall also include the following current Serv-Tech
offices, equipment and other leases: Houston (portion to be
negotiated),Baton Rouge, St. Louis, West Coast (portion to be
negotiated), and Sulphur (new) divisions, and all of the equipment
utilized in all of the divisions of Serv-Tech's U.S. Turnaround
Maintenance.
3. Serv-Tech and the Management Group will mutually agree as to the
employees that will be initially retained by the Covered Entity.
4. The Management Group will be entitled to participation in a
profit-sharing program as follows:
Mike Krajicek 4.0%
Mark Bortka 2.0%
Greg Nichols 1.4%
Mac Bozarth 1.4%
James Amuny 1.4%
Jeff Wilson 1.4%
Mike Prevost* 1.2%
"Gulf Coast Manager" 1.2%
Terry Jennings (Safety) 0.6%
Tom Peterson (QA/QC) 0.6%
Doug Bender 0.4%
Steve Rediess 0.4%
To be determined 4.0%
* or National Sales Manager
5. The profit-share amount is equal to pre-tax earnings (according to
generally accepted accounting principles; determined in conjunction with
the Serv-Tech, Inc. annual audit of the Covered Entity multiplied by the
above percentages.
Page 1 of 4
<PAGE> 2
AGREEMENT FOR
SERV-TECH TURNAROUND SERViCES
MANAGEMENT GROUP
6. Additionally, the profit-share percentages shall be increased by
twenty-five percent (25%) applicable only to the excess of pre-tax
earnings of the Covered Entity over the Serv-Tech, Inc. Board-approved
Plan amount.
7. All such profit-sharing amounts shall be payable on March 31 following
the subject year, except that sixty-six percent (66%) of the amounts
determined in item 6 above will be payable in three (3) equal
installments beginning March 31 of the second year following the subject
year. All payment obligations noted in items 4., 5., 6., and 7. are
conditioned upon and subject to continued employment by the Covered
Entity of the Management Group member through the time payment is due
above.
8. The earnings of Covered Entity will bear all direct costs of business,
such as insurance, benefits, out-of-pocket and other costs that may be
incurred on its behalf. Additionally, the Covered Entity will be
initially charged an amount equal to three percent (3%) of revenues.
This amount is subject to annual re-negotiation. Serv-Tech will provide
legal, tax, accounting, payroll, human resources, and similar services.
9. The Management Group's initial annual salary rate shall be:
Mike Krajicek $150,000
Mark Bortka $100,000
Greg Nichols $ 90,000
Mac Bozarth $ 70,000
Jim Amuny $ 85,000
10. The following Management Group will be entitled to the following
Serv-Tech stock options vesting over a three-year period. The options
will be priced at market price at date of grant. Vesting is
conditioned upon and subject to continued employment by the Covered
Entity of the Management Group member as well as other conditions
specified in the Serv-Tech Stock Option Plan.
Mike Krajicek 50,000
Mark Bortka 20,000
Mac Bozarth 20,000
11. The Management Group will have the right of first refusal to purchase
the Covered Entity should Serv-Tech desire to sell the Covered Entity to
a third party. The Management Group, acting through Mike Krajicek as
sole agent, shall have sixty (60) days in which to consummate a
transaction at the same price and terms as that offered by proposed
purchaser and with security acceptable to Serv-Tech.
Page 2 of 4
<PAGE> 3
AGREEMENT FOR
SERV-TECH TURNAROUND SERVICES
MANAGEMENT GROUP
12. Should Serv-Tech sell the Covered Entity to a third party (not including
the Management Group), Management Group will be entitled to twenty
percent (20%) of the difference between the purchase price and the net
book value of the Covered Entity, determined in accordance with
generally accepted accounting principles, multiplied by the same
percentages in item 4. above. Such amount is payable conditioned upon
actual payment received by Serv-Tech. All rights in Items 11. and 12.
shall only accrue to Management Group members as are employed by the
Covered Entity at that time.
13. The earnings of the Covered Entity will be charged interest on working
capital (computed monthly on all accounts receivable over 60 days) and
for all capital infusions at a rate consistent with that paid by
Serv-Tech to its bankers.
14. Michael Krajicek will receive an employment agreement that will include
benefits as follows (but such benefits to not be payable or provided for
any period after Michael Krajicek's 65th birthday): (a) a 12-month
severance (lump-sum payment) and 12-month insurance (at his then present
insurance premium cost) in the event he is terminated without cause
prior to a Change in Control (as Change in Control is defined in Richard
Daerr's current employment agreements; and (b) if Michael Krajicek is
terminated without cause within three (3) years after a Change in
Control, the same 12-months plus six (6) additional months monthly
payments and insurance if Michael Krajicek is not comparably employed at
the end of the such 12-month period.
THE ACQUISITION TRANSACTION
Serv-Tech hereby agrees to purchase all of the capital stock of
American Mechanical Services ("AMS") on the following terms: $300,000
cash, less debt assumed as shown on balance sheet (the shareholders
represent that there is not more than $300,000 in debt), plus 70,000
unregistered shares of Serv-Tech stock. Serv-Tech will also receive an
exclusive, fully paid-up license for all of AMS' and its principals'
patents and technology. Should Serv-Tech desire to manufacture AMS'
patented lance and extractor equipment for internal use, then James
Amuny would be entitled to a cash payment of $7,500 per lance and
$25,000 per extractor during the applicable patent term. Should the
lance be manufactured and sold to a third party, Jim Amuny will receive
$15,000 per lance; should the extractor be manufactured and sold to a
third party, Jim Amuny will receive $50,000 per extractor. The owned
facility in Sulpher, Louisiana, will be retained by the AMS shareholders
and leased to Serv-Tech for a total monthly lease rate of $3,000, for 36
months. This acquisition is subject to due diligence satisfactory to
Serv-Tech and the execution of final definitive documents
Page 3 of 4
<PAGE> 4
AGREEMENT FOR
SERV-TECH TURNAROUND SERVICES
MANAGEMENT GROUP
on terms mutually agreeable to Serv-Tech, Inc. and AMS shareholders. The
shareholders of AMS hereby represent that there are no outstanding
options, warrants, or other rights to purchase or issue any capital
stock.
SERV-TECH, INC.:
______________________________________________
Senior Vice President,
Finance and Administration
______________________________________________
Vice President, General Counsel
FOR ITEMS 1 - 14:
______________________________________________
Michael W. Krajicek
FOR ACQUISITION TRANSACTION:
______________________________________________
James Amuny as agent for all Shareholders of AMS,
including without limitation J.C. Ellender and Robert Amuny
Page 4 of 4
<PAGE> 1
EXHIBIT 10.38
DATED December 31, 1995
(1) CHEMISOLV LIMITED
AND
(2) CHEMISOLV HOLDINGS INC
AND
(3) SERV-TECH INC
AND
(4) CLEMENT CYRIL ARMITAGE
AGREEMENT
RELATING TO EMPLOYMENT PERFORMANCE BONUSES
ALSOP WILKINSON
INDIA BUILDINGS
LIVERPOOL L2 ONH
REF: MJP/KAC/AG-5311.B
<PAGE> 2
THIS AGREEMENT IS MADE ON DECEMBER 31, 1995
BETWEEN:
(1) CHEMISOLV LIMITED WHOSE REGISTERED OFFICE IS AT THORNLEY HOUSE,
CARRINGTON BUSINESS PARK, MANCHESTER, M31 4SG ("THE EMPLOYER");
(2) CHEMISOLV HOLDINGS INC WHOSE REGISTERED OFFICE IS AT 5200 CEDAR CREST
BOULEVARD, HOUSTON, TEXAS 77087, USA ("HOLDINGS");
(3) SERV-TECH INC WHOSE REGISTERED OFFICE IS AT 5200 CEDAR CREST BOULEVARD,
HOUSTON, TEXAS 77087, USA ("SERV-TECH"); AND
(4) CLEMENT CYRIL ARMITAGE WHOSE ADDRESS IS AT WILD HEDGES, 4 DAISYBANK
CRESCENT, AUDLEM, CREWE, CW3 OHD ("THE EMPLOYEE")
WHEREAS:
(A) This Agreement is inter alia supplemental to the employment agreement
dated 4th November 1994 and made between the Employee and the Employer
("the Employment Agreement").
(B) In order to encourage the Employee to further develop the Relevant
Intellectual Property (as hereinafter defined) the Employer has agreed
that in addition to the salary and other emoluments payable by it to the
Employee pursuant to the Employment Agreement, Employer and Holdings
shall pay or caused to be paid to the Employee the Income Performance
Bonus and the Revenue Performance Bonus upon the terms and conditions set
out in this Agreement.
(C) In consideration of the services to be provided by the Employee to the
Employer, Holdings and other members of the Chemisolv Group, Serv-Tech
has agreed to guarantee the performance by the Employer and Holdings of
all of their respective obligations hereunder upon the terms and
conditions set out in this Agreement.
IT IS HEREBY AGREED:
-1-
<PAGE> 3
1 DEFINITIONS AND INTERPRETATION In this Agreement the following words and
expressions shall (except where the context otherwise requires) have the
following meanings:-
"affiliate" in relation to any company
shall mean and include all of
its parents, subsidiaries or
other entities which are,
directly or indirectly, 50%
or more owned or owned by or
under common ownership with
the relevant company (and
"affiliate" shall be
construed accordingly)
"Chemisolv Accounts" means, in relation to any
Financial Year, the audited
consolidated income (profit)
and loss account of Holdings
and its subsidiaries for that
Financial Year and the
audited consolidated balance
sheet of Holdings and its
subsidiaries as at the last
day of the relevant Financial
Year in each case as part of
the Serv-Tech consolidated
annual audit and which shall
have been prepared in
accordance with the
provisions of clause 4 below
"Chemisolv Group" means Holdings, the Employer
and all other subsidiaries of
either Holdings or the
Employer
"Chemisolv's Accountants" means the auditors for the
time being of Holdings
appointed by the Serv-Tech
Group who shall be
responsible for preparing the
audited financial statements
of Holdings and its
subsidiaries for each
financial year
-2-
<PAGE> 4
"European Member" means any member of the
Chemisolv Group which is
incorporated in the continent
of Europe or which primarily
carries on or undertakes
business itself (not through
its subsidiaries) in the
continent of Europe
(including
"Financial Year" means each financial year of
Holdings commencing on 1st
January in each calendar year
and ending on 31st December
in the same calendar year
(the first Financial Year
being that commencing on 1st
January 1996)
"Income" means, in relation to any
Financial Year, the
consolidated income before
taxation of Holdings and its
subsidiaries as shown in the
Chemisolv Accounts for that
Financial Year after making
the adjustments referred to
in clause 4 below
"Income Performance Bonus" means the income performance
bonus payable by Holdings to
the Employee pursuant to
clause 3.1 below of the
Performance Awarded
"Majority of the Performance such Employees for the time
Awarded Employees" being employed by members of
the Chemisolv of the
Performance Awarded Group who
between them have the
majority of points of all the
Performance Awarded Employees
who are so employed at the
relevant time and for this
purpose each Performance
Awarded Employee shall
-3-
<PAGE> 5
have such number of points as
is set out in parenthesis
after his name in the
definition of "Performance
Awarded Employees" below
"Relevant Intellectual Property" means (in relation to the
inventions known as "Mastiff"
and "Magnetic De-Inking" as
they existed on 1st April
1995 and all improvements
thereafter and hereafter made
to such inventions) all
patents, inventions,
know-how, trade secrets and
other confidential
information, registered
designs, copy rights, design
rights, rights equivalent to
copy right and design rights,
registered trademarks,
registered service marks,
registered business names,
trade names, registrations of
an application to register
any of the aforesaid items,
rights in the nature of any
of the aforesaid items in any
country whatsoever in the
World, rights in the nature
of unfair competition rights
and rights to sue for passing
off
"Non-European Member" means any member of the
Chemisolv Group which is not
a European Member
"Performance Awarded Employees" means Messrs Ralph J Davies
(13), David M Owen (13),
Clement C Armitage (13),
James R Duffy (13), W Harry
Corbett (6), Christopher
Bennett (6) and Kenneth
Mackintosh (6)
-4-
<PAGE> 6
"Relevant Business" means any business directly
connected with the
application of speciality
chemicals in the treatment of
water and waste or directly
connected with the paper
industry including the
manufacture or recycling of
paper, or the strengthening
of paper and any business
derived from the Relevant
Intellectual Property or the
application thereof
"Relevant Fraction" 13/70
thirteen seventieths
"Revenue Performance Bonus" means the revenue
performance bonus payable to
the Employee pursuant to
clause 3.2 below
means in relation to any
company which is registered in
England and "subsidiary" Wales
any subsidiary undertaking
(within the meaning of the
Companies Act 1985 as amended
by the Companies Act 1989) of
such company and in relation
to any company which is
incorporated in the USA, any
entity which is 50% or more
directly or indirectly owned
or controlled by such company
(and "subsidiaries" shall be
construed accordingly)
"Serv-Tech Group" means Serv-Tech and all of
its subsidiaries and
affiliates other than any
member of the Chemisolv Group
-5-
<PAGE> 7
2 AMENDMENTS TO THE EMPLOYMENT AGREEMENT
The Employment Agreement shall be and is hereby amended as follows:-
2.1 by deleting the last sentence of clause 3.2.
2.2 by adding the following new clause 3.4:
"3.4 Inventions and Patents
3.4.1 The Employee agrees that the Employee will promptly
and fully inform and disclose to the Employer all
inventions, designs, improvements, and discoveries
that the Employee conceives or discovers during the
employment that pertain or relate to the business of
the Employer or its subsidiaries or to any
experimental work carried on by the Employer or its
subsidiaries, whether conceived by the Employee alone
or with others and whether or not conceived during
regular working hours.
3.4.2 The Employee agrees that he will promptly and fully
inform and disclose to the Employer all inventions,
designs, improvements and discoveries that the
employee may conceive or discover in the period of one
(1) year following the termination of the employment
that pertain or relate to the business of the Employer
in which the Employee was involved or any business in
which the Employee was involved of any subsidiary or
affiliate company or to any experimental work carried
on by the Employer or its subsidiary in which the
Employee was involved whether conceived by the
Employee alone or with others.
All such invention, designs, improvements and discoveries
conceived or discovered in accordance with Articles 3.4.1 and
3.4.2 above shall be the exclusive property of the Employer. The
Employee shall assist the Employer to obtain patents on all such
inventions, designs, improvements and discoveries deemed
patentable by the Employer and shall execute all documents and do
all things reasonably necessary (without incurring any
expenditure) to obtain letters patent, vest the Employer with full
and exclusive title
-6-
<PAGE> 8
thereto and so far as he is reasonably able (without incurring any
expenditure) protect the same against infringement by others.
2.3 by deleting existing clauses 5.1, 5.2 and 6 and by adding the
following new clauses, 5.1 to 10.14 inclusive;
"5.1 The terms of the Employee's employment under this agreement
(the "Employment") shall commence on 4th November 1994, and
shall continue until determined in accordance with the
provisions of this agreement.
The Employee's period of continuous employment commenced on
12th February 1987.
5.2 The Employment shall continue until one or more of the
following occurs:
5.2.1 the Employee dies or resigns (excluding Constructive
Dismissal) or becomes eligible for retirement and
decides to retire in accordance with the Company
Pension Scheme or becomes sixty five years old when
this Employment Agreement shall automatically
terminate;
5.2.2 the Employee is dismissed because he is permanently
incapacitated through injury or illness from
performing his duties and is not able to perform work
of a comparable nature;
For the purpose of this clause, permanent incapacity
means: -
5.2.2.1 That a medical opinion has been obtained
from a physician designated by the
Employer which states that the Employee
has no reasonable prospects of returning
to comparable work; or
5.2.2 that the Employee has been absent from
work from incapacity for at least twenty-
-7-
<PAGE> 9
six (26) weeks and a medical opinion has
been obtained from a physician designated
by the Employer which states that the
Employee is incapacitated to the extent
that he is not expected to be fit enough
to return to comparable work within the
next twenty-six (26) week period.
The Employee hereby agrees he will, upon request of
the Employer at any time, allow himself to be examined
by a physician designated by the Employer for purposes
of determining incapacity and will agree to such
physician submitting a written report to the Employer
with regards to such information as the Employer may
reasonably require. The Employee hereby agrees that if
he unreasonably refuses to allow such examination or
unreasonably refuses to give consent to the report
being given to the Employer, such refusal shall if not
cured within seven (7) days of written notice by
Employer to Employee's last known address, be itself
grounds for termination pursuant to Article 5.2.2 as
if such examination and report had shown such
permanent incapacity;
The Employer hereby agrees that he will act reasonably
in reaching a decision that the employee is
permanently incapacitated, which shall include:
1 Disclosing to the employee all medical opinions
obtained, prior to any decision being made.
2 Allowing the Employee a reasonable opportunity
of disagreeing with the medical opinion(s)
including obtaining his own medical opinion
which the employer shall consider and take into
account.
-8-
<PAGE> 10
3 Acting in good faith in reaching a decision to
dismiss.
Any such termination for permanent incapacity shall
require that the Employer gives the Employee at least
twelve (12) weeks notice in writing to the Employee of
any such termination.
5.2.3 the Employee is dismissed following proper
disciplinary procedure (as indicated below) for
"Cause" as defined below:-
"Cause" shall mean that the Employee has committed an
act or acts of gross misconduct.
Gross misconduct includes:
(a) theft by the Employee from the Employer;
(b) being convicted of a criminal offence involving
fraud or moral turpitude apart from an offence
that in the reasonable opinion of the Employer's
Board of Directors does not affect the
Employee's position as an Employee;
(c) being personally liable in a civil action
involving fraud or moral turpitude other than
such an action which in the reasonable opinion
of the Employer's Board of Directors does not
affect the Employee's position as an Employee;
(d) a serious breach of any of the provisions of the
Non-Competition and Confidentiality Agreement
dated 4th November 1994 as amended by the
variation agreement of today's date;
(e) serious, persistent and wilful disregard by the
Employee of reasonable instructions issued by
the Employer, in circumstances where the
Employee has been issued with prior
-9-
<PAGE> 11
appropriate warnings including a final written
warning;
(f) serious physical violence or (after warning)
repeated threats of physical violence committed
by the Employee in the work place;
(g) wilful or persistent unbusinesslike conduct in
the course of his duties hereunder in
circumstances where the Employee has been issued
with prior appropriate warnings including a
final written warning.
The above list is not exhaustive or exclusive and
offenses of a similar nature and severity will fall
within the definition of "Cause".
5.2.4 The Employer dismisses the Employee for any reason
other than those reasons in 5.2.1 or 5.2.3 above
(including a termination by the Employer of the
Employee without cause) upon the Employer giving at
least twelve (12) weeks notice in writing to the
Employee of any such termination.
5.3 Where the employment is terminated by the Employer for any
reason other than those set out in Articles 5.2.1, 5.2.2 and
5.2.3 above, the Employer shall pay to the Employee twelve
(12) equal monthly payments over a period of one year (365
days) each payment to be equivalent to the Employee's
monthly salary at the time of dismissal together with either
continuation of all other benefit under this Employment
Agreement or with an additional payment of an amount which
properly compensates the Employee for loss of such other
benefits from the date of termination (except where the
Employee becomes sixty-five (65) years old during the course
of 365 days following termination in which event the
payments and other benefits shall only continue to be paid
up to and including the Employee's sixty-fifth (65th)
birthday.
-10-
<PAGE> 12
Those twelve (12) monthly payments and/or continuation of other benefits
shall be in settlement of all statutory rights and all contractual claims
that the Employee may have against the Employer arising out of the terms
of this Employment Agreement (except, for the avoidance of doubt, for any
income performance bonus and any revenue performance bonus which may be
payable under a separate agreement relating to employment performance
bonuses) and shall represent the full extent of the Employer's liability
to the Employee under the terms of this Employment Agreement.
To the extent that any statutory rights or payment obligations pursuant
to this Employment Agreement cannot, by law or otherwise be so cancelled
or limited these twelve (12) monthly payments shall be reduced by such
amounts as are required by such statutory rights or obligations to be
paid or provided.
5.4 The Employee may terminate the Employment upon the giving of at
least two months notice to the Employer."
5.5 The Employer may, at its discretion, require the Employee to stay
away from the work place, to undertake other duties or to take
other reasonably requested measures pending the conclusion of a
disciplinary investigation or an investigation into the permanent
incapacity of the Employee pursuant to Articles 6 or 5.2.2 or
otherwise. In making any such decision the Employer shall at all
times act in good faith.
6 Disciplinary Procedure
No disciplinary action (including dismissal) will be taken against the
Employee except and until the Employer has undertaken a reasonable
investigation into the allegations against the Employee. This
investigation will include a disciplinary hearing at which the
allegations will be heard and decided upon by the Board of Directors (the
"Board") of the Employer. The Employee will have at least three (3) days
prior notice in writing of this disciplinary hearing and will be provided
notice, at that stage, of the allegations against him. The Employee will
have an opportunity to put forward his own evidence and state his case.
The Employee will
-11-
<PAGE> 13
also have a right to be represented by a colleague or advisor should he
wish.
The Directors considering the allegation shall decide upon the
allegations upon hearing the evidence presented and such decision shall
be final, binding and conclusive unless not made in good faith by the
Directors. The decision shall be made by a majority of the Directors
present at the hearing. If the Employee is a Director, he shall not so
vote on the decision nor shall he be counted as a Director present at the
hearing in determining a majority decision.
7. Grievance
In the event of the Employee having a grievance relating to his
employment, then he should first raise the matter informally with the
person against whom he has the grievance. In the event of the grievance
not being resolved to the satisfaction of the Employee, the Employee
shall submit details of the grievance, in writing, to the Board of
Directors of the Employer who shall consider and decide what should be
done about the grievance. The decision of the board shall be final.
8. Pension
The Employee is an existing member of the Employer's pension fund (or 401
(k) plan). During the Employee's employment under this agreement, the
Employer shall ensure that its contributions amounting to the present
percentage - as of the date of execution hereof - of the Employee's gross
salary, are made by the Employer to the pension fund on a monthly basis
(or in the case of a 401 (k) plan, the same Employer's matching
percentage - as of the date of execution hereof - of the Employee's
contribution to the 401 (k) plan). This benefit is separate to and over
and above any other benefits and entitlements that the Employee has
pursuant to this Agreement. Full details of the pension fund (401 (k)
plan) are available from the Company Secretary.
9. Permanent Health (or Long-Term Disability) Insurance
During the Employee's employment under this Agreement, the Employee (and
his spouse and children) is entitled to continue to receive then
available benefits under the Employer's Permanent Health
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<PAGE> 14
Insurance (or Long-Term Disability) scheme or plan for which the Employer
will pay the same percentage of the insurance premiums as on the date of
execution hereof. Full details of the scheme are available from the
Company Secretary.
10. Miscellaneous
10.1 Notices
Any notice required or permitted under this Agreement shall be in
writing and shall be deemed to be delivered (i) upon physical
delivery (if hand delivered) or (ii) three business days after
deposit in the mail (if mailed), postage, prepaid, certified or
registered mail, return receipt requested, addressed as follows:
The Employer: Chemisolv Limited
Thornley House
Carrington Business Park
Manchester, M31 4SG, UK
with a copy (which Serv-Tech, Inc
shall not constitute Attention: General Counsel
notice) to: 5200 Cedar Crest Boulevard
Houston, TX 77087
The Employee: Clement Cyril Armitage
Wild Hedges
4 Daisybank Crescent
Audlem
Crewe, CW3 OHD
Notice given in any other manner shall be effective when received
by the addressee. The address for notice may be changed by notice
given in accordance with this provision.
10.2 Amendments
This Agreement and any attachments incorporated by reference
constitute the entire agreement between the parties and may not be
amended, supplemented, waived or terminated except by written
instrument executed by the parties.
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<PAGE> 15
10.3 Waiver
No waiver of any provision of this Agreement shall constitute a
waiver of any other provision of this Agreement, nor shall such
waiver constitute a waiver of any subsequent breach of such
provision.
10.4 Preservations of Business Fiduciary Responsibility and Non-
Competition
10.4.1 During the period of employment hereunder, the
Employee shall act in the best interest of the
Employer. For example, the Employee shall not,
directly or indirectly, in any capacity, act in
competition with the Employer or its Affiliates.
During the term of this Agreement and therefore, the
Employer shall not divulge or use confidential
information of the Employer or its Affiliates in any
manner except in furtherance of the Employer's
business.
10.4.2 The Employer shall not, in the United States or the
United Kingdom, for a period of one (1) year after the
termination of the employment hereunder, either by
himself or for or with any other person, firm or
company, directly or indirectly, in the capacity as
stockholder, owner, partner, officer, director, agent,
contractor, promoter, consultant, employee or
otherwise, canvass, solicit or otherwise endeavour to
(i) entice away from the Employer or its Affiliates
any of their employees or (ii) solicit, entice, or
otherwise conduct business with or for any person,
firm or company who, at any time during the employment
hereunder, was a customer (or a potential customer
that had then previously been solicited or otherwise
contacted by or on behalf of the Employer or
Affiliate) of the Employer or Affiliate and with whom
the Employee had any dealings.
10.4.3 In addition, for a period of one (1) year commencing
with the date of termination of his employment
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<PAGE> 16
hereunder pursuant to Article 5.2.4 subject to
Employer's compliance with its obligations pursuant to
Article 5.3, the Employee shall not, in the United
States or the United Kingdom, in the capacity as
stockholder, owner, partner, officer, director, agent,
contractor, promoter, consultant, employee or
otherwise, directly or indirectly, participate in the
promotion, financing, ownership, operation, management
or otherwise of any business or entity with respect to
the Restricted Business.
For the purposes of this Article 10.4.3 above,
Restricted Business means the formulating, utilizing,
distributing and/or selling of speciality chemicals
to, for or in the refining, chemical, petrochemical,
paper and pulp or food processing industries, as well
as any other business engaged in by the Employer
during the time in which the Employee is employed by
the Employer and for which such other business the
Employee shall have had dealings.
10.4.4 Nothing in this Agreement shall prevent the Employee
from holding (whether as an owner or otherwise)
passive investments in publicly quoted companies.
Nothing herein shall preclude the Employee from
rendering or selling any services or products not
included in the Restricted Business to or from any
person, even if such person was or is a customer of
Serv-Tech or the Employer.
10.5 Binding Effect
This Agreement shall be binding upon the Employee and his heirs,
executors, administrators and legal representatives and upon the
Employer and its successors and assigns.
10.6 Governing Law
The validity, construction and enforcement of this Agreement shall
be governed be the place of the Employee's employment on the date
of execution hereof.
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<PAGE> 17
10.7 Severability
If any provision of this Agreement is declared unenforceable by a
court of last resort, such declaration shall not effect the
validity of any other provision of this Agreement.
10.8 Construction
The headings contained in this Agreement are in reference purposes
only and shall not effect this Agreement in any manner whatsoever.
Whatever required by the context, any gender shall include any
other gender, the singular shall include the plural, and the
plural shall include the singular.
10.9 Time for Performance
If the time for performance of any obligation set forth in this
Agreement falls on a Saturday, Sunday or legal holiday, compliance
with such obligation on the next business day following such
Saturday, Sunday or legal holiday shall be deemed acceptable.
10.10 Multiple Counterparts: Understanding
This Agreement may be executed in multiple counterparts, each of
which shall be deemed an original but all of which shall be deemed
one instrument. The Employee acknowledges that he had read this
Agreement and understands that entering into this Agreement is a
condition of employment.
10.11 If any additional actions and documents may be required to
effectuate the expressed intent of this Agreement, the parties
herein agree to perform such action and prepare and execute any
such documents as reasonably requested by the other parties
hereto.
10.12 In the event any provision of this Agreement shall be determined
to be invalid, void or unenforceable under the appropriate law,
such provision shall be construed by changing it to the least
extent possible so as to make it valid and enforceable while at
the same time
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<PAGE> 18
maximising the observance of the intent originally manifested to
the greatest extent possible.
10.13 "Subsidiary" shall include all 50% or more, directly or
indirectly, owned or controlled entities. "Affiliates" shall
include all parents, subsidiaries or other entities which are,
directly or indirectly, 50% or more owning of, owned by or under
common ownership with the referenced entity.
10.14 This Agreement (together with these amendments) supersedes such
other contracts of employment (whether written or oral or implied
by law) which previously existed between the Employer and the
Employee.
3 PERFORMANCE BONUSES
3.1 For each Financial Year or part of a Financial Year during which
the Employee is employed by the Employer or any other company in
the Chemisolv Group and, if the Employee ceases to be so employed
prior to 31st December 2000 by reason of the termination of his
employment for a reason other than a dismissal for cause or his
death or his resignation (excluding constructive dismissal without
cause), for each Financial Year up to and including the Financial
Year ending on 31st December 2000, the Employer shall pay or cause
to be paid to the Employee a bonus (herein referred to as "the
Income Performance Bonus") which shall be calculated in accordance
with the following formula:-
B=RF x P x I x D/365
Where:
B represents the bonus payable in respect of the
relevant Financial Year
RF represents the Relevant Fraction
P shall be 20% in relation to each Financial Year
beginning 1st January 1996, and thereafter up to and
including the Financial Year ending on 31st December
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<PAGE> 19
2000 and shall be 12% for each applicable Financial Year thereafter
I represents the Income for the relevant Financial Year
less any loss for a prior Financial Year to the extent
that the same has not previously been applied in
reducing I for the purpose of calculating B for any
prior Financial Year.
D represents the number of whole days in the relevant
Financial Year during which the Employee is employed
by the Employer or any other company in the Chemiso1v
Group.
The Income Performance Bonus payable in respect of any Financial
Year shall be paid within 10 working days of the amount of such
Income Performance Bonus having been reported on or determined in
accordance with clause 4 below.
3.2 If either:-
3.2.1 the Employee shall have continued to be employed by
the Employer or any other company in the Chemisolv
Group until 31st December 2000; or
3.2.2 the Employee's employment with the Employer and the
Chemisolv Group shall have been terminated at any time
(whether prior to or after 31st December 2000) for any
reason other than as a result of his death,
resignation or a termination for Cause (as defined in
the Employment Agreement as amended by clause 2 of
this Agreement);
then with effect from the later of 1st January 2001 and the date
on which the Employee's employment by the Employer and the
Chemisolv Group shall terminate for any reason whatsoever (whether
with or without Cause) (hereinafter referred to as "the
Termination Date") Employer and Holdings shall cease to incur
additional obligations under Clause 3.1 above but instead shall
pay or cause to be paid to the Employee in respect of each
Financial Year ending after the later of the Termination Date and
1st January 2001 a bonus (herein
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<PAGE> 20
referred to as "the Revenue Performance Bonus") which shall be
calculated in accordance with the following formula:-
B = RF x 3% x (A + B + C)
Where:
B represents the Revenue Performance Bonus payable in
respect of the relevant Financial Year
RF represents the Relevant Fraction
A shall be the aggregate amount of all royalties earned
by all companies in the Chemisolv Group in respect of
the relevant Financial Year to the extent generated by
the licensing or other exploitation of the Relevant
Intellectual Property
B shall be the aggregate of all sales or revenues or
turnover of all companies in the Chemisolv group in
respect of the relevant Financial Year from the sale
of any products, chemicals or services to the extent
that such products, chemicals or services are used in
the application of any of the Relevant Intellectual
Property
C shall be the aggregate of all sales or revenues or
turnover of all companies in the Chemisolv Group in
respect of the relevant Financial Year from customers
or clients or licensees but only to the extent that
such sales revenues or turnover directly relate to or
concern the application or exploitation of any of the
Relevant Intellectual Property
PROVIDED THAT if in relation to the first Financial Year in
respect of which the Revenue Performance Bonus becomes payable the
Employee shall have been employed by any member of the Chemisolv
Group during such financial year, then for that Financial Year B
shall be multiplied by 365 - D/365 where D represents the number
of days during such first Financial Year that the Employee was
employed by a member of the Chemiso1v Group
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<PAGE> 21
The amount of revenue or turnover earned in respect of any
Financial Year shall not be counted more than once in calculating
the aggregate of A+B+C for one Financial Year and shall not be
calculated within the aggregate of A+B+C for another Financial
Year.
The sum of A+B+C shall be reduced by any commissions, royalties,
discounts, profit sharing or other payments applicable to agents,
distributors, licensors, sub-contractors, Joint Venture partners
or other such persons to the extent that they have been properly
and reasonably made for the purpose of generating the royalties
and revenues comprising A+B+C and to the extent that they have not
already been taken into account in determining the respective
amounts of A, B or C.
The Revenue Performance Bonus payable in respect of any Financial
Year shall be payable as to half of the amount thereof within 10
working days of the amount of the Revenue Performance Bonus having
been determined pursuant to clause 4 below and as to the balance
thereof on the date which occurs 6 months thereafter.
3.3 The Employee acknowledges that the amounts of the Income
Performance Bonus and the Revenue Performance Bonus and the long
term interests of the Serv-Tech Group will be influenced by the
strategies and policies of the Chemisolv Group concerning pricing,
discounts, royalties, agency fees, commissions and other material
terms and conditions to be offered and accepted by the Chemisolv
Group upon which the Relevant Intellectual Property will be
exploited (which may involve sales, licensing, sub-contracting and
other similar transactions or arrangements) and accordingly, the
Employee acknowledges both that (i) the Chemisolv Group shall be
required to comply with written strategies and policies
(concerning the terms and conditions of sales, pricing, discounts,
royalties, agency fees, licensing, commissions, subcontracting,
joint ventures and other such arrangements and undertakings) as
reasonably agreed from time to time by the Chemisolv Group and the
Chief Financial Officer of the Serv-Tech Group or his designee,
and (ii) all material undertakings, contracts and other
obligations of the Chemisolv Group ("material" in relation to any
undertaking, contract or obligation being one involving the
payment to or from
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<PAGE> 22
the Chemisolv Group of aggregate sums in excess of $500,000) shall
be subject to the prior written approval of the Chief Financial
Officer of the Serv-Tech Group or his designee, provided that such
approval shall not be unreasonably withheld or delayed and in
determining what is reasonable or unreasonable due regard shall be
given to prudent business practice and the fiduciary duty which
Serv-Tech owes to its shareholders.
3.4 If the amount of any Income Performance Bonus or Revenue
Performance Bonus payable in respect of any Financial Year by
Holdings is not allowed by either the Inland Revenue, the Internal
Revenue Service or other relevant tax agencies as a deduction for
the purposes of US income tax, UK corporation tax or similar taxes
of other tax jurisdictions (the relevant amount not so allowed
being hereinafter referred to as "the Relevant Amount") then if
the direct effect thereof is that any member of the Chemisolv
Group becomes liable to pay tax in excess of the amount which
would otherwise have been paid had the Relevant Amount been so
allowed as aforesaid (which excess tax shall be reported on or
determined in accordance with clause 4 and is hereinafter referred
to as "the Excess Tax") the amount of the relevant Income
Performance Bonus or Revenue Performance Bonus (as the case may
be) shall be reduced by an amount equal to half of the amount of
the Excess Tax or to the extent that such performance bonus has
already been paid the Employee shall repay to Holdings an amount
equal to half of the amount of the Excess Tax (and Holdings shall
account for such amount received to such member or members of the
Chemisolv Group as may be appropriate). If in relation to any
Financial Year there is any Excess Tax the amount thereof shall be
as reported by Chemisolv's Accountants or as otherwise determined
pursuant to Clause 4 below.
3.5 The payments in clause 3.1 and 3.2 shall cease in any event after
the Financial Year ended 31st December 2015.
4 CHEMISOLV'S ACCOUNTS
4.1 For the purpose of determining the Income Performance Bonus and
the Revenue Performance Bonus payable to the Employee in respect
of any Financial Year the Chemisolv Accounts shall for each
financial year
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<PAGE> 23
up to and including the financial year ending on 31st December
2015 be prepared:-
4.1.1 in accordance with the requirements of all relevant
statutes and generally accepted accounting principles
applicable in the USA;
4.1.2 so as to show a true and fair view of the consolidated
income on ordinary activities before taxation (and the
royalties and revenues referred to in clause 3.2 above
of Holdings and its subsidiaries (including the
Employer) for such Financial Year ("the Consolidated
Income" or "royalties" and "revenues");
4.1.3 on a basis consistent with the accounting policies
applied in the preparation of all previous accounts.
4.2 The Income for each Financial Year shall be calculated by making
the following adjustments to the Consolidated Income (to the
extent not already taken into account in the preparation of the
Chemisolv Accounts);
4.2.1 there shall be added back any provision or charge made
in respect of any taxation calculated by reference to
the income, profits or gains of Holdings and its
subsidiaries in respect of such Financial Year but
only to the extent that the same is reflected in the
Chemisolv Accounts before arriving at the Consolidated
Income;
4.2.2 there shall be added back excess depreciation arising
on the upward revaluation of any fixed assets (for the
avoidance of doubt including the Relevant Intellectual
Property) but only to the extent that the same is
reflected in the Chemisolv Accounts before arriving at
the Consolidated Income;
4.2.3 there shall be added back any charge or provision made
for any dividends declared paid or made in or in
respect of such Financial Year to any member of the
Serv-Tech
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<PAGE> 24
Group but only to the extent that any such charge or
provision is reflected in the Chemisolv Accounts
before arriving at the Consolidated Income;
4.2.4 there shall be charged or provided for all normal
working or management expenses and outgoings incurred
in connection with the business of Holdings and its
subsidiaries including salaries, pensions and other
remuneration but excluding and after adding back the
amount of any Income Performance Bonus or Revenue
Performance Bonus payable either to the Employee or to
any of the other Performance Awarded Employees;
4.2.5 there shall be deducted all out-of-pocket expenses
properly incurred by any Member of the Serv-Tech Group
on behalf of any member of the Chemiso1v Group (such
as legal fees for outside counsel) to the extent that
the same are not already charged in the Chemisolv
Accounts.
4.2.6 there shall be added back an amount equal to the
aggregate of any management or service charges (eg.
corporate charge) payable or paid by any European
Member to Serv-Tech or to any other member of the
Serv-Tech Group which is charged or provided for in
the Chemisolv Accounts other than out-of-pocket
expenses properly incurred on behalf of European
Members, such as legal fees for outside counsel;
4.2.7 there shall be added back an amount equal to the
aggregate of any management or service charges (eg.
corporate charge) payable or paid by any Non-European
Member to Serv-Tech or to any other Member of the
Serv-Tech Group which is charged or provided for in
the Chemisolv Accounts to the extent that such
charges:-
(a) in relation to the Financial Year ending 31st
December 1996 exceed 5% of the gross revenue of
the Non-European Members for such financial
year;
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<PAGE> 25
(b) in relation to all subsequent Financial Years,
exceed the cost of the services, facilities or
other support actually provided as reasonably
allocated to the Non-European Members
4.2.8 after adding back any payment included in the
financial statements in relation to income tax
(including payment for group relief), dividends or
transfers to balance sheet reserves for income tax or
dividends but in each case only to the extent that
these are charged against profit before income tax in
the Chemisolv Accounts.
4.2.9 there shall be added/(deducted) thereto an amount
equal to the amount by which the full arms-length
market value of any goods or services supplied or
provided by any member of the Chemisolv Group to any
member of the Serv- Tech Group in the relevant
Financial Year exceeds/(is less than) the actual value
of any consideration received by any such member of
the Chemisolv Group for any such goods and services so
supplied or provided;
4.2.10 there shall be added back an amount equal to the
aggregate of all interest paid or payable by any
member of the Chemisolv Group to any member of the
Serv-Tech Group in respect of loans made by any member
of the Serv-Tech Group which is charged or provided
for in the Chemisolv Accounts to the extent that such
interest exceeds the interest which Serv-Tech would
have had to pay to its bankers on the amounts of such
loans had it borrowed equivalent amounts from its
bankers;
4.2.11 there shall be added thereto an amount equal to the
amount by which the amount of all interest earned by
all members of the Chemisolv Group on all monies
loaned by them or any of them to any member of the
Serv-Tech Group during the relevant Financial Year is
less than the amount of interest which such members of
the Chemisolv Group would have earned had such monies
been loaned at full commercial rates of interest on
arms-length terms.
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<PAGE> 26
4.2.12 if any member of the Serv-Tech Group has injected or
infused capital into any member whether by way of cash
or assets (the value thereof being hereinafter
referred to as "the Capital Amount") there shall be
deducted a sum in respect of interest on such part of
the Capital Amount as has not been repaid to the
relevant member of the Serv-Tech Group at the rate of
interest equal to the lowest annual rate of interest
at which Serv-Tech borrows or could borrow money from
its bankers.
4.2.13 there shall be deducted on an allocated basis the
effect on income of sales of LifeGuard (and its
improvements) and related products, services, licenses
or royalties to or by the Serv-Tech Group.
4.3 Holdings and Serv-Tech shall (at the joint and equal expense of
Holdings and Serv-Tech) procure that Chemisolv's Accountants shall
report in writing in substantially the form of the report set out
in the Schedule hereto in respect of each Financial Year the
amount of the Income, the Income Performance Bonus, the Revenue
Performance Bonus, and the Excess Tax (as defined in clause 3.4
above if any) for the relevant Financial Year as soon as
reasonably practicable following the production of the Chemisolv
Accounts for the relevant Financial Year and in any event (except
for Excess Tax) by no later than 30th June in the following
Financial Year. A copy of such report together with all working
papers and any accompanying explanations reasonably necessary to
understand the basis on which the Income, the Income Performance
Bonus, the Revenue Performance Bonus and the Excess tax (as
defined in clause 3.4 above if any) in respect of each Financial
Year have been computed shall be forwarded by Holdings to the
Employee forthwith upon the same being produced by Chemisolv's
Accountants. In reporting on the amount of the Income, the Income
Performance Bonus, the Revenue Performance Bonus and the Excess
Tax (as defined in clause 3.4 above if any) in respect of each
Financial Year Chemisolv's Accountants shall act as experts and
not as arbitrators and their report as to the amount of the
Income, the Income Performance Bonus, the Revenue Performance
Bonus and the Excess Tax (as defined in clause 3.4 above if any)
in respect of each Financial Year shall in the absence of fraud or
manifest error be
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<PAGE> 27
final and binding upon Holdings, the Employer Serv-Tech and the
Employee.
4.4 The Employee shall be entitled at any time in the period of twenty
eight days following receipt by them of any report referred to in
Clause 4.3 and any accompanying working papers and explanations to
dispute the amount of the Income, the Income Performance Bonus,
the Revenue Performance Bonus and the Excess Tax (as defined in
clause 3.4 above if any) for the relevant Financial Year disclosed
therein by notice in writing to Holdings. Any such notice shall
set out in reasonable detail the grounds for dispute and any
suggested adjustment and if either no such notice is given by the
Employee or within a period of twenty one days following such
notice the Employee and Holdings shall agree the amount of the
Income, the Income Performance Bonus, the Revenue Performance
Bonus and the Excess Tax (as defined in clause 3.4 above if any)
for the relevant Financial Year as set out in the said report or
any amended amounts then the amount of the Income, the Income
Performance Bonus, the Revenue Performance Bonus and the Excess
Tax (as defined in clause 3.4 above if any) for the relevant
Financial Year as set out in the original report or any amended
amounts subsequently agreed shall be final and binding on the
parties hereto except for matters involving fraud or manifest
error.
4.5 If the Employee shall have given notice of dispute pursuant to
Clause 4.4 but no agreement shall be reached within the period of
twenty one days following as to the amount of any of the Income,
the Income Performance Bonus, the Revenue Performance Bonus and
the Excess Tax (as defined in clause 3.4 above if any) for the
relevant Financial Year then such dispute shall be promptly
referred to an independent firm of Certified Public Accountants
appointed by agreement between Holdings and the Employee or in
default of agreement nominated at the request of either of them by
the President for the time being of the American Institute of
Certified Public Accountants. The determination of such firm of
Certified Public Accountants who shall act as experts and not as
arbitrators as to the amount of the Income, the Income Performance
Bonus, the Revenue Performance Bonus and the Excess Tax (as
defined in clause 3.4 above if any) (as the case may be) for the
relevant Financial Year shall be final and binding upon the
parties hereto except for
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<PAGE> 28
matters involving fraud or manifest error. Such firm of Certified
Public Accountants shall be entitled to call for and inspect the
working papers of Chemisolv's Accountants or of Holdings or of the
Employee and such other documents as they consider reasonably
necessary and the parties hereto will promptly supply any such
working papers or other documents in their possession or under
their control.
4.6 In the event of any sale or assignment of any Relevant
Intellectual Property asset of Chemisolv Group, the sale or
assignment price shall be excluded from the Income Performance
Bonus calculation and the Revenue Performance Bonus calculation
unless the provisions of clause 5.4.1 have not been complied with
in full.
5 SERV-TECH'S COVENANTS
Serv-Tech hereby covenants with and undertakes to the Employee that
during each Financial Year so far as it is able in all cases and subject
in all cases to conformity with Serv-Tech's fiduciary duty to its
shareholders and conformity with prudent business practice, Serv-Tech
shall not do and it shall procure that no member of the Chemisolv Group
or the Serv-Tech Group shall do anything the commission of which will or
may materially and adversely affect the profitability or revenues of the
Chemisolv Group or any member thereof and in particular but without
prejudice to the generality of the foregoing Serv-Tech shall in all cases
so far as it is able and subject to all cases to conformity with
Serv-Tech's fiduciary duty to the shareholders and conformity with
prudent business practice procure that:-
5.1 the employment of any of the Performance Awarded Employees shall
not be terminated otherwise than pursuant to the provisions of his
employment agreement provided that in the event of a breach of
this clause 5.1 then in assessing damages for breach of this
Agreement no regard shall be had to any salary entitlement of any
Performance Awarded Employee or with respect to any resulting
transfer from Income Performance Bonus to Revenue Performance
Bonus which may occur as a result of such termination;
5.2 Holdings shall not pursue a dividend policy which would reasonably
be considered to impede the growth of the revenue and income of
the
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Chemisolv Group or which would leave any member of the Chemisolv
Group with a shortage of necessary working capital;
5.3 save with the prior written agreement of the Employee no
management charges or other similar charges will be levied on any
member of the Chemisolv Group by Serv-Tech or by any other member
of the Serv-Tech Group save in relation to the Financial Year
ending 31st December 1996 for charges not exceeding 5% of the
gross revenues of the Non-European Members for such Financial Year
and save in relation to all subsequent Financial Year for charges
not exceeding the cost of services, facilities or other support
actually provided and as reasonably allocated to the Non-European
Members. However, Serv-Tech may charge the Chemisolv Group for any
out-of-pocket expenses properly incurred on their (the Chemisolv
Group) account (e.g. legal fees for outside counsel);
5.4 no member of the Chemisolv Group shall (save with the prior
written consent of the Employee);-
5.4.1 prior to 1st January 2016, sell transfer assign or
otherwise dispose of a material part of its assets or
undertaking or any Relevant Intellectual Property (or
interest therein) or contract so to do or dispose of
any subsidiary or any of the shares in any subsidiary
(and Serv-Tech shall not without such consent as
aforesaid dispose of Holdings or any interest or
shares in Holdings) provided in all cases that the
required consent of the Employee shall not be
unreasonably withheld and for the avoidance of doubt
such consent shall be deemed to be given unless
written notice refusing to give consent and setting
forth the reasons for such refusal is given within 30
days of such consent having been requested in writing
and provided that any withholding of such consent
shall only be reasonable if the Employee is reasonably
of the opinion that any right or prospective right of
his to receive or any prospect of him receiving any
Income Performance Bonus or any Revenue Performance
Bonus may be prejudiced or adversely affected and
shall not in any event be reasonable if both:-
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<PAGE> 30
(a) the proposed Purchaser transferee or assignee of
the relevant assets, undertaking, Relevant
Intellectual Property, subsidiary or shares as
aforesaid ("the Relevant Assets") shall have
agreed in writing that it will assume and honour
all obligations of the Employer and Holdings and
Serv-Tech under this Agreement (including the
obligations under clauses 4 and 5 hereof and the
obligations to pay the Income Performance Bonus
or Royalty Performance Bonus payable under this
Agreement) but only to the extent that such
obligations relate to or derive from the
Relevant Assets and that with regard to the
Relevant Assets it will in all material respects
provide the Employee with substantially the same
contractual rights and arrangements concerning
the calculation and payment of the Income
Performance Bonus or Royalty Performance Bonus
(as the case may be)as those provided for by the
provisions of this Agreement; and
(b) the proposed Purchaser transferee or assignee is
of the same or greater financial strength then
Serv-Tech having regard to their respective
shareholders' equity (assets less liabilities),
and liquidity.
5.4.2 not acquire any material assets or any new business or
undertaking or any shares unless the acquisition has
been approved by the Majority of the Performance
Awarded Employees (if any);
5.4.3 be prevented or restricted from being able to use the
name Chemisolv and the goodwill of the business
hitherto carried on under that name;
5.4.4 unless approved by the Majority of the Performance
Awarded Employees (if any) borrow any amount in excess
of the amount required to meet its working capital
requirements from time to time for the avoidance of
doubt excluding any borrowings for any member of the
Serv-Tech Group relating to the acquisition of any
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<PAGE> 31
capital asset the acquisition of which has been
approved by a Majority of the Performance Related
Employees if any and without prejudice of the
Serv-Tech Group's entitlement to make the charge
referred to in clause 4.2.12 above;
5.4.5 unless approved by a Majority of the Performance
Awarded employees create any charge lien (other than a
lien arising by operation of law) or other encumbrance
over the whole or any part of its undertaking
property, assets or Relevant Intellectual Property
except for the purpose of securing its indebtedness to
its bankers or sureties for sums borrowed or bonds
provided in the ordinary and proper course of its
business;
5.4.6 (save in the ordinary course of business) and unless
approved by a Majority of the Performance Awarded
Employees make any loan or advance or give any credit
(other than normal trade credit) as principal except
for the purpose of making deposits with bankers;
5.4.7 (save in the ordinary course of business) and unless
by a Majority of the Performance Awarded Employees
take or agree to take any freehold or leasehold
interest (except normal office and operations space)
in or any licence over any land;
5.4.8 commence any action for winding up or dissolution;
5.4.9 change its accounting reference date or change the
accounting policies normally adopted by it save as may
be required or allowed from time to time to comply
with legal requirements, statements of standard
accounting practice, UK GAAP or US GAAP as applicable.
5.5 if Serv-Tech or any subsidiary or holding company of Serv-Tech
other than a member of the Chemisolv Group proposes to acquire any
company or business any part of which competes or may reasonably
be considered to compete either directly or indirectly with any
Relevant Business for the time being carried on by Holdings or any
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<PAGE> 32
member of the Chemisolv Group a Majority of the Performance
Awarded Employees shall be given a reasonable opportunity to
evaluate such company or business and if they so require such part
of such company or business as so competes shall be acquired by a
member of the Chemisolv Group rather than by Serv-Tech or any
other member of the Serv-Tech Group;
5.6 Serv-Tech will provide and Holdings shall provide the Employee
with copies of all audited annual financial statement of Holdings
and its subsidiaries included in Serv-Tech's annual audit and
unaudited quarterly financial statements of Holdings and its
subsidiaries within seven days of the same being available and, as
soon as practicable and in any event within 35 business days after
the end of each calendar month, management accounts of Holdings
and each of its subsidiaries for that month and, from time to
time, with such financial and other information as the Employee
may reasonably in writing require. Employee shall keep all such
information confidential and shall not use or disclose it except
to the extent required for the enforcement of his rights
hereunder;
5.7 Serv-Tech shall not and no member of the Serv-Tech Group shall
divert away from Holdings or any other member of the Chemisolv
Group any existing business or any new or prospective business of
a kind which comprises any of the Relevant Business and which
Holdings or any such member is willing and able to perform;
5.8 any expansion, development or evolution by Serv-Tech or Holdings
of the Relevant Business will only be effected through Holdings or
a wholly owned subsidiary of Holdings;
5.9 Holdings and each of its subsidiaries shall carry on and conduct
its business and affairs in a proper and efficient manner and for
its own benefit and that each of Holdings and its subsidiaries
shall transact all its business on arm's length terms and for full
consideration;
5.10 each of Holdings and its subsidiaries shall not enter into any
agreement or agreements restricting its competitive freedom to
carry on the Relevant Business by such means and from and to such
persons as, it may think fit other than for the purpose of
-31-
<PAGE> 33
exploiting the Relevant Intellectual Property in the ordinary
course of business;
5.11 the routine day to day management of each of Holdings and its
subsidiaries and the routine day to day business of each of
Holdings and its subsidiaries shall be undertaken and transacted
by such of the Performance Awarded Employees who for the time
being are employed by any member of the Chemisolv Group;
5.12 Serv-Tech shall use all reasonable and proper means in its power
to maintain, improve and extend the Relevant Business carried on
by Holdings and its subsidiaries and to further the reputation and
interests of the Holdings and its subsidiaries in relation to the
Relevant Business including the provision of appropriate capital
and working capital by loan or otherwise.
Serv-Tech acknowledges that the restrictions contained in this Clause 5
are reasonable and necessary to assure to the Employee the full value and
benefit of their right to receive the Income Performance Bonus and the
Revenue Performance Bonus in accordance with the provisions of Clauses 3
and 4.
6 GUARANTEE AND INDEMNITY
6.1 In consideration of the Employee entering into this Agreement
Serv-Tech hereby unconditionally and irrevocably guarantees to
the Employee the due and punctual performance and observance by
each of Holdings and the Employer of all its obligations,
commitments, undertakings, warranties, indemnities and covenants
under or pursuant to this Agreement and agrees to indemnify the
Employee against all losses, damages, costs and expenses
(including legal costs and expenses) (together with any VAT
thereon) which the Employee may suffer through or arising from any
breach by either the Employer or Holdings of such obligations,
commitments, warranties, undertakings, indemnities or covenants.
The liability of Serv-Tech as aforesaid shall not be released or
diminished by any arrangements or alterations of terms (whether of
this Agreement or otherwise) or any forbearance, neglect or delay
in seeking performance of the obligations hereby imposed or any
granting of time for such performance.
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<PAGE> 34
6.2 If and whenever either Holdings or the Employer defaults for any
reason whatsoever in the performance of any obligation or
liability undertaken or expressed to be undertaken by it under or
pursuant to this Agreement, Serv-Tech shall forthwith upon demand
unconditionally perform (or procure performance of) and satisfy
(or procure the satisfaction of) the obligation or liability in
regard to which such default has been made in the manner
prescribed by this Agreement and so that the same benefits shall
be conferred on the Employee as they would have received if such
obligation or liability had been duly performed and satisfied by
either Holdings or the Employer (as the case may be). Serv-Tech
hereby waives any rights which it may have to require the Employee
to proceed first against or claim payment from either Holdings or
the Employer (as the case may be) to the intent that as between
the Employee and Serv-Tech the latter shall be liable as if it
were primarily liable and as if it had entered into all
undertakings, agreements and other obligations jointly and
severally with the Employee.
6.3 This guarantee and indemnity is to be a continuing guarantee and
indemnity to the Employee for all obligations, commitments,
warranties, undertakings, indemnities and covenants on the part of
Holdings and the Employer under or pursuant to this Agreement
notwithstanding any settlement of account or other matter or thing
whatsoever.
6.4 This guarantee and indemnity is in addition to and without
prejudice to and not in substitution for any rights or security
which the Employee may now or hereafter have or hold for the
performance and observance of the obligations, commitments,
undertakings, covenants, indemnities and warranties of Holdings
and the Employer under or in connection with this Agreement.
6.5 In the event of Serv-Tech having taken or taking any security from
either Holdings or the Employer in connection with this guarantee
and indemnity, Serv-Tech hereby undertakes to hold the same in
trust for the Employee pending discharge in full of all
Serv-Tech's obligations under this Agreement. Serv-Tech shall not,
after any claim has been made pursuant to this Clause 6, claim
from either Holdings or the Employer any sum which may be owing to
it from either Holdings or the Employer or having the benefit of
any
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<PAGE> 35
set-off or counterclaim or proof against or dividend, composition
or payment by either Holdings or the Employer until all sums due
and owing to the Employee in respect hereof shall have been paid
in full.
6.6 As a separate and independent stipulation, Serv-Tech agrees that
any obligation expressed to be undertaken by either Holdings or
the Employer under this Agreement (including, without limitation,
any monies expressed to be payable under this Agreement) which may
not be enforceable against or recoverable from either Holdings or
the Employer by reason of its dissolution, any legal limitation,
disability or incapacity or any other fact or circumstance shall
nevertheless be enforceable against or recoverable from Serv-Tech
as though the same had been incurred by Serv-Tech and Serv-Tech
were primarily liable in respect thereof and shall be performed or
paid by Serv-Tech on demand.
6.7 The foregoing guarantees and indemnities of Serv-Tech as well as
its other obligations in this Agreement, shall cease solely in
relation to any obligation of Holdings or the Employer which is
assumed by a purchaser, transferee or assignee in the
circumstances referred to in clause 5.4.1 above provided always
that the provisions of clause 5.4.1 have been fully complied with.
7 COUNTERPARTS
This Agreement may be executed in any number of counterparts each of
which when executed by one or more of the parties hereto shall constitute
an original but all of which shall constitute one and the same
instrument.
8 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
English Law and the parties hereby submit for all purposes in connection
with this agreement to the exclusive jurisdiction of the English Courts.
9 NOTICES
Any notice to be given pursuant to the terms of this Agreement must be
gIven in writing to the party due to receive such notice at his or its
address set out in this Agreement or such other address as may have been
notified for the purpose to the other parties in accordance with this
-34-
<PAGE> 36
clause. Notice shall be delivered personally or sent by first class
pre-paid recorded delivery or registered post (air mail if overseas) or
by facsimile transmission and shall be deemed to be given in the case of
delivery on delivery and in the case of posting (in the absence of
evidence of earlier receipt) within 48 hours after posting (6 days if
sent by air mail) and in the case of facsimile transmission on completion
of the transmission.
10 DEDUCTION OF TAX
If the Employer, Holdings or Serv-Tech is so required by law it shall
deduct tax from any amount payable by it hereunder and shall deliver to
the Employee in respect of the amount so paid by it, a certificate as to
the gross amount so paid by it, a certificate as to the gross amount of
such payment amount of tax deducted and the actual amount paid or to be
paid and certifying that it has paid or will pay the amount of tax
deducted to the Inland Revenue, Internal Revenue Service or other
appropriate taxing authority.
11 INVALIDITY
The invalidity illegality or unenforceability of any provision of this
Agreement shall not affect the continuation in force of the remainder of
this Agreement.
12 VARIATION
No variation of this Agreement or any of the documents in the Agreed Form
shall be valid unless it is in writing and signed by or on behalf of each
of the parties hereto.
AS WITNESSED THE PARTIES OR THEIR DULY AUTHORISED REPRESENTATIVES HAVE EXECUTED
THIS AGREEMENT AS A DEED AND DELIVERED THE SAME THE DAY AND YEAR FIRST ABOVE
WRITTEN
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<PAGE> 37
SCHEDULE
FORM OF REPORT TO BE GIVEN
BY CHEMISOLV'S ACCOUNTANTS
PURSUANT TO CLAUSE 4.3
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
A Company Inc:
We have audited the accompanying balance sheets of Chemisolv Holdings, Inc. and
subsidiaries as of December 31, 1996, and the related statements of earnings,
retained earnings, cash flows 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 audits.
We conducted our audits in accordance with accepted auditing standards. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Chemisolv Holdings, Inc. and
subsidiaries, as of December 31, 1996, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information attached
in Schedule 1 related to the calculation of Employment Performance Bonuses is
presented for purposes of additional analysis and is not a required part of the
basic financial statements. Such information has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
SIGNED KPMG PEAT MARWICK L.L.P
FEBRUARY 2, 1997
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<PAGE> 38
SCHEDULE 1
REPORT AS TO INCOME PERFORMANCE BONUSES/
REVENUE PERFORMANCE BONUSES FOR THE PURPOSES OF
CLAUSE 4.3 OF THE AGREEMENT DATED [ ] 1995
BETWEEN (1) CHEMISOLV LIMITED (2) CHEMISOLV HOLDINGS INC
(3) SERV-TECH INC AND (4) [RJ DAVIES][DM OWEN][CC ARMITAGE][JR DUFFY]
("The Agreement")
(All expressions used in this Schedule shall have the meanings ascribed to them
in the Agreement).
Calculation of Income Performance Bonuses/Revenue Performance Bonuses in
relation to the Agreement in respect of year ending [ ].
The Income Performance Bonuses/Revenue Performance Bonuses for the year ended
31st December [ ] have been calculated as follows:
Pre-tax profits per Chemisolv Holdings Inc.
audited accounts attached L.
Adjustments required pursuant to the
Agreement:-
Clause 4.2.1 L.
Clause 4.2.2 L.
etc L.
------
L.
Less losses not previously taken into account
in accordance with the agreement L.
------
Income to be applied in Income Performance Bonus
formula L.
======
Profit percentage for the year ending 31st December [ ] 20/12%
Accordingly the Income Performance Bonuses/Revenue Performance Bonuses due to
Messrs Davies, Owen, Armitage, Duffy, etc pursuant to Clause [ ] of the
Agreement in respect of the Financial Year ended [ ] are as follows:-
Relevant Bonus
Percentage
RJ Davies
DM Owen
CC Armitage
JR Duffy
etc
(Suitably modified with reference to royalties/sales, etc, in the case of
Revenue Performance bonus payable under Clause 3.2).
-37-
<PAGE> 39
<TABLE>
<S> <C>
EXECUTED (but not delivered )
until the date hereof) as a )
Deed by CHEMISOLV LIMITED )
acting by Ralph J. Daniels ) Director /s/ RALPH J. DANIELS
Clement C. Armitage ) Director /s/ CLEMENT C. ARMITAGE
EXECUTED (but not delivered )
until the date hereof) as a )
Deed by CHEMISOLV HOLDINGS INC )
acting by ) Direcotr /s/ [ILLEGIBLE]
) Direcotr /s/ [ILLEGIBLE]
EXECUTED (but not delivered )
until the date hereof) as a )
Deed by SERV-TECH INC )
acting by ) Director /s/ MICHAEL T. WILLARD
) Director /s/ MICHAEL T. WILLARD
SIGNED (but not delivered )
until the date hereof) as a )
Deed by the said )
CLEMENT CYRIL ARMITAGE ) /s/ CLEMENT CYRIL ARMITAGE
in the presence of )
Signature of Witness [ILLEGIBLE]
Name [ILLEGIBLE]
Address ABACUS COURT MARSHALL STREET
MANCHESTER
OCCUPATION ACCOUNTANT
</TABLE>
-38-
<PAGE> 1
EXHIBIT 10.39
DATED DECEMBER 31, 1995
(1) CHEMISOLV HOLDINGS INC.
AND
(2) CHEMISOLV LIMITED
AND
(3) SERV-TECH INC.
AND
(4) R J DAVIES, D M OWEN, C C ARMITAGE,
J R DUFFY, W H CORBETT, C BENNETT
AND K MACKINTOSH
AND
(5) LASERDISK LIMITED
OPTION ASSIGNMENT AGREEMENT
ALSOP WILKINSON
INDIA BUILDINGS
LIVERPOOL L2 ONH
REI: MJP/PH/AG-5312.117
<PAGE> 2
THIS OPTION ASSIGNMENT AGREEMENT made on December 31, 1995
BETWEEN:
(1) CHEMISOLV HOLDINGS INC. ("Chemisolv")
(2) CHEMISOLV LIMITED ("Limited")
(3) SERV-TECH INC. ("Serv-Tech")
(4) RALPH J DAVIES ("Davies"), DAVID M OWEN ("Owen"), CLEMENT C ARMITAGE
("Armitage"), JAMES R DUFFY ("Duffy"), W HARRY CORBETT ("Corbett"),
CHRISTOPHER BENNETT ("Bennett") and KENNETH MACKINSTOSH ("Mackintosh")
(each of such individuals being hereinafter referred to individually as
"Option Holder" as collectively referred to as "Option Holders")
(5) LASERDISK LIMITED ("Newco")
DO HEREBY AGREE as follows in consideration for the following provisions and
other good and valuable consideration, the receipt, adequacy and sufficiency of
all of which are hereby acknowledged by the parties, including, without
limitation, L.1 hereby paid by Serv-Tech as agent for Chemisolv to DOTSPEC and
to each of the Option Holders and the following provisions:-
1 The Option Holders hereby assign to DOTSPEC Limited, a British private
company limited by shares ("DOTSPEC"), and DOTSPEC, hereby assumes all of
the interests of Option Holders in the Option Agreement ("Option
Agreement") dated 4th November 1994, by and between Chemisolv limited and
Option Holders (other than Bennett and Mackintosh) except that (a) the
option exercise price in Article 3 shall be amended to be L.1, (b) the
option exercise period in Article 2.3 shall be amended to be limited to
any time within twenty (20) days of the date of this Agreement, and (c)
this option shall only be exercised by written notice from DOTSPEC to the
Prescient of Serv-Tech, Inc. as agent for Chemisolv and received by him
during such twenty (20) day period referenced in (b) above and indicating
that DOTSPEC exercises the said option and tendering (at anytime
thereafter) L.1 to Serv-Tech as agent for Chemisolv.
The above referenced Option Agreement is, subject to the amendments
referred to above, incorporated herein by reference.
-1-
<PAGE> 3
Each of Chemisolv and Limited consents to the assignment hereby effected.
The parties agree that there shall be no further assignment of the Option
Agreement or the rights therein or in this Article 1 without Serv-Tech,
Inc.'s prior written consent.
2 The Option Holders hereby grant to Chemisolv the option ("the Chemisolv
Option") to purchase all (100%) of the issued shares in the capital of
DOTSPEC ("the Shares") (which definition shall be deemed in all cases to
include one hundred per cent (100%) of the issued shares in the capital
of DOTSPEC) for the consideration described below.
The consideration payable for the Shares ("the Consideration") upon
exercise of the Chemisolv Option shall be:-
(a) the payment to the Option Holders of the sum of E700 (which shall
be apportioned between them in the following proportions:-
<TABLE>
<S> <C> <C>
Davies - 13/70
Owen - 13/70
Armitage - 13/70
Duffy - 13/70
Corbett - 6/70
Bennett - 6/70
Mackintosh - 6/70
</TABLE>
(the "Relevant Fractions")); and
(b) the issue to the Option Holders of Loan Notes (in the form of that
set out in Exhibit B) for each of the calendar years 2001 to 2015
-2-
<PAGE> 4
inclusive ("the Loan Notes") it being agreed that the fractions to
be inserted in the Loan Notes to be issued to each of the Option
Holders respectively shall be the Relevant Fractions set opposite
their names above.
In this regard, the Option Holders represent and warrant that they own
all of the Shares, that such Shares constitute all of the issued shares
in the capital of DOTSPEC, that they are free and clear of any liens,
encumbrances or restrictions of any nature (except for these rights under
the Chemisolv Option), and that they shall continue to own all of the
Shares free and clear of any liens, encumbrances or restrictions of any
nature (except for these rights under the Chemisolv Option) from this
date until the later of the end of this Chemisolv Option exercise period
or the transfer of ownership of the Shares to Chemisolv pursuant to this
Agreement following the exercise of the Chemisolv Option. The Option
Holders hereby appoint Alsop Wilkinson as their agent for the purpose of
receiving on their behalf the Consideration and any notice exercising the
Chemisolv Option. The period during which the Chemisolv Option may be
exercised shall be the period of thirty (30) days from the third day
following the date of this Agreement and shall be exercised by Serv-Tech
(on behalf of and agent for Chemisolv) delivering to Alsop Wilkinson (on
behalf of and as agent of the Option Holders) within such thirty (30) day
period the following: (a) written notice exercising the Chemisolv Option;
(b) the sum of E700; (c) the Loan Notes duly executed by Chemisolv and by
Serv-Tech as guarantor (which items are hereinafter referred to as the
"Closing Items"). Upon Alsop Wilkinson's receipt of the Closing Items,
the Option Holders shall transfer the Shares to Serv-Tech as agent for
Chemisolv and shall procure the delivery by Alsop Wilkinson to Serv-Tech
as agent for Chemisolv of stock transfer forms for the Shares in favour
of Chemisolv duly executed by the Option Holders together with the share
certificates in respect of the Shares. In order to partially secure the
obligations of Option Holders in this regard, upon execution of this
Agreement, Option Holders shall deliver to Alsop Wilkinson (in care of
Michael Prince) to hold pending the receipt by them of the Closing Items
such stock transfer forms duly executed and the share certificates, in
both cases representing the Shares. Upon receipt of the Closing Items by
Alsop Wilkinson, the duly
-3-
<PAGE> 5
executed stock transfer forms and share certificates shall be held by
Alsop Wilkinson in trust for Chemisolv and Alsop Wilkinson shall deal
with such items as requested in writing by the President of Serv-Tech as
agent for Chemisolv.
The Option Holders hereby also represent and warrant that the facts
stated herein and as represented in Exhibit A and incorporated herein by
reference are true and correct as of the execution hereof and, that such
facts remain true and correct from this date continuously through the
later of the end of this option exercise period or the transfer of
ownership of the Shares to Chemisolv.
Option Holders and DOTSPEC also agree, represent and warrant that no
additional shares in the capital stock of DOTSPEC shall be issued after
the execution of this Agreement, subscribed for issue, or the subject of
any option (except for this Chemisolv Option), warrant or other
commitment or undertaking to issue (except for any new shares to the
Option Holders all of which shares shall be transferred to Chemisolv
hereunder). The Option Holders agree, represent and warrant that any such
new shares in DOTSPEC being issued to Option Holders shall be considered
included among the Shares which are subject to this Chemisolv Option, and
in all events this Chemisolv Option shall at the time of exercise result
in a transfer of all of the then issued shares in the capital of DOTSPEC
to Serv-Tech as agent for Chemiso1v and that there shall be no stock
subscription, option (other than this Chemisolv Option), warrant or other
commitment or undertaking involving then current or future capital stock
of DOTSPEC.
In any event, the representations and warranties of the Option Holders
shall survive any exercise of the Chemisolv Option, transfer of ownership
of the Shares to Chemiso1v and/or the expiration of the exercise period
but save in the case of fraud no claim shall be made thereunder at any
time after the expiry of two years from the date of transfer of the
Shares to Chemisolv.
3 Each Option Holder represents and warrants that he has not transferred,
encumbered, restricted, assigned nor disposed any of his Option
-4-
<PAGE> 6
Agreement rights or contracted to do so prior to the execution hereof,
nor will he do either in the future, and that he is not restricted from
entering into this Agreement and that this Agreement is legally valid and
binding on him. DOTSPEC hereby represents and warrants that it shall not,
without Serv-Tech, Inc.'s prior written consent, assign or attempt to
assign its option rights assumed herein, and DOTSPEC shall not, and the
Option Holders agree that they shall not, and that they shall cause
DOTSPEC to not, prior to the later of the expiration of Chemisolv's
option rights or the transfer of the Shares to Chemisolv pursuant to
Chemisolv's Option, transfer, encumber or otherwise dispose of any of the
Shares or DOTSPEC's operations, business, assets or rights, including,
without limitation, its option rights, or contract to do so, or undertake
any debts, liabilities, obligations or duties except as indicated herein
or as necessary to exercise its option under the Option Agreement or to
preserve its corporate existence and good standing status and then in the
case of such preservation only after written notification thereof to, and
prior written approval by, the President of Serv-Tech, Inc. Similarly,
Chemisolv agrees that it shall not assign the Chemisolv Option except
with the prior written consent of the Option Holders and Serv-Tech.
4 If additional actions and documents are required to effectuate the
expressed intent of this Agreement, the parties hereto agree to perform
such action and prepare and execute such documents as reasonably
requested by any of the other parties hereto.
5 The Option Holders' representations, warranties, agreements and
obligations pursuant to this Agreement are joint and several. This
Agreement shall be binding on the successors of Chemisolv and Limited.
6 For the purposes of this Article 6, the expression "Non-Hydrocarbon
Business Asset" shall mean any asset, business or undertaking of
Chemisolv or Limited or any Subsidiary of either of such companies which
is primarily used or applied in relation to or for the purposes of
carrying on any of their respective business activities other than their
hydrocarbon business activities (for the avoidance of doubt including any
undertaking or goodwill associated therewith and any patent or other
-5-
<PAGE> 7
intellectual property which relates to or concerns the inventions known
as "Mastiff" and "Magnetic De-Inking" and any improvements thereto).
If at any time Chemisolv or Limited or any Subsidiary of Chemisolv or
Limited (the "Relevant Seller") wishes to sell any Non-Hydrocarbon
Business Asset ("the Relevant Non-Hydrocarbon Business Asset") on any
particular terms ("the Relevant Terms") it shall not do so, and Serv-
Tech shall procure that it shall not do so without first having given
Newco (being a company controlled and owned absolutely by the Option
Holders) the option to purchase the Relevant Non-Hydrocarbon Business
Asset on terms and conditions which are no less favourable to the Option
Holders than the Relevant Terms. Such option shall be communicated by
written notice in writing given by the Relevant Seller to Newco (as agent
for the Option Holders) which notice shall set out details of the
Relevant Non-Hydrocarbon Business Asset being offered and the Relevant
Terms and shall provide that such option shall be capable of being
exercised within thirty (30) days of the giving of such notice by Newco
giving to Serv-Tech (as agent for the Relevant Seller) written notice of
exercise of such option ("the Exercise Notice") and providing to Serv-
Tech (as such agent as aforesaid) during such thirty (30) day period for
the giving of the Exercise Notice such comfort from Newco and prospective
financiers) of Newco (subject to the results of reasonable due diligence
by Newco and such financiers)) as Serv-Tech may reasonably request to
satisfy Serv-Tech that Newco shall be capable of purchasing the Relevant
Non-Hydrocarbon Business Asset on the Relevant Terms within sixty (60)
days of the giving of the Exercise Notice or such longer period as
Serv-Tech shall agree. If Newco shall not give such Exercise Notice as
aforesaid or, having done so shall have failed to give such comfort as
aforesaid or having done so shall have failed to purchase the Relevant
Non-Hydrocarbon Business Asset on the Relevant Terms within the said
sixty (60) day period or such extended period as Serv-Tech may have
agreed the Relevant Seller shall, on the expiry of either the thirty (30)
day period (if no such Exercise Notice and comfort as aforesaid has been
given) or the sixty (60) day period or such extended period as aforesaid
(if such Exercise Notice and comfort as aforesaid has been given) be at
liberty to sell the Relevant Non-Hydrocarbon Business Asset within a one
hundred and twenty (120) day
-6-
<PAGE> 8
period from the expiry of the aforesaid relevant thirty (30), sixty (60)
day or extended period (as the case may be) but only on terms and
conditions which are no more favourable to a purchaser than the Relevant
Terms. In addition, no sale of any Relevant Non-Hydrocarbon Business
Asset by Chemisolv of Limited or any of their respective Subsidiaries
shall take place prior to 1st January 2016, without the prior written
consent of Newco which consent shall not be unreasonably withheld and for
the avoidance of doubt such consent shall be deemed to be given unless
written notice refusing to give consent and setting forth the reasons for
such refusal is given within 30 days of such consent having been
requested in writing and provided that any withholding of such consent
shall only be reasonable if Newco is reasonably of the opinion that
either any right or prospective right of the Option Holders to receive,
or any prospect of the Option Holders receiving, any royalty, bonus or
other payment entitlement which is dependent to the performance or
holding of the whole or any part of the Relevant Non-Hydrocarbon Business
Asset proposed to be sold may be prejudiced or adversely affected and
shall not in any event be reasonable if both
(a) the proposed Purchaser, transferee or assignee of the relevant
assets, undertaking, Relevant Intellectual Property, subsidiary or
shares as aforesaid ("the Relevant Assets") shall have agreed in
writing with each of the Option Holders that it will assume and
honour all obligations of the Employer and Holdings to pay any
income performance bonus or revenue performance bonus which is
dependent upon the performance or holding of the Relevant Assets to
the extent that such obligations relate to or derive from the
Relevant Assets and that with regard to the Relevant Assets it will
in all material respects provide each Option Holder with
substantially the same contractual rights and arrangements
concerning the calculation and payment of any income performance
bonus or revenue performance bonus as those provided for by any
agreements with the Option Holders which govern the same; and
(b) the proposed Purchaser, transferee or assignee is of the same or
greater financial strength than Serv-Tech having regard to their
-7-
<PAGE> 9
respective shareholders' equity (assets less liabilities)and liquidity.
7 This Option Assignment Agreement shall be governed by and construed in
accordance with the internal laws of England and Wales without regard to
any rules concerning conflicts of laws and the parties hereto hereby
submit to the exclusive jurisdiction of the High Court of Justice in
England and Wales.
However, any dispute with respect to Article 6 shall be decided pursuant
to the Commercial Arbitration Rules (including the Expedited Procedures)
of the American Arbitration Association and the arbitration shall be held
in London, England. The administration of the arbitration shall be
through the New York Regional Office of the American Arbitration
Association. The arbitrator's decision shall be final and binding and
shall be enforced by any court of competent jurisdiction. In the case of
any such arbitration, the Option Holders will be considered as one (1)
person (acting through their agent Davies or other replacement agent).
Expenses of arbitration shall be assessed by the arbitrator.
8 Option Holders and DOTSPEC represent that Magnetic De-Inking inventions
and patent rights are owned entirely by DOTSPEC and any ownership by
DOTSPEC will not have been or be transferred or assigned to any other
person except to Chemisolv.
9 In the event any provision of this Agreement or its exhibits shall be
determined to be invalid, void or unenforceable under applicable law,
such provision shall be construed by changing it to the least extent
possible so as to make it valid and enforceable while at the same time
maximising its observance of the intent originally manifested to the
greatest extent possible.
10 "Subsidiary" shall in relation to any company include all of its 50% or
more, directly or indirectly, owned or controlled entities. "Affiliates"
shall in relation to any company include all of its parents, subsidiaries
or other entities which are, directly or
-8-
<PAGE> 10
indirectly, 50% or more owning of, owned by or under common ownership
with the referenced entity.
11 This Agreement shall be binding upon the successor in title of Serv-
Tech, Chemisolv and Limited but shall not be assignable by any party.
This Agreement may be validly executed by signature of the parties on any
number of counterparts or several separate multi-parts and/or on
facsimile copies and such multi-parts and copies shall be as valid as if
signed by all parties on one original copy and each of which when
executed by one or more of the parties shall constitute an original all
of which shall constitute one and the same instrument.
12 GUARANTEE AND INDEMNITY
12.1 In consideration of the Option Holders and Newco entering into this
Agreement Serv-Tech hereby unconditionally and irrevocably
guarantees to the Option Holders and Newco the due and punctual
performance and observance by each of Chemisolv and Limited of all
its obligations, commitments, undertakings, warranties, indemnities
and covenants under or pursuant to this Agreement and agrees to
indemnify the Option Holders or Newco against all losses, damages,
costs and expenses (including legal costs and expenses) (together
with any VAT thereon) which the Option Holders or Newco may suffer
through or arising from any breach by either Chemiso1v or Limited
of such obligations, commitments, warranties, undertakings,
indemnities or covenants. The liability of Serv-Tech as aforesaid
shall not be released or diminished by any arrangements or
alterations of terms (whether or this Agreement or otherwise) or
any forbearance, neglect or delay in seeking performance of the
obligations hereby imposed or any granting of time for such
performance.
12.2 If and whenever either Chemiso1v or Limited defaults for any reason
whatsoever in the performance of any obligation or liability
undertaken or expressed to be undertaken by it under or pursuant to
this Agreement, Serv-Tech shall forthwith upon demand
unconditionally perform (or procure performance of) and satisfy (or
procure the satisfaction of) the obligation or liability in regard
-9-
<PAGE> 11
to which such default has been made in the manner prescribed by
this Agreement and so that the same benefits shall be conferred on
the Option Holders and Newco as they would have received if such
obligation or liability had been duly performed and satisfied by
either Chemisolv or Limited (as the case may be). Serv-Tech hereby
waives any rights which it may have to require the Option Holders
or Newco to proceed first against or claim payment from either
Chemisolv or Limited (as the case may be) to the intent that as
between the Option Holders and Newco on the one hand and Serv-Tech
on the other the latter shall be liable as if it were primarily
liable and as if it had entered into all undertakings, agreements
and other obligations jointly and severally with the Option Holders
and Newco.
12.3 This guarantee and indemnity is to be a continuing guarantee to the
Option Holders and Newco for all obligations, commitments,
warranties, undertakings, indemnities and covenants on the part of
Chemisolv and Limited under or pursuant to this Agreement
notwithstanding any settlement of account or other matter or thing
whatsoever.
12.4 This guarantee and indemnity is in addition to and without
prejudice to and not in substitution for any rights or security
which the Option Holders and Newco may now or hereafter have or
hold for the performance and observance of the obligations,
commitments, undertakeings, covenants, indemnities and warranties
of Chemisolv and Limited under or in connection with this
Agreement.
12.5 In the event of Serv-Tech having taken or taking any security from
either Chemisolv or Limited in connection with this guarantee and
indemnity, Serv-Tech hereby undertakes to hold the same in trust
for the Option Holders and Newco pending discharge in full of all
Serv-Tech's obligations under this Agreement. Serv-Tech shall not,
after any claim has been made pursuant to this Article 13 claim
from either Chemisolv or Limited any sum which may be owing to it
from either Chemisolv or Limited or having the benefit of any set-
off or counterclaim or proof against or dividend, composition or
-10-
<PAGE> 12
payment by either Chemisolv or Limited until all sums due and owing
to the Option Holders and Newco in respect hereof shall have been
paid in full.
12.6 As a separate and independent stipulation, the Guarantor agrees
that any obligation expressed to be undertaken by either Chemisolv
or Limited under this Agreement (including, without limitation, any
monies expressed to be payable under this Agreement) which may not
be enforceable against or recoverable from either Chemisolv or
Limited by reason of its dissolution, any legal limitation,
disability or incapacity or any other fact or circumstance shall
nevertheless be enforceable against or recoverable from Serv-Tech
as though the same had been incurred by Serv-Tech and Serv-Tech
were primarily liable in respect thereof and shall be performed or
paid by Serv-Tech on demand.
12.7 Wherever in this Agreement it is provided that any Subsidiary of
Chemisolv or Limited must either perform some act or not perform
some act, Serv-Tech shall procure that such Subsidiary shall so
perform, or not perform (as the case may be) the relevant act.
12.8 The foregoing guarantees and indemnities of Serv-Tech as well as
its other obligations in this Agreement, shall cease solely in
relation to any obligation of Chemisolv or Limited which is assumed
by a purchaser, transferee or assignee in the circumstances
referred to in Article 6 hereof provided that the provisions of
Article 6 have been fully complied with.
13 Any notice to be given to or by Chemisolv or Limited herein or any option
exercise by Chemisolv as referenced herein shall be given to or by the
President of Serv-Tech as agent for Chemisolv and Limited.
14 For the purpose of giving or receiving any notice hereunder on behalf of
the Option Holders, Davies shall (unless and until the Option Holders
otherwise agree or nominate another of their number) as the agent of the
Option Holders and (unless otherwise provided herein) all notices to be
given to or by the Option Holders under this Agreement shall be given to
-11-
<PAGE> 13
or by Davies (or such other of the Option Holders as the Option Holders
may hereafter nominate as their agent). Immediately upon the death or
disability of Davies or such other person who is the nominated agent of
the Option Holders or upon the Option Holders nominating another of them
to be their agent, the Option Holders shall provide Chemisolv and Serv-
Tech with a name of one of their group to act as their successor agent
for the giving and receipt of notices hereunder and taking of other
action by the Option Holders' agent as referenced herein.
15 Any notice to be given pursuant to the terms of this Agreement must be
given in writing to the party due to receive such notice at his or its
address set out in this Agreement or such other address as may have been
notified for the purpose to the other parties in accordance with this
clause. Notice shall be delivered personally or sent by first class
pre-paid recorded delivery or registered post (air mail if overseas) or
by facsimile transmission and shall be deemed to be given in the case of
delivery on delivery and in the case of posting (in the absence of
evidence of earlier receipt) within forty-eight (48) hours after posting
(six (6) days if sent by air mail) and in the case of facsimile
transmission on completion of the transmission. The address for service
of notices of Davies and any successor agent of the Option Holders shall
be Thornley House, Carrington Business Park, Manchester, M31 4SG, UK. The
address for service of notices of Serv-Tech, Inc. as agent for Chemisolv
and Limited shall be 5200 Cedar Crest Blvd., Houston, Texas 77087, USA.
Either the agent for the Option Holders or Serv-Tech may provide the
other parties with a new address for purposes of such notices.
16 The form of Loan Notes is as set out in Exhibit B.
17 Each Option Holder hereby represents, warranties and agrees that this
Agreement is legally binding on him and that he has not transferred,
assigned or otherwise disposed of any of his rights under the Option
Agreement, nor will he do so in the future, and has not individually or
collectively chosen, nor will he do so in the future, any other persons
or entities to participate therein with the Option Holders.
-12-
<PAGE> 14
Serv-Tech, Chemisolv and Limited hereby represent, warrant and agree with
the Option Holders that each of Serv-Tech, Chemisolv and Limited has full
power and authority to enter into and perform this Agreement and all
documents referred to herein which constitute binding obligations on each
of them in accordance with their respective terms.
18 The invalidity, illegality or unenforceability of any provision of this
Agreement shall not affect the continuation in force of the remainder of
this Agreement. Any invalid, illegal or unenforceable provision shall be
enforced by the appropriate court or arbitrator, as the case may be, as
if it had been originally written (and it shall be so deemed amended) to
the least extent to make it valid, legal and enforceable.
19 No variation of this Agreement or any of the documents in the Agreed Form
shall be valid unless it is in writing and signed by or on behalf of each
of the parties hereto.
20 This Agreement constitutes the entire agreement between the parties with
respect to the subject matter of this Agreement and supersede and
extinguish any representations and warranties previously given or made
other than those contained herein or therein.
21 If Chemisolv, Limited or Serv-Tech is so required by law it shall deduct
tax from any amount payable by it hereunder and shall deliver to each
Option Holder in respect of the amount so paid by it, a certificate as to
the gross amount so paid by it, a certificate as to the gross amount of
such payment that amount of tax deducted and the actual amount paid or to
be paid and certifying that it has paid or will pay the amount of tax
deducted to the Inland Revenue Internal Revenue Service or other
appropriate taxing authority.
AS WITNESSED the parties or their duly authorised representatives have executed
this Agreement as a Deed and delivered the same the day and year first above
written.
-13-
<PAGE> 15
EXECUTED (but not delivered )
until the date hereof) as a )
Deed by CHEMISOLV LIMITED )
acting by Ralph J. Davies ) Director /s/ RALPH J. DAVIES
Clement C. Armitage ) Director /s/ CLEMENT C. ARMITAGE
EXECUTED (but not delivered )
until the date hereof) as a )
Deed by CHEMISOLV HOLDINGS INC )
acting by ) Director /s/ [ILLEGIBLE]
) Director /s/ [ILLEGIBLE]
EXECUTED (but not delivered )
until the date hereof) as a )
Deed by LASERDISK LIMITED )
acting by Ralph J. Davies ) Director /s/ RALPH J. DAVIES
[ILLEGIBLE] ) Director /s/ [ILLEGIBLE]
EXECUTED (but not delivered )
until the date hereof) as a )
Deed by DOTSPEC )
acting by Ralph J. Davies ) Director /s/ RALPH J. DAVIES
[ILLEGIBLE] ) Director /s/ [ILLEGIBLE]
EXECUTED (but not delivered )
until the date hereof) as a )
Deed by SERV-TECH INC )
acting by ) Director /s/ [ILLEGIBLE]
) Director /s/ [ILLEGIBLE]
-14-
<PAGE> 16
SIGNED (but not delivered )
until the date hereof) as a )
Deed by the said RALPH J DAVIES ) /s/ RALPH J. DAVIES
in the presence of )
Signature of Witness A. E. HO
Name AMY E. HO
Address INDIA BUILDINGS, LIVERPOOL
Occupation SOLICITOR
SIGNED (but not delivered )
until the date hereof) as a )
Deed by the said DAVID M. OWEN ) /s/ DAVID M. OWEN
in the presence of )
Signature of Witness A. E. HO
Name AMY E. HO
Address INDIA BUILDINGS, LIVERPOOL
Occupation SOLICITOR
SIGNED (but not delivered )
until the date hereof) as a )
Deed by the said CLEMENT C. ARMITAGE ) /s/ CLEMENT C. ARMITAGE
in the presence of )
Signature of Witness A. E. HO
Name AMY E. HO
Address INDIA BUILDINGS, LIVERPOOL
Occupation SOLICITOR
-15-
<PAGE> 17
SIGNED (but not delivered )
until the date hereof) as a )
Deed by the said JAMES R. DUFFY ) /s/ JAMES R. DUFFY
in the presence of )
Signature of Witness FRANK PERRONE
Name FRANK PERRONE
Address 5200 Cedar Crest Blvd.
Houston, TEXAS 77087
Occupation
SIGNED (but not delivered )
until the date hereof) as a )
Deed by the said HARRY CORBETT ) /s/ HARRY CORBETT
in the presence of )
Signature of Witness FRANK PERRONE
Name FRANK PERRONE
Address 5200 Cedar Crest Blvd.
Houston, TEXAS 77087
Occupation
SIGNED (but not delivered )
until the date hereof) as a )
Deed by the said CHRISTOPHER BENNETT ) /s/ CHRISTOPHER BENNETT
in the presence of )
Signature of Witness AMY E. HO
Name AMY E. HO
Address INDIA BUILDINGS, LIVERPOOL
Occupation SOLICITOR
-16-
<PAGE> 18
SIGNED (but not delivered )
until the date hereof) as a )
Deed by the said KENNETH MACKINTOSH ) /s/ KENNETH MACKINTOSH
in the presence of )
Signature of Witness A.E. HO
Name A.E. HO
Address INDIA BUILDINGS, LIVERPOO
Occupation SOLICITOR
-17-
<PAGE> 19
EXHIBIT A
The Option Holders represent and warrant that the enclosed written responses
(with the responses being in parentheses) are true and correct in all material
respects with respect to each of the categories of information below as
applicable to DOTSPEC on the date hereof and shall remain true for all periods
continuously through the later of the expiration of Chemisolv's option exercise
period and the transfer of the Shares to Chemisolv. These representations and
warranties shall then survive the expiration and/or exercise of such option
exercise by Chemisolv and/or any transfer of ownership of the Shares to
Chemisolv.
* Tax returns. (None since no business transacted).
* Incorporation documents, corporate articles and minutes. (See Statutory
Books and register of DOTSPEC).
* Shareholder agreement, voting agreements, option agreements, etc. (None).
* Share ledger showing ownership (showing Option Holders owning all issued
shares in the capital of DOTSPEC).
* List of assets and liabilities, current balance sheet and income
statement for last five (5) fiscal years. (None since no business has
ever been transacted except for ownership of an unencumbered and
unrestricted asset consisting of the Magnetic De-Inking patent rights and
application which asset is wholly owned by DOTSPEC except to the extent
previously transferred to Chemisolv).
* All contracts or obligations. (None).
* List of past or present employees. (None).
* List of bank accounts, any guarantees or indemnities of any nature.
(None).
* Any claims against DOTSPEC or contingent obligations. (None other than
(1) an obligation to a patent agent to discharge patent application fees
-18-
<PAGE> 20
in the region of E7000; and (2) an obligation to pay Dr. R Bialecki L.5000
in respect of letters of support and patent obligations).
* Any partnerships, subsidiaries, affiliates. (None).
* Written summary of all business and operations conducted by DOTSPEC since
its inception. (No business transacted).
-19-
<PAGE> 1
EXHIBIT 10.40
CHEMISOLV HOLDINGS INC
Registered Office:
Issue of variable rate 2001/2015 Guaranteed Unsecured Loan Notes pursuant to
the authority of the Articles of Incorporation of Chemisolv Holdings Inc and
the authority of a resolution of the Board of Directors of Chemisolv Holdings
Inc dated December 1995.
CERTIFICATE NO: 1
NOTEHOLDER: Clement Cyril Armitage
1. Chemisolv Holdings Inc ("Chemisoly") will on 31st December 2016 or on
such earlier date as the principal monies hereby covenanted to be paid
shall become payable in accordance with the conditions attached hereto
which are applicable to this Loan Note ("the Conditions") pay to Clement
Cyril Armitage of Wild Hedges, 4 Daisybank Crescent, Audlem, Crewe, CW3
OHD the Principal Sum (as defined in the Conditions) to be determined in
accordance with and pursuant to the Conditions or such part thereof as is
then outstanding under this Note in accordance with the Conditions and
will with effect from the Determination Date (as defined in the
Conditions) pay interest on such Principal Sum at the Interest Rate (as
defined in the Conditions) on each Interest Payment Date (as defined in
the Conditions).
2. This Note is issued subject to and with the benefit of the Conditions
which each of Chemisolv Holdings Inc and Serv-Tech Inc ("Serv-Tech")
agree shall be binding on them and enforceable by the Noteholder.
3. Serv-Tech Inc hereby guarantees the due payment of the Principal Sum and
interest thereon in accordance with the Conditions.
4. This Note and the Conditions shall be governed by and construed in
accordance with English Law.
EXECUTED AS A DEED BY Chemiso1v Holdings Inc and Serv-Tech Inc on
1995
<PAGE> 2
EXECUTED as a deed (but )
not delivered until the )
date hereof) on behalf )
of Chemisolv Holdings Inc )
by its authorised officers ) /s/ [ILLEGIBLE]
--------------------------------
Director
/s/ [ILLEGIBLE]
--------------------------------
Director
EXECUTED as a deed (but )
not delivered until the )
date hereof) on behalf )
of Serv-Tech Inc as Guarantor )
by its authorised officers ) /s/ [ILLEGIBLE]
--------------------------------
Director
/s/ [ILLEGIBLE]
--------------------------------
Director
-2-
<PAGE> 3
CONDITIONS
1 In this Note (including these Conditions) unless there is something in
the subject or context inconsistent therewith the following expressions
shall have the following meanings:-
"Base Rate" means LIBOR (as hereinafter
defined) less @%;
"Business Day" a day on which banks are
open for business in the City
of London (not being a
Saturday);
"Chemisolv Accounts" means the audited consoli-
dated income (profit) and loss
account of the Company and its
subsidiaries for the Financial
Year and the audited
consolidated balance sheet of
the Company and its
subsidiaries as at the last
day of the Financial Year as
part of the Serv-Tech annual
audit which shall have been
prepared in accordance with
the provisions of Condition 4
below
"Chemisolv Group" means the Company, Chemisolv
Limited and all other
subsidiaries of either the
Company or Chemisolv Limited
"Chemisolv's Accountants" means the auditors for the
time being of the Company
appointed by Serv-Tech who
shall be responsible for
preparing the audited
financial statements of the
Company and its subsidiaries
for each financial year
-3-
<PAGE> 4
"the Company" means Chemisolv Holdings Inc
which was incorporated in the
State of Delaware;
"Determination Date" means the date upon which the
Principal Sum shall have been
determined and become binding
on the Company and the
Noteholder in accordance with
Condition 2 below;
"Financial Year" means the financial year of
the Company commencing on 1st
January and ending on 31st
December in the same calendar
year
"First Interest Period" the period commencing on the
Determination Date and ending
on and including whichever of
31st March 30th June 30th
September and 31st December
shall first occur after the
Determination Date;
"First Redemption Date" the last day of the First
Interest Period;
"Interest Period" the First Interest Period or
any Subsequent Interest Period
as the case may be;
"Interest Payment Date" the last day of each Interest
Period;
"LIBOR" means the London Inter Bank
Offer Rate;
"Interest Rate" in respect of each Interest
Period a rate per annum equal
to 1 per
-4-
<PAGE> 5
centum per annum below the
Base Rate;
"Majority of the Performance such of the Performance
Awarded Employees" Awarded Employees for the time
being employed by members of
the Chemisolv Group who
between them have the majority
of points of all the
Performance Awarded Employees
who are so employed at the
relevant time and for this
purpose each Performance
Awarded Employee shall have
such number of points as is
set out in parenthesis after
his name in the definition of
"Performance Awarded
Employees" below
"the Note" this Note (being one of the
Notes);
"the Notes" all or any one of the 105
variable rate 2001/2015
Guaranteed Unsecured Loan
Notes constituted by a
resolution of the directors of
the Company on December 1995
and issued to the Vendors;
"Noteholder" the person or persons whose
name and address are entered
on the Register as the holder
or holders of this Note and
includes in each case the
personal representatives of
the registered holder or
holders and "Noteholders"
means the registered holders
for the time being of the
Notes;
"Performance Awarded means Messrs Ralph J Davies
(13),
-5-
<PAGE> 6
Employees" David M Owen (13), Clement C
Armitage (13), James R Duffy
(13), W Harry Corbett (6),
Christopher Bennett (6) and
Kenneth Mackintosh (6)
"Principal Sum" means the principal sum
outstanding and remaining
unpaid by the Company on the
Note which shall be determined
and shall be binding on the
Company and the Noteholder in
accordance with Condition 2;
"Redemption Date" means the First Redemption
Date and thereafter the 31st
March, 30th June, 30th
September or 31st December in
each year whilst the Principal
Sum is outstanding or at such
other times if agreed by the
Company;
"Relevant Business" means any business directly
connected with the application
of speciality chemicals in the
treatment of water and waste
or directly connected with the
paper industry including the
manufacture or recycling of
paper, or the strengthening of
paper and any business derived
from the Relevant Intellectual
Property or the application
thereof
"The Register" means the register of
Noteholders to be kept by the
Company under Condition 9
hereof;
"Relevant Intellectual means (in relation to the
-6-
<PAGE> 7
Property" inventions known as "Mastiff"
and "Magnetic De-Inking" as
they existed on 1st April 1995
and all improvements
thereafter and hereafter made
to such inventions) all
patents, inventions, know-how,
trade secrets and other
confidential information,
registered designs, copy
rights, design rights, rights
of equivalent to copy right
and design rights, registered
trademarks, registered service
marks, registered business
names, trade names,
registrations of the aforesaid
items, rights in the nature of
any of the aforesaid items in
any country whatsoever in the
World, rights in the nature of
unfair competition rights and
rights to sue for passing off
"Relevant Fraction" means, 13/70
"the Revenues" the Royalty Revenues, the
Product and Service Revenues
and the Customer Revenues
defined and referred to in
Condition 2.1
"Serv-Tech" Serv-Tech Inc whose registered
office and address for notices
is CT Corporation System, 811
Dallas Avenue, Houston, Texas
77002 and which was
incorporated in the State of
Texas;
"Subsequent Interest Period" each successive period of
three
-7-
<PAGE> 8
months commencing on and
including the day after the
preceding Interest Period and
ending on and including the
next following 31st March,
30th June, 30th September or
31st December (whichever first
occurs) or if any such date is
not a Business Day ending on
and including the Business Day
next following such date.
"subsidiary" means in relation to any
company which is registered in
England and Wales any
subsidiary undertaking (within
the meaning of the Companies
Act 1985 as amended by the
Companies Act 1989) of such
company and in relation to any
company which is incorporated
in the USA, any entity which
is 50% or more directly or
indirectly owned or controlled
by such company (and
"subsidiaries" shall be
construed accordingly)
"the Vendors" means Messrs Ralph J Davies,
David M Owen, Clement C
Armitage, James R Duffy, W
Harry Corbett, Christopher
Bennett and Kenneth Mackintosh
Words denoting persons only shall include bodies corporate unincorporated
associations partnerships and words incorporating the singular number only
shall include the plural and vice versa. Headings in these Conditions are for
ease of reference only and shall not affect the interpretation thereof.
2 Principal Sum and Interest
2.1 The Principal Sum shall be calculated in accordance with the
following formula
-8-
<PAGE> 9
PS = RF x 1.67% x (A + B + C)
Where:
PS represents the Principal Sum
RF represents the Relevant Fraction
A shall be the aggregate amount of all royalties earned during the
Financial Year by all companies in the Chemisolv Group to the
extent generated by the licensing or other exploitation of the
Relevant Intellectual Property("Royalty Revenues")
B shall be the aggregate of all sales or revenues or turnover
during the Financial Year of all companies in the Chemisolv group
from the sale of any products, chemicals or services to the
extent that such products, chemicals or services are used in the
application of any of the Relevant Intellectual Property
("Product and Service Revenues")
C shall be the aggregate of all sales or revenues or turnover
during the Financial Year of all companies in the Chemisolv Group
from customers or clients or licensees but only to the extent
that such sales, revenues or turnover directly relate to or
concern the application or exploitation of any of the Relevant
Intellectual Property ("Customer Revenues")
2.2 The amount of revenue or turnover earned in respect of any Financial Year
shall not be counted more than once in financial year shall not be
counted more than once in calculating the aggregate of A+B+C for one
Financial Year and shall not be calculated within the aggregate of A+B+C
for another Financial Year.
The sum of A+B+C shall be reduced by any commissions, royalties,
discounts, profit sharing or other payments applicable to agents,
distributors, licensors, sub-contractors, Joint Venture
-9-
<PAGE> 10
partners, or other such persons to the extent that they have been
properly and reasonably made for the purpose of generating the royalties
and revenues comprising A+B+C and to the extent that they have not
already been taken into account in determining the respective amounts of
A, B or C.
2. 3 The Noteholder acknowledges that the Principal Sum and the long term
interests of the Serv-Tech Group will be influenced by the strategies and
policies of the Chemisolv Group concerning pricing, discounts, royalties,
agency fees, commissions and other material terms and conditions to be
offered and accepted by the Chemisolv Group upon which the Relevant
Intellectual Property will be exploited (which may involve sales,
licensing, sub-contracting and other similar transactions or
arrangements) and accordingly, the Noteholder acknowledges both that (i)
the Chemisolv Group shall be required to comply with written strategies
and policies (concerning the terms and conditions of sales, pricing,
discounts, royalties, agency fees, licensing, commissions,
subcontracting, joint ventures and other such arrangements and
undertakings) as reasonably agreed from time to time by the Chemisolv
Group and the Chief Financial Officer of the Serv-Tech Group or his
designee, and (ii) all material undertakings, contracts and other
obligations of the Chemisolv Group ("material" in relation to any
undertaking, contract or obligation being one involving the payment to or
from the Chemisolv Group of aggregate sums in excess of $500,000) shall
be subject to the prior written approval of the Chief Financial Officer
of the Serv-Tech Group or his designee, provided that such approval shall
not be unreasonably withheld or delayed and in determining what is
reasonable or unreasonable due regard shall be given to prudent business
practice and the fiduciary duty which Serv-Tech owes to its shareholders.
2.4 The Principal Sum outstanding on this Note shall bear interest from and
including the commencement of the First Interest Period (but excluding)
the day upon which it is repaid by the Company in accordance with
Condition 3 hereof and such interest shall in respect of each Interest
Period be payable at the Interest Rate
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<PAGE> 11
and be paid (less any withholdings or deductions of tax which may be made
if required by law in accordance with Condition 17) by the Company in
arrears on the appropriate Interest Payment Date to the Noteholder
entitled to receive the same. Any interest on the Principal Sum which is
not paid within seven Business Days of the Relevant Interest Payment Date
shall bear interest at the Interest Rate from and including the day
following the seventh Business Day after the relevant Interest Payment
Date to the date of payment.
2.5 Interest in respect of each Interest Period will be calculated on the
basis of a 365 day year and will accrue on a day to day basis.
2.6 Interest on the Note shall cease to accrue on the 31st December 2016.
3 Repayment
3.1 At any time after the First Redemption Date the Noteholder may
demand in writing substantially in the form attached hereto as
Schedule 1 ("a Redemption Notice") that all or part of the
Principal Sum (subject to a minimum of L.10,000 in respect of a
part redemption) held by such Noteholder shall be rep aid at par
(together with unpaid interest to the relevant Redemption Date)
by the Company on such Redemption Date or as is specified in such
notice provided always that such notice is served no later than
10 Business Days prior to the relevant Redemption Date.
3.2 The Principal Sum together with unpaid interest shall (unless, in
the case of both the Principal Sum and unpaid interest, such sums
have been previously repaid or paid by the Company) be repaid on
31st December 2016 (and if such day is not a Business Day the
next following Business Day) to the Noteholder or as the
Noteholder may direct in writing whose receipt shall be a
sufficient discharge and the Company shall not be concerned as to
the application of any such sums. All monies payable by the
Company or Serv-Tech to the Noteholder in respect of the
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<PAGE> 12
Principal Sum or interest thereon shall be paid as provided for
in Condition 12.
3.3 On or before the due date for any repayment or redemption
hereunder the Noteholder shall surrender the Note to be repaid to
the Company for retention by the Company. In the event of a
repayment or redemption of part only of the Principal Sum
(provided the Noteholder has surrendered his Note to the Company)
the Company will issue a further Note in substantially the same
form in respect of the balance of the (or if applicable deemed
reduced) Principal Sum which remains outstanding and for the
avoidance of doubt no fee will be payable by the Noteholder in
respect of the issue of such a Note.
3.4 In the event of any Noteholder whose Notes or any part of whose
Notes are liable to be repaid under these Conditions failing to
surrender such Notes pursuant to condition 3.3 above, the Company
shall be entitled to pay the moneys payable in respect thereof
into a designated deposit account with Barclays Bank PLC (or such
other bank as the Company may elect) to be held on trust for such
Noteholder and to enter the details of the repayment in the
Register. Upon such entry in the Register as aforesaid, such
Notes will be cancelled to the extent of the amount repaid and
all obligations of the Company in respect of the amount so repaid
will cease. Any interest earned in respect of such designated
deposit account will accrue for the benefit of the Company unless
otherwise resolved by the Company.
3.5 At any time whilst any part of the Principal Sum remains
outstanding the Noteholder may by giving notice to the Company
(the "Currency Conversion Notice") elect to convert the Principal
Sum (or such part thereof as is specified in the Currency
Conversion Notice) into either pounds sterling (where the
Principal Sum is calculated in US Dollars) or into US Dollars
(where the Principal Sum is calculated in pounds sterling)
provided always that the Noteholder shall not be entitled to
serve a Currency Conversion Notice after:-
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<PAGE> 13
3.5.1 30th November 2016:
3.5.2 a Redemption Notice has been served on the Company; or
3.5.3 the happening of an Event of Default.
3.6 The rate of exchange for the conversion shall be the rate at which
pounds sterling or US Dollars (as the case may be) may be purchased
from Barclays Bank plc at 11.00 am on the date being 5 Business
Days following the service of the Currency Conversion Notice and
all necessary costs of the conversion shall be for the account of
the Noteholder.
4 Early Repayment The Principal Sum (if ascertained) shall immediately
become payable together with all unpaid interest thereon to the date of
payment on the happening of any one or more of the following Events of
Default:-
4.1 if a petition shall be presented for the winding up of the Company
or for the making of an administration order in relation to the
Company or if an effective resolution is passed for the winding up
of the Company except for the purpose of a solvent reconstruction
or amalgamation;
4.2 if any encumbrancer shall take possession or a receiver shall be
appointed of the undertaking property and assets of the Company or
any part thereof;
4.3 if a distress execution or other process shall be levied or
enforced upon or against any of the assets or property of the
Company and shall not be discharged within 7 days of being levied
or enforced;
4.4 if the Company is deemed to be unable to pay its debts for the
purposes of Section 123(l) of the Insolvency Act 1986;
4.5 if the Company makes default for a period of 30 days in the payment
of any interest hereby covenanted to be paid and the
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<PAGE> 14
Noteholder by notice calls in the Principal Sum before such
interest is paid;
4.6 if default shall be made by the Company in the performance of any
covenant condition or obligation (other than the covenant for
payment of interest) binding on the Company under the Note;
4.7 if a meeting of the Company is convened for the purpose of making
or proposing to make or entering into any arrangement or
composition with or assignment for the benefit of its creditors;
4.8 if the Company agrees to sell transfer or otherwise dispose of the
whole or a substantial part of its undertaking property and assets;
or
4.9 if the Company ceases or threatens to cease to carry on business.
5 Chemisolv's Accounts
5.1 For the purpose of determining the Principal Sum the Chemisolv
Accounts for the Financial Year shall be prepared:-
5.1.1 in accordance with the requirements of all relevant
statutes and generally accepted accounting principles
applicable in the USA;
5.1.2 so as to show a true and fair view of the Revenues (as
defined in Condition 1) which are relevant for the purpose
of determining the Principal Sum pursuant to Condition 2.1
above;
5.1.3 on a basis consistent with the accounting policies applied
in the preparation of all previous accounts.
5.2 The Company and Serv-Tech shall at the joint and equal expense of
the Company and Serv-Tech procure that Chemisolv's Accountants
shall report in writing in substantially the form of the report set
out in Schedule 2 hereto in respect of the
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<PAGE> 15
Financial Year the amount of the Revenues as soon as reasonably
practicable following the production of the Chemisolv Accounts for
the Financial Year and in any event by no later than 30th June in
the following Financial Year. A copy of such report together with
all working papers and any accompanying explanations reasonably
necessary to understand the basis on which the Revenues have been
computed shall be forwarded by the Company to the Noteholder
forthwith upon the same being produced by Chemisolv's Accountants.
In reporting on the amount of the Revenues and Chemisolv's
Accountants shall act as experts and not as arbitrators and their
certificate as to the amount of the Revenues in respect of the
Financial Year shall in the absence of fraud or manifest error be
final and binding upon the Company, Serv-Tech and the Noteholder.
5.3 The Noteholder shall be entitled at any time in the period of
twenty eight days following receipt by them of any report referred
to in Condition 5.2 and any accompanying working papers and
explanations to dispute the amount of the Revenues for the
Financial Year disclosed therein by notice in writing to the
Company. Any such notice shall set out in reasonable detail the
grounds for dispute and any suggested adjustment and if either no
such notice is given by the Noteholder or within a period of twenty
one days following such notice the Noteholder and the Company shall
agree the amount of the Revenues for the Financial Year as set out
in the said report or any amended amounts then the amount of the
Revenues for the Financial Year as set out in the original report
or any amended amounts subsequently agreed shall be final and
binding on the Company, Serv-Tech and the Noteholder except for
matters involving fraud or manifest error.
5.4 If the Noteholder shall give notice of dispute pursuant to
Condition 5.3 but no agreement shall be reached within the period
of twenty one days following as to the amount of any of the
Revenues for the Financial Year then such dispute shall be promptly
referred to an independent firm of Certified Public Accountants
appointed by agreement between the Company and the Noteholder or in
default of agreement nominated at the request
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<PAGE> 16
of either of them by the President for the time being of the
American Institute of Certified Public Accountants. The
determination of such firm of Certified Public Accountants who
shall act as experts and not as arbitrators as to the amount of the
Revenues for the Financial Year shall be final and binding upon the
Company, Serv-Tech and the Noteholder except in relation to matters
involving fraud or manifest error. Such firm of Certified Public
Accountants shall be entitled to call for and inspect the working
papers of Chemisolv's Accountants or of the Company or of the
Noteholder and such other documents as they consider reasonably
necessary and the Company, Serv-Tech and the Noteholder will
promptly supply any such working papers or other documents in their
possession or under their control.
5.5 In the event of any sale or assignment of any Relevant Intellectual
Property asset of any member of the Chemisolv Group, the sale or
assignment price shall be excluded from the calculation of the
Principal Sum unless the provisions of condition 6.1.1 shall not
have been complied with in full.
6 Covenants by Serv-Tech
Serv-Tech hereby covenants with and undertakes to the Noteholder that in
respect of the Financial Year so far as it is able in all cases and
subject in all cases to conformity with Serv-Tech's fiduciary duty to its
shareholders and conformity with prudent business practice. Serv-Tech
shall not do and it shall procure that no member of the Chemisolv Group or
any other subsidiary of Serv-Tech does or omits to do anything the
commission or omission of which will or may materially and adversely
affect the amount of the Revenues and in particular but without prejudice
to the generality of the foregoing Serv-Tech shall in all cases so far as
it is able and subject in all cases to conformity with Serv-Tech's
fiduciary duties to its shareholders and conformity with prudent business
practice procure that:-
6.1 no member of the Chemisolv Group shall (save with the prior written
consent of the Noteholder);-
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<PAGE> 17
6.1.1 prior to 1st January 2016 sell transfer assign or otherwise dispose
of a material part of its assets or undertaking or any Relevant
Intellectual Property (or interest therein) or contract so to do or
dispose of any subsidiary or any of the share in any subsidiary
(and Serv-Tech shall not without such consent as aforesaid dispose
of Holdings or any interest or shares in Chemisolv) provided in all
cases that the required consent of the Noteholder shall not be
unreasonably withheld and for the avoidance of doubt such consent
shall be deemed to be given unless written notice refusing to give
consent and setting forth the reasons for such refusal is given
within 30 days of such consent having been requested in writing and
provided that any withholding of such consent shall only be
reasonable if the Noteholder is reasonably of the opinion that any
right or prospective right of his to receive or any prospect of him
receiving any Principal Sum may be prejudiced or adversely affected
and shall not in any event be reasonable if both:-
(a) the proposed purchaser transferee or assignee of the
relevant assets, undertaking, Relevant Intellectual
Property, Subsidiary or shares as aforesaid ("the
Relevant Assets") shall have agreed in writing that it
will assume and honour all obligations of Chemisolv and
Serv-Tech under this Loan Note (Including those in
conditions 5 and 6 hereof and the obligations to pay
the Principal Sum under this Note) but only to the
extent that such obligations relate to or derive from
the Relevant Assets and that with regard to the
Relevant Assets it will in all material respects
provide the Noteholder with substantially the same
contractual rights and arrangements concerning the
calculation and payment of the Principal Sum as those
provided by the provisions of this Loan Note; and
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<PAGE> 18
(b) the proposed Purchaser transferee or assignee is of the
same or greater financial strength then Serv-Tech
having regard to their respective shareholders' equity
(assets less liabilities), and liquidity;
6.1.2 not acquire any material assets or new business or
undertaking or any shares unless the acquisition has been
approved by the Majority of the Performance Awarded Employees
(if any);
6.1.3 unless approved by a Majority of the Performance Awarded
Employees create any charge lien (other than a lien arising
by operation of law) or other encumbrance over the whole or
any part of the Relevant Intellectual Property or of its
undertaking property or assets except for the purpose of
securing its indebtedness to its bankers or sureties for sums
borrowed or bonds procured in the ordinary and proper course
of its business;
6.1.4 change its accounting reference date or change the accounting
policies normally adopted by it save as may be required or
allowed from time to time to comply with legal requirements
or Statements of Standard Accounting Practice or UK GAAP or
US GAAP as applicable;
6.2 Serv-Tech shall not and no member of the Serv-Tech Group shall
divert away from the Company or any other member of the Chemisolv
Group any existing business or any new or prospective business of a
kind which comprises any of the Relevant Business and which the
Company or any such member is willing and able to perform;
6.3 any expansion, development or evolution by Serv-Tech or the Company
of the Relevant Business will only be effected through the Company
or a wholly owned subsidiary of the Company;
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<PAGE> 19
6.4 the Company and each of its subsidiaries shall carry on and conduct
its business and affairs in a proper and efficient manner and for
its own benefit and that each of the Company and its subsidiaries
transacts all its business on arm's length terms and for full
consideration;
6.5 each of the Company and its subsidiaries shall not enter into any
agreement or agreements restricting its competitive freedom to
carry on the Relevant Business by such means and from and to such
persons as it may think fit other than for the purpose of
exploiting the Relevant Intellectual Property in the ordinary
course of business; and
6.6 Serv-Tech shall use all reasonable and proper means in its power to
maintain, improve and extend the Relevant Business carried on by
the Company and its subsidiaries and to further the reputation and
interests of the Company and its subsidiaries in relation to the
Relevant Business including the provision of appropriate capital
and working capital by loan or otherwise
6.7 Serv-Tech will provide and Holdings shall provide the Noteholder
with copies of all audited annual financial statement of Chemisolv
and its subsidiaries included in Serv-Tech's annual audit and
quarterly unaudited financial statements of Chemisolv and its
subsidiaries within seven days of the same being available and, as
soon as practicable and in any event within 35 business days after
the end of each calendar month, management accounts of Chemisolv
and each of its subsidiaries for that month and, from time to time,
with such financial and other information as the Noteholder may in
writing reasonably require. The Noteholder shall keep all such
information confidential and shall not use or disclose it except to
the extent required for the enforcement of his rights hereunder;
Serv-Tech acknowledges that the restrictions contained in this Condition
6 are reasonable and necessary to assure to the Noteholder the full value
and benefit of his right to receive the Principal Sum in accordance with
the provisions of Condition 2.
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<PAGE> 20
7 Guarantee and Indemnity
7.1 In consideration of the Noteholder accepting this Note Serv-Tech
hereby unconditionally and irrevocably guarantees to the Noteholder
the due and punctual performance and observance by the Company of
all its obligations, commitments, undertakings, warranties,
indemnities and covenants under or pursuant to this Note and agrees
to indemnify the Noteholder against all losses, damages, costs and
expenses (including legal costs and expenses) (together with any
VAT thereon) which the Noteholder may suffer through or arising
from any breach by the Company of such obligations, commitments,
warranties, undertakings, indemnities or covenants. The liability
of Serv-Tech as aforesaid shall not be released or diminished by
any arrangements or alterations of terms (whether of this Agreement
or otherwise) or any forbearance, neglect or delay in seeking
performance of the obligations hereby imposed or any granting of
time for such performance.
7.2 If and whenever either the Company defaults for any reason
whatsoever in the performance of any obligation or liability
undertaken or expressed to be undertaken by it under or pursuant to
this Agreement, Serv-Tech shall forthwith upon demand
unconditionally perform (or procure performance of) and satisfy (or
procure the satisfaction of) the obligation or liability in regard
to which such default has been made in the manner prescribed by
this Agreement and so that the same benefits shall be conferred on
the Noteholder as he would have received if such obligation or
liability had been duly performed and satisfied by the Company.
Serv-Tech hereby waives any rights which it may have to require the
Noteholder to proceed first against or claim payment from the
Company to the intent that as between the Noteholder and Serv-Tech
the latter shall be liable as if it were primarily liable and as if
it had entered into all undertakings, agreements and other
obligations jointly and severally with the Noteholder.
7.3 This guarantee and indemnity is to be a continuing guarantee and
indemnity to the Noteholder for all obligations, commitments,
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warranties, undertakings, indemnities and covenants on the part of
the Company under or pursuant to the Note notwithstanding any
settlement of account or other matter or thing whatsoever.
7.4 This guarantee and indemnity is in addition to and without
prejudice to and not in substitution for any rights or security
which the Noteholder may now or hereafter have or hold for the
performance and observance of the obligations, commitments,
undertakings, covenants, indemnities and warranties of the Company
under or in connection with the Note.
7.5 In the event of Serv-Tech having taken or taking any security from
the Company in connection with this guarantee and indemnity,
Serv-Tech hereby undertakes to hold the same in trust for the
Noteholder pending discharge in full of all Serv-Tech's obligations
under this Agreement. Serv-Tech shall not, after any claim has been
made pursuant to this Condition 7, claim from the Company any sum
which may be owing to it from the Company or having the benefit of
any set-off or counterclaim or proof against or dividend,
composition or payment by the Company until all sums due and owing
to the Noteholder in respect hereof shall have been paid in full.
7.6 As a separate and independent stipulation, Serv-Tech agrees that
any obligation expressed to be undertaken by the Company under the
Note (including, without limitation, any monies expressed to be
payable under the Note) which may not be enforceable against or
recoverable from the Company by reason of its dissolution, any
legal limitation, disability or incapacity or any other fact or
circumstance shall nevertheless be enforceable against or
recoverable from Serv-Tech as though the same had been incurred by
Serv-Tech and Serv-Tech were primarily liable in respect thereof
and shall be performed or paid by Serv-Tech on demand.
7.7 The foregoing guarantee and indemnity of Serv-Tech as well as its
other obligations under this Note, shall cease solely in relation
to any obligation of the Company which is assumed by a Purchaser,
transferee or assignee in the circumstances referred
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to in condition 6.1.1 above provided always that the provisions of
condition 6.1.1 have been fully complied with.
8 Variation of Rights
The Noteholders shall have power exercisable with the consent in writing
of the holders of not less than 75 per cent in nominal value of the Notes
(whether before or after the principal monies thereunder shall have
become payable) to sanction any modification alteration abrogation or
arrangement in respect of the rights of the Noteholders against the
Company which shall be proposed by the Company and the Company shall not
except with such consent or sanction agree with any Noteholder any
alteration whatever of the Notes or any modification alteration
abrogation or arrangement in respect of the rights of any Noteholders
against the Company or of the Company against any Noteholders.
9 Register
9.1 A Register of Noteholders will be kept by the Company. There shall
be entered into the Register:-
9.1.1 the names and addresses of the Noteholders;
9.1.2 the amount of the holding of each of the Noteholders;
9.1.3 the date upon which each person was registered as a Noteholder;
9.1.4 the date upon which each person ceased to be a Noteholder;
9.1.5 the date of issue of the Note; and
9.1.6 details of any repayment of the Notes.
9.2 Any change of name and address on the part of a Noteholder must be
communicated to the Company as soon as is reasonable and the
Register will be altered accordingly.
10 Transfers
10.1 Save for the transfers of this Note by the Noteholder to the
Noteholder's spouse any lineal descendant of the Noteholder, any
parent of the Noteholder or to any lineal descendant of any such
parent (hereinafter referred to as "privileged relations") or to
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any trustee of any trust or settlement of which the only
beneficiaries comprise a privilege relation or privileged relations
or by any trustee of such trust or settlement to a beneficiary
thereof or to a new trustee, this Note shall not be transferable.
A transfer of this Note shall be in writing under the hand of the
transferor and in the usual common form or such other form as is
acceptable to the directors of the Company. The transfer shall be
lodged with the Company together with such evidence of the title of
the transferor (including production of this Note) as the Company
may reasonably require and thereupon the transferee shall be
registered as the holder of this Note. The Company shall be
entitled to retain the transfer.
10.2 The Company may charge a fee of L.10 for the registration of any
transfer or change in ownership of this Note.
11 Notice of Trustees Excluded
11.1 The Company will recognise each of the Noteholders as the absolute
owner of the Notes in respect of which he is registered and the
Company shall not be affected by notice of any other right title or
claim of any person to this Note other than the Noteholders.
11.2 The Company shall not be bound to take notice or see to the
execution of any trust (whether express implied or constructive) to
which the Notes may be subject.
11.3 A receipt by the Noteholder for moneys payable in respect of the
Note shall be a good discharge to the Company and Serv-Tech
notwithstanding any notice it may have whether express or otherwise
of the right title interest or claim of any other person to or in
such Note or moneys.
11.4 The Note will be paid without regard to any equities set off or
cross claim between the Company and the original or any
intermediate holder.
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12 Payments to Noteholder
The Principal Sum and interest due and payable on and pursuant to this
Note to the Noteholder will be paid by way of bankers telegraphic
transfer to such bank account as the Noteholder shall have in writing
notified to the Company or Serv-Tech. In default of such notification
payment of such monies unless otherwise agreed between the Company and
the Noteholder may be made by cheque posted in a prepaid letter to the
Noteholder if he is a sole holder or to the first named of joint holders
at his address or to such other person or address as the Noteholder or
joint holders may request in writing. Such payment by such telegraphic
transfer of by any such cheque (following clearance thereof shall (unless
otherwise agreed) for all purposes be deemed to be payment and
satisfaction of the Principal Sum and/or interest represented thereby.
13 No Set-off
The monies hereby covenanted to be paid shall be paid and this Note shall
be transferable without regard to any set off cross claim or equities
between the Company and the original or any intermediate holder and the
receipt of the sole holder or the first named of joint holders shall be a
good discharge to the Company.
14 Lost or Destroyed Notes
If this Note is worn out defaced lost or destroyed it may be renewed on
payment of such fee not exceeding L.25 and on such reasonable terms as to
evidence of identity and indemnity in respect of the expenses incurred by
the Company in investigating or verifying title as the directors of the
Company shall think fit provided that in the case of defacement of this
Note it must be surrendered before the new Note is issued. Stamp duty (if
any) payable on such renewal shall be borne by the Noteholder.
15 Meetings of Noteholders
15.1 The Company may convene a meeting of the Noteholders. The Company
shall convene a meeting of the Noteholders within ten (10) days of
receiving a request(s) from five (5) holders of Notes or holder(s)
of one-tenth of the value of the Aggregate Principal Sum (as
hereinafter defined) outstanding in respect of
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the Notes. Any such meeting shall be held at such place as the
Company shall determine having due regard to the convenience of the
Noteholders.
15.2 When a meeting is convened at least ten (10) days' notice
(exclusive in each case of the day on which the notice is served or
deemed to be served and of the day for which the notice is given)
shall be given to the Noteholders. The notice shall specify the
place day and hour of meeting the general nature of the business to
be transacted and the terms of any resolution to be passed.
15.3 Subject as hereinafter provided the quorum for passing a Resolution
shall be one (1) present in person or by proxy holding a simple
majority of the aggregate amount of the Principal Sum evidenced by
this Note and the Notes ("the Aggregate Principal Sum"). The
Noteholder or Noteholders present in person or by proxy shall form
a quorum for the transaction of any other business. No business
shall be transacted at any meeting unless the requisite quorum is
present at the commencement of business.
15.4 If within thirty (30) minutes of the time appointed for the meeting
a quorum is not present the meeting shall stand adjourned to such
day and time and to such place as may be appointed by the Company
and at such adjourned meeting all of the Noteholders whether in
person or by proxy shall be a quorum for the transaction of any
business.
15.5 The chairman may with the consent of any meeting at which a quorum
is present and shall if so directed by the meeting adjourn the
meeting from time to time and from place to place but no business
shall be transacted at any adjourned meeting except business which
might lawfully have been transacted at the meeting from which the
adjournment took place.
15.6 At any meeting a resolution put to the vote of the meeting shall be
decided on a show of hands unless (before or on the
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declaration of the result of the show of hands) a poll is so
demanded by the chairman or by one (1) or more Noteholders present
in person or by proxy. Unless a poll is demanded a declaration by
the chairman that a resolution has been carried or carried
unanimously or by a particular majority or not carried by a
particular majority or lost shall be conclusive evidence of the
fact.
15.7 If a poll is duly demanded it shall be taken in such a manner as
the chairman may direct and the result of a poll shall be deemed to
be the resolution of the meeting at which the poll is demanded.
15.8 A poll demanded on any question shall be taken forthwith.
15.9 On a show of hands every Noteholder who (being an individual) is
present in person or (being a corporation) is present by its duly
authorised representative or by one of its officers as its proxy
shall have one vote. On a poll every Noteholder who is present in
person or by proxy shall have one vote for every L.1 of the
Aggregate Principal Sum evidenced by the Note (as if no reduction
had been made for the purpose of Condition 4) of which he is the
holder.
15.10 In the case of joint Noteholders the vote of the senior who tenders
a vote whether in person or by proxy shall be accepted to the
exclusion of the votes of the other joint holders and for this
purpose seniority shall be determined by the order in which the
names stand in the Register in respect of the joint holding.
15.11 On a poll votes may be given either personally or by proxy and a
Noteholder entitled to more than one (1) vote need not (if he
votes) use all his votes or cast all the votes he uses in the same
way.
15.12 The instrument appointing a proxy shall be in the usual common form
or such other form as the directors of the Company may
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approve. A person appointed to act as proxy need not be a Noteholder.
15.13 The instrument appointing a proxy and the power of attorney or
other authority (if any) under which it is signed or a notarially
certified copy of such power or authority shall be deposited at the
registered office of the Company or such other place as shall be
specified in the notice concerning the meeting not less than forty
eight (48) hours before the time appointed for the meeting or
adjourned meeting at which the person named in the instrument
proposes to vote. No instrument appointing a proxy shall be valid
after the expiration of twelve (12) months from the date named in
it as the date of its execution.
15.14 A Resolution passed at a meeting of the Noteholders duly convened
and held in accordance with these conditions shall be binding upon
all the Noteholders whether present or not present at the meeting
and each of the Noteholders shall be bound to give effect thereto
accordingly.
15.15 The expression "Resolution" means a resolution passed at a meeting
of the Noteholders duly convened and held in accordance with the
provisions herein contained and carried by a majority consisting of
not less than a simple majority of the persons voting thereat upon
a show of hands or if a poll is duly demanded by a majority
consisting of not less than a simple majority of the votes given in
such poll.
15.16 A resolution in writing signed on or on behalf of the holder or
holders of Notes evidencing a simple majority of the Aggregate
Principal Sum shall for all purposes be as valid and effectual as a
Resolution passed at a meeting of the Noteholders duly convened and
held in accordance with the provisions herein contained. Such
resolution in writing may be contained in one document or in
several documents in like form each signed by or on behalf of one
or more of the Noteholders.
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16 Notices
Any notice to be given in connection with this Note must be given in
writing to the party due to receive such notice at (in the case of the
Company or Serv-Tech) at its registered office set out on this Note or
such other address or addresses as may from time to time be notified to
the Noteholder or (in the case of the Noteholder) his address as set out
in the Register. Notice must be delivered personally or sent by first
class pre-paid post and shall be deemed to be given in the case of
delivery on delivery unless after 5.00 p.m. or on a day not being a
Business Day when the notice shall be deemed to have been received at the
commencement of the next Business Day and in the case of posting (in the
absence of evidence of earlier receipt) within 24 hours after posting (5
Business Days if sent by air mail).
17 Deduction of Tax
If the Company is so required by law the Company shall deduct tax from any
amount payable by it hereunder in respect of interest paid on the relevant
Notes and shall deliver to the relevant Noteholder in respect of the
amount so paid by it a certificate as to the gross amount of such payment,
the amount of tax deducted and the actual amount paid or to be paid and
certifying that the Company has paid or will pay the amount of tax
deducted, to the Inland Revenue, Internal Revenue Service or other
applicable taxing authority.
18 Incorporation of conditions
The Note shall be held subject to these Conditions which shall be binding
on the Company, Serv-Tech and the Noteholder and all persons claiming
through or under any of them.
-28-
<PAGE> 29
SCHEDULE 1
REDEMPTION NOTICE
I/We being the Registered Holder(s) of the Note represented by this Certificate
HEREBY:-
A. GIVE NOTICE that I/We require the Company to redeem *ALL/(L. only) of
the said Note on or (if that date is not a Business Day)
on the last preceding Business Day.
B. AUTHORISE the despatch of:-
(i) a cheque or other method of payment so agreed in accordance with
the terms of the said Note for the amount of the capital monies and
interest payable in respect of the Notes so to be redeemed made
payable to **
..........................................................
(Name to be completed in Capital Letters)
(ii) A note in my/our name(s) for the balance (if any) of the Principal
Sum represented by this Note
by registered post at my/our risk to the relevant address given below
Address (a) For despatch of redemption payment
(in full)
........................................
........................................
........................................
........................................
TO BE COMPLETED IN CAPITAL LETTERS
(b) For despatch of any balance note (if
different from (a))
........................................
........................................
........................................
........................................
Signature(s) (1)
............................................
of (2)
............................................
Noteholder(s) (3)
.......................................
(4)
............................................
Dated this day of
* Complete as appropriate
-29-
<PAGE> 30
** If this space is left blank the cheque will be made payable to the
Registered Holder (s)
-30-
<PAGE> 31
SCHEDULE 2
FORM OF REPORT TO BE GIVEN BY CHEMISOLV'S ACCOUNTANTS
PURSUANT TO CONDITION 5.2
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
A Company Inc:
We have audited the accompanying balance sheets of Chemisolv Holdings, Inc. and
subsidiaries as of December 31, 1996, and the related statements of earnings,
retained earnings, cash flows 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 audits.
We conducted our audits in accordance with accepted auditing standards. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Chemisolv Holdings, Inc. and
subsidiaries, as of December 31, 1996, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information attached
in Schedule 1 related to the calculation of Revenues is presented for purposes
of additional analysis and is not a required part of the basic financial
statements. Such information has been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion, is
fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
Signed KPMG PEAT MARWICK L.L.P
February 2, 1997
-31-
<PAGE> 32
SCHEDULE 1
REPORT AS TO REVENUES FOR THE PURPOSE OF
CONDITION 5.2 OF THE CONDITIONS ATTACHED TO THE
GUARANTEED UNSECURED LOAN NOTES ISSUED BY CHEMISOLV HOLDINGS INC
PURSUANT TO THE AUTHORITY OF A RESOLUTION OF THE BOARD OF DIRECTORS
OF CHEMISOLV HOLDINGS INC DATED DECEMBER 1995
("The Loan Notes")
(All expressions used in this Schedule shall have the meanings ascribed to them
in the Loan Notes).
Calculation of Revenues in respect of year ending [ ].
The Revenues for the year ended 31st December [ ] have been calculated as
follows:
Royalty Revenues L.
Product and Service Revenues L.
Customer Revenues L.
------
Revenues for the year ending 31st December L.
======
Accordingly the Principal Sums due to Messrs Davies, Owen, Armitage, Duffy, etc
pursuant to the Loan Notes in respect of the Financial Year ended [ ]
are as follows:-
Relevant Principal Sum
Fraction
RJ Davies
DM Owen
CC Armitage
JR Duffy
etc
-32-
<PAGE> 1
Serv-Tech
1995 Annual Report
[PHOTO]
<PAGE> 2
Serv-Tech: Integrity & Excellence
<PAGE> 3
[PHOTO]
Serv-Tech, Inc. is a
leading provider of
innovative maintenance,
engineering, and
construction services
and products to
process industries
worldwide, employing
highly advanced
proprietary equipment
and technology.
<PAGE> 4
Financial Highlights 3
Letter to Shareholders 4-6
Serv-Tech Technology 7
Q & A 8-9
Serv-Tech Specialty Services 10-13
Serv-Tech EPC 14-17
Serv-Tech Environmental & Performance Chemicals 18-21
Officers & Management Group 22
Board of Directors 23
Financials 25-47
<PAGE> 5
FINANCIAL HIGHLIGHTS
In thousands, except per share data
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 1994 (a) 1993 1992 1991
OPERATING DATA
<S> <C> <C> <C> <C> <C>
Revenues $ 279,566 $ 181,087 $ 162,021 $ 148,019 $ 88,341
Depreciation and amortization 6,804 5,709 4,194 3,492 2,270
Special charge - (12,225) - - -
Operating income (loss) 6,478 (8,682) 6,519 9,210 5,088
Net income (loss) 2,061 (8,795) 2,919 5,639 3,239
Earnings (loss) per share 0.31 (1.44) 0.50 0.97 0.62
Weighted average number of
shares outstanding 6,720 6,117 5,889 5,789 5,166
BALANCE SHEET DATA
Cash and short-term investments $ 1,347 $ 1,851 $ 15,948 $ 4,888 $ 5,820
Working capital 23,232 22,238 30,053 17,462 15,065
Property, plant and equipment, net 32,415 30,594 25,727 24,559 24,617
Total assets 112,245 98,315 93,295 86,842 65,172
Long-term debt, excluding current maturities 16,595 15,025 15,140 8,161 201
Stockholders' equity 52,930 50,564 53,954 51,352 43,977
Capital expenditures 6,180 5,194 4,864 5,995 9,957
</TABLE>
Note:
(a) Excluding the effect of the special charge, operating income, net income
and earnings per share for 1994 were $3,543, $1,225, and $.19,
respectively. See Note 9 of Notes to Consolidated Financial Statements for
information related to the special charge.
REVENUE GROWTH
For the year ended December 31
(millions of dollars)
[LINE GRAPH]
REVENUE BACKLOG
As of December 31
(millions of dollars)
[LINE GRAPH]
3.
<PAGE> 6
Letter to Shareholders
With a clear and focused strategy, 1995 was a benchmark year of strong growth,
solid business development, technological innovation and an improved
organizational structure.
Serv-Tech is one of the most technologically sophisticated providers of
specialty services to the refinery turnaround maintenance market. Its
leading capabilities include a full range of mechanical turnaround
maintenance, specialty welding, refractory and patented chemical
decontamination services. The extensive list of Serv-Tech technologies is
testimony of the substantial investment the Company has made over the years
to be the best in servicing this market. We will continue to emphasize our
unique position as the provider of the most comprehensive set
of specialty turnaround maintenance services available from any single source
in the industry.
We recognize, however, that the refinery turnaround maintenance market has
certain seasonality characteristics that affect consistent quarter-to-quarter
earnings. Thus, in 1995, we continued to focus the Company on expanding the
industries served and the services and technologies provided by Serv-Tech.
As a result, we have experienced growth in our engineering, procurement and
construction ("EPC") services, our technology-driven product and crude oil
tank cleaning services, Terminal Technologies, Inc. ("TTI"), and our
specialty chemical business, Chemisolv. We also have invested in the
development of two new technologies: WELDSMARTTM and MastiffSM. With this
activity has come expansion beyond the hydrocarbon industry into the food,
sugar, and pulp and paper industries.
Our intent was to set a strategy that would position Serv-Tech for revenue
and profitability growth over the next several years, with a goal of reaching
$500 million in revenue and a return on equity of 15 percent or better. In
working toward this goal, accomplishments in 1995 include the following:
* Net earnings growth of 71 percent; revenue growth of 54
percent to a record $280 million;
* EPC operations revenue growth from $63 million to over
$134 million;
* Strong first and fourth quarter 1995 performances by our Turnaround
Services division;
* A high level of repeat business and project alliances, in addition to
securing ten annual maintenance contracts with refineries;
* Continuation of our tradition of developing highly innovative technology
to enhance our customers' operating performance;
4.
<PAGE> 7
* Progress toward creating a more cohesive business organization; and
* Reduction of overhead to 14.5 percent of revenue, compared to third and
fourth quarter 1994 levels of 20 percent and 17 percent, respectively.
FINANCIAL PERFORMANCE
In 1995 we generated record revenue of $280 million, versus $181 million in
1994. Earnings grew to $2.1 million, or $0.31 per share, compared to $1.2
million, or $0.19 per share, in 1994, exclusive of the 1994 special after-tax
charge of $10 million, or $1.63 per share. Although most Serv-Tech operating
units contributed to these improved earnings, our engineering and construction,
refractory, and specialty welding groups substantially improved their
performance compared with 1994. Revenue was higher across the board from all
business units, including $134 million from our Specialty Services unit and
$134 million from Serv-Tech EPC (including $52 million from SECO Industries,
Inc.).
Backlog totaled $96 million at year-end 1995, compared to $88 million at
year-end 1994. The December 31, 1995, backlog included $84 million
attributable to Serv-Tech EPC (including $17 million from SECO) and $10
million from the Specialty Services segment.
OPERATIONAL HIGHLIGHTS
The people in each of our operating units made outstanding contributions in
1995, in both financial performance and in positioning Serv-Tech for future
growth. With a continued focus on our customer alliances, SECO secured two
back-to-back electrical and instrumentation ("E & I") contracts with J. Ray
McDermott, Inc. for Shell's Mars and Ram/Powell deep water production
platforms. SECO also provided complex E & I services for two major clean fuels
projects for Ultramar Refinery and Mobil Oil Company.
TTI formed an alliance agreement with Amoco's Petroleum Products division to
service their marketing terminal facilities. This alliance opens up long-term
opportunities in the tank cleaning and tank management areas, for both TTI and
ST Environmental, to service Amoco's pipeline, refining, and chemical
facilities in the future. Truly a win-win combination for our customers and
Serv-Tech.
Formation of new customer relationships with British Petroleum, Coastal Oil
Company, Firestone and Union Carbide were established by combining the
Company's technical capabilities with the expansion of our EPC services. EPC's
largest domestic contract award, the $20 million Conoco Tank Farm project,
contributed to EPC's financial performance this year, in addition to forming
a strong customer relationship with Conoco. The award of the $83 million
Finchaa, Ethiopia, sugar factory project to F.C. Schaffer & Associates, Inc.
was a major milestone for the Company in 1995. We see a number of additional
sugar project opportunities in Africa and South America over the next several
years.
Particularly noteworthy was the financial performance of our refractory
group, Hartney Industrial Services, and our specialty welding operations, ST
Piping, and the first and fourth quarter performances of our Turnaround
Services division. Major turnarounds for Atlas Processing Company, Chevron,
Dupont, Star Enterprise, Unocal, and Vista Chemical contributed to successful
performances by these specialty services groups.
As an industry leader in the field of technology, Serv-Tech made substantial
progress in 1995 in the development of three innovative technology processes:
Mastiff(SM), WELDSMART(TM), and Heat Guard(SM). Development of these new
chemical technologies and processes is creating new opportunities for our
performance chemicals, environmental and specialty products divisions
(Chemisolv, ST Environmental and Hill Technical Services).
Our customers look to us to solve many of their inherent, technically complex
problems requiring research and development. Our commitment to developing
new technologies aimed at solving the problems of process plant owners
continues. It is technology and smarter solutions that make the Serv-Tech
family of companies a preferred provider of services and products to process
industries.
5
<PAGE> 8
BOARD OF DIRECTORS
During 1995, Richard W. Krajicek, entrepreneur, founder and former Chairman
of the Board of Serv-Tech, Inc., retired. Throughout his career and the
development of Serv-Tech, he continually focused on creating new technologies
to provide superior service and the safest work environment possible. Many
thanks to Dick for his numerous contributions and achievements which remain a
vital part of Serv-Tech.
Also in the fall of 1995 and early 1996, two members were added to Serv-Tech's
Board of Directors. Dr. Charles M. Balch, Executive Vice President for Health
Affairs, M. D. Anderson Cancer Center, and Mr. D. D. "Del" Hock, Chairman,
Public Service Company of Colorado, represent expertise and leadership
capabilities in the medical and power industries. Their talent and experience
add a new dimension to our Board. We look forward to their industry insight
and contributions.
LOOKING FORWARD
We will continue to emphasize our specialty services and technologies in the
refinery turnaround maintenance market. We will also stay focused on our
strategy to expand the services and products we offer as well as the industries
we serve. Our 1996 goals include the following:
* Continued revenue and earnings growth;
* Commercialization of additional technologies and expansion of Serv-Tech
into global markets;
* Continued expansion of our EPC services with special emphasis on our
market differentiators in electrical, instrumentation and control
systems, and sugar processing expertise;
* Securing another major sugar project in Africa or South America;
* Developing or acquiring market differentiating process technology;
* Continued improvement of our cost structure; and
* Further progress toward our goal of $500 million in revenue and 15
percent return on equity.
Although we see a softer than usual spring 1996 refinery turnaround
maintenance market, overall long-term market conditions in the hydrocarbon
processing industry continue to be attractive. Increasing global competition
and environmental regulations require our customers to continue to improve
maintenance and operations of their facilities, fueling the demand for our
specialty services, EPC and E & I capabilities.
Our employees have demonstrated exceptional determination and commitment to
our goals, as we have made significant changes over the past 18 months to
position the Company for the future. Our heartfelt thanks go to all the
Serv-Tech team members for their hard work and commitment to the future of
the Company. We also thank our customers for providing us with the
opportunity to serve them and our shareholders for their continued support.
Sincerely,
Robert J. Cresci
Robert J. Cresci
Chairman of the Board
Richard L. Daerr
Richard L. Daerr
President & CEO
Increasing global competition and environmental regulations continue to
require our customers to improve maintenance and operations of their
facilities, fueling the demand for our specialty services, EPC and E&I
capabilities.
6
<PAGE> 9
SERV-TECH TECHNOLOGY
1984
FAST DRAW(R) HEAT EXCHANGER BUNDLE EXTRACTOR*
1985
FAST CLEAN(R) 8-LANCE HEAT EXCHANGER CLEANING UNIT*
1986
AERIAL HEAT EXCHANGER BUNDLE EXTRACTION UNIT*
1987
"NO MAN ENTRY" TANK CLEANING SYSTEM*
1988
REMOTE CONTROLLED TANK CLEANING SYSTEM*
1989
CRUDE OIL SLUDGE DISPERSENT SYSTEM*
1990
SECOND GENERATION FAST CLEAN SYSTEM*
1991
TOWER & VESSEL DECONTAMINATION SYSTEM*, HYDROCARBON RECLAIMER SYSTEM*
1992
VOLATILE ORGANIC COMPOUND REMOVAL SYSTEM*
1993
LIFE GUARD(R) DECONTAMINATION SYSTEM*
1994
WELDSMART(TM)**, FAST TRACK(SM)**, MASTIFF(SM)**, PROCESS FOR PAPER DE-INKING**
1995
NUTRISOLV(SM), HEAT GUARD(SM)
*Patented, **Patent Pending
<PAGE> 10
Q & A
[PHOTO]
A conversation with
Richard Daerr,
President &
Chief Executive Officer,
Serv-Tech, Inc.
WHEN DO YOU ANTICIPATE ACHIEVING YOUR GOAL OF $500 MILLION IN REVENUE AND 15
PERCENT RETURN ON EQUITY?
In 1995 we made significant progress toward this goal by attaining $280
million in revenue. This was an improvement of $99 million, or 54 percent,
over 1994 revenue. That's quite an accomplishment by the Serv-Tech team. We
also made progress in growing our earnings, although we were short of our
earnings expectations going into the year. We believe our goal is achievable
over the next several years, as we continue to build Serv-Tech as a premier,
integrated provider of technology-driven specialty services and products to
the hydrocarbon, food, pulp and paper, and power industries.
WHAT CONTRIBUTED TO YOUR 1995 EARNINGS BEING BELOW EARLIER EXPECTATIONS?
Early in the year, we believed we could achieve $.60 to $.75 per share. Our
actual results of $.31 per share were improved over 1994 and compared
favorably to our industry peer group, but were short of our early estimate.
There were two primary reasons for the shortfall. The first was the effect
of several under-performing maintenance projects. The more significant
factor, however, was that traditional summer refinery turnaround maintenance
slowdown was more significant than we anticipated. During the summer months
when gasoline demand is high, refineries tend to minimize turnaround
maintenance work.
WHAT IS YOUR STRATEGY FOR REDUCING THE SEASONALITY IMPACT OF THE TURNAROUND
MAINTENANCE BUSINESS?
Our Specialty Services segment contains three divisions: Turnaround Services,
Specialty Welding, and Refractory. All of these divisions and Serv-Tech
Environmental, our refinery decontamination operation, are affected by the
seasonality inherent in the refinery turnaround maintenance market. Some of
the things we are doing to minimize the seasonality factor are:
* Expand annual maintenance, engineering and construction alliances with
refineries;
* Structure our overhead to be more consistent with the seasonality of the
business;
* Expand our UK and northern Europe presence;
* Expand our opportunities for cross-utilization of sales and resources
throughout the Company; and
* Diversify our revenue base beyond our Specialty Services and the
hydrocarbon industry;
8
<PAGE> 11
I believe we have made significant progress in each of these areas, but we
will have to make additional progress throughout 1996 in order to maximize
the returns from our Specialty Services businesses.
THE COMPANY HAS GONE THROUGH AN EXTENSIVE ORGANIZATIONAL RESTRUCTURING,
COMBINING MULTIPLE OPERATING UNITS INTO DISTINCT OPERATING DIVISIONS. DID YOU
ACHIEVE THE RESULTS YOU HAD ANTICIPATED WITH THIS RESTRUCTURE?
Yes, most definitely. We now offer our customers single point responsibility
for a total package of services and capabilities, utilizing cross-services,
and maximizing the resources across Serv-Tech's operating divisions. Because
we are an integrated organization, we have attained a leaner overhead
structure. However, we are flexible enough to react quickly to our
customers' needs by utilizing an array of Company resources. We offer our
customers a package of total solutions, in addition to our services, which
are tailored to their specifications at the lowest possible price.
WHAT IS THE OUTLOOK FOR 1996?
The hydrocarbon turnaround maintenance market is starting slow but should
accelerate later in the year. We expect to see improved gross profit margins
from this segment with our more focused and selective business development
process. This, combined with performance pricing by the Turnaround Services
division, should yield lower risk and improved profit performance. We are
pursuing a number of opportunities in our EPC segment, emphasizing our
electrical, instrumentation and control systems, and sugar processing
capabilities. We are also hopeful that MastiffSM, our paper strengthening
technology, and WELDSMARTTM, our welding technology, should be
commercialized by mid-year and become growing
revenue contributors later in the year.
WHAT EXACTLY IS MASTIFF(SM) AND WHY ARE YOU SO POSITIVE ABOUT IT?
Mastiff(SM) is a potential breakthrough technology that could significantly
improve how paper is made from recycled fiber. It is a new approach to
increasing the strength of paper and box board through the application of
patented chemistry. The process has demonstrated meaningful increases in
strength on a wide range of papers but is particularly suited to the production
of packing paper and box board using recycled fiber. In addition to paper
strengthening, the process has demonstrated increased paper machine production
speed and lower energy consumption. Full-scale commercialization trials are
progressing at three separate mill locations in the United Kingdom. These
trials, which will determine commercial viability, should be completed
during the first half of 1996.
SHOULD WE EXPECT ANOTHER PROJECT LIKE THE FINCHAA SUGAR PROJECT ON THE
HORIZON?
Our goal is to extrapolate off the success of the $83 million Ethiopia sugar
factory project. There are a number of sugar project opportunities in Africa
and South America that our F.C. Schaffer group is currently pursuing. These
projects often include ethanol and cogeneration facilities as well.
THIS IS THE SECOND YEAR YOU HAVE MENTIONED WELDSMARTTM . TELL ME MORE ABOUT
THE TECHNOLOGY AND YOUR PLANS FOR COMMERCIALIZATION?
WELDSMART(TM) is a technology that could change the way welding and heat
treating services are provided in many applications. It is designed to
improve both welding productivity and the consistency of welding performance.
The unit also provides a detailed computer record of each weld to ensure
conformity to specified procedures. Commercialization of WELDSMARTTM is
proceeding and should be completed during the first half of 1996. We will
feature WELD-SMARTTM at the American Welding Society Exposition in April
1996, in Chicago, Illinois.
WHAT IS THE MOST IMPORTANT INGREDIENT IN SERV-TECH'S CONTINUED SUCCESS?
The energy, enthusiasm and commitment of all the people at Serv-Tech. They
brought us to where we are today, and they are the key to our future. We
look forward to the continued success and contributions from the team at
Serv-Tech.
[PHOTO]
9
<PAGE> 12
Serv-Tech Specialty Services
[PHOTO]
<PAGE> 13
[PHOTO]
Serv-Tech Specialty Services provides total project management, including heat
exchanger maintenance, towers and vessels, heat treating, specialty welding,
furnace repair, boiler retubes, process piping, heavy rigging and code repairs,
primarily in refineries, petrochemical facilities and power plants.
<PAGE> 14
Serv-Tech Specialty Services
[PHOTO]
Hartney's Advanced Refractory Services quality control technician inspecting
a 24-inch reformer.
Top 10 Turnaround Services Clients
(Revenue in millions of dollars)
[BAR CHART]
Chevron USA, Inc.
Mobil Oil
Atlas Processing Company
Vista Chemical
Coastal Oil Company
Phibro Energy USA, Inc.
Farmland Industries, Inc.
Dupont
Phillips 66 Company
Unocal
Serv-Tech's technology and expertise offer considerable value to independents
as well as major refineries and petrochemical customers.
Serv-Tech's Specialty Services segment offers refineries, petrochemical
facilities and power plants a complete package of maintenance, repair,
cleaning, specialty fabrication, welding and other specialty services that
assure maximum operating efficiency as well as employee and environmental
safety. These services are provided by a team of skilled professionals,
utilizing highly innovative technologies and proprietary equipment. The
specialty services are provided through three primary divisions: Turnaround
Services (turnaround and maintenance), ST Piping (specialty welding), and
Hartney Industrial Services (refractory).
As an industry leader, the group generated $134 million in revenue for the
year, an increase of $21 million, or 18 percent, over 1994 revenue of $113
million. Revenue contribution by sector was $89 million, $23 million, and
$22 million for Turnaround Services, ST Piping and Hartney Industrial
Services, respectively.
The new "performance pricing" structure developed by the Turnaround Services
division was enthusiastically received by many of its customers. These
contractual arrangements, based on performance, consider the total benefits
of using Serv-Tech's Specialty Services such as reduced refinery downtime,
increased efficiency, higher revenue and improved safety. It is a true
win-win situation, providing the highest value to the customer and an
acceptable rate of return to Serv-Tech.
The new "performance pricing" structure developed by the Turnaround Services
division was enthusiastically received by many of its customers.
Our Turnaround Services division is creating alliances and partnerships with
certain large contractors to provide specialty services to accounts where the
industrial contractor has an established, long-term relationship. We are
seeking projects that utilize our core capabilities, traditional services and
proprietary equipment. This more focused and selective process, combined with
"performance pricing", should yield lower risk, higher margin contracts.
Key strategic initiatives have been implemented to help offset the
seasonality inherent to the petrochemical turnaround business:
* Establish annual contracts with several major clients to utilize our
specialized equipment and experienced field personnel on a day-to-day
basis during the off season;
* Continued consolidation and sharing of resources with other business
units for better utilization of personnel and equipment year round; and
* Expand our specialty services through strategic acquisitions and
newly-developed technologies to service industries with varying peak
spending cycles.
12
<PAGE> 15
[PHOTO]
Hartney's mechanical specialists vib-casting refractory concrete at the
Galena Park, Texas, shop facilities.
ST Piping is a premier provider of refinery maintenance and welding repair
services, specializing in emergency operations. This division experienced
tremendous growth in 1995, generating $23 million in revenue versus $15 million
in 1994. Although ST Piping's revenue base has historically been driven by West
Coast activity, the division is implementing a growth strategy that encompasses
more Gulf Coast projects. ST Piping has and will continue to be a solid
contributor to the Specialty Services group performance.
Hartney Industrial Services, acquired in 1994, is a leading contractor and
fabricator specializing in the installation of brick and other lining and
coating systems designed to protect processing equipment from extreme heat and
corrosive substances (refractory services). Hartney has developed several new
service lines, including fiberglass installation and repair, sandblasting,
specialty painting and other services. In 1995, Hartney aggressively pursued
the power industry and secured several contracts, including one of the largest
power plant turnarounds in the United States. Hartney continues to focus
significant efforts on industries that do not experience the same seasonality as
refineries, such as the cement, power and petrochemical industries.
Our Hill Technical division designs, manufactures and applies specialized
welding and heat treatment equipment and services. Hill is currently in the
final stages of developing WELDSMART(TM), a patented welding technology.
WELDSMART(TM) is an innovation in manual welding technology, designed to
improve both welding productivity and the consistency of welding performance.
The WELD-SMART(TM) unit will not only facilitate consistent welding, but will
also provide a detailed computer record of each weld to ensure conformity to
specifications. Commercialization of WELDSMART(TM) is proceeding and should
be completed during the first half of 1996. Hill Technical will be featuring
the unit at the American Welding Society Exposition in April 1996, in Chicago,
Illinois.
REVENUE GROWTH
For the year ended December 31
(millions of dollars)
[GRAPH]
Looking ahead, 1996 will be a year filled with new opportunities and
challenges, as we expand our specialty services and newly-developed
technologies throughout the industries we serve.
[PHOTO]
ST Piping personnel have developed a reputation for superb craftsmanship and
perform-ance, including welds with exceptionally low rejection rates.
13
<PAGE> 16
SERV-TECH EPC
[PHOTO]
<PAGE> 17
Serv-Tech EPC provides turnkey, single source responsibility for engineering,
procurement and construction on domestic and international projects ranging in
size to $100 million for clients in the refining, hydrocarbon processing,
petrochemical, food, power, and pulp and paper industries.
In addition to serving these industries, SECO, the E&I division of Serv-Tech
EPC, performs electrical and instrumentation installations for offshore drilling
platforms, clean fuels projects, refining, petrochemical and food process-ing
facilities.
[PHOTO]
<PAGE> 18
SERV-TECH EPC
[PHOTO]
[PHOTO]
[PHOTO]
[PHOTO]
The 480-foot boom of a 1,000 ton capacity truck crane reaches skyward as
Serv-Tech crews assemble a flare stack for a major national refiner. The
52-inch diameter stack was set in three separate lifts over a three day
period.
1995 was a year of major growth for Serv-Tech's engineering, procurement and
construction segment, Serv-Tech EPC. During 1995, Serv-Tech's electrical and
instrumentation operation, SECO Industries, was integrated into Serv-Tech EPC,
creating a premier integrated provider of multi-disciplined services to the
refining, offshore, hydrocarbon processing, petrochemical, power, pulp and
paper, and food processing industries. Collectively, the group generated $134
million in revenues, an increase of 114 percent over the 1994 revenue level of
$63 million. The group also enters 1996 with a strong backlog level of $84
million.
Three large projects were major contributors to Serv-Tech EPC's 1995 revenue.
The first was F.C. Schaffer & Associates' $83 million contract to engineer,
design and construct a 4,000 metric ton-per-day sugar factory and 45,000
liter-per-day ethanol plan t in Finchaa, Ethiopia, which was approximately 40
percent complete at year-end 1995. Schaffer's vast experience and capabilities
in the sugar process field were a critical component to the awarding of the
project. Sugar related projects will remain a key business development focal
point for 1996 and beyond.
The second major project was the design and construction of the $20
million Conoco Tank Farm project. This facility is associated with Conoco's
$750 million Hydrocracker Pumping and Storage Facility in Westlake,
Louisiana, which represents EPC's largest domestic award to date.
The third project by Serv-Tech's E & I division, SECO Industries, was the MARS
production platform in the deep waters of the Gulf of Mexico. Jointly owned by
Shell Offshore and British Petroleum, the MARS platform is designed for drilling
and production operations at a world-record water depth of 2,933 feet. As the
operator, Shell has created a uniquely structured, multi-contractor allied team
that is working together from project feasibility analysis to platform
completion. Costing approximately $1.2 billion and 1.3 million manhours, the
MARS project is currently the highest profile offshore project under
construction. In its final stages, the MARS platform is on schedule and under
budget, quite a feat for a project of this magnitude.
Customer satisfaction and an excellent reputation are primary contributors to
Serv-Tech's success. In 1995, the EPC operations experienced high levels of
repeat business, developed industry alliances and obtained numerous new
customers, including British Petroleum, Coastal Oil Company, Firestone and
Union Carbide Corporation.
Customer satisfaction and an excellent reputation are primary contributors to
Serv-Tech's success.
16
<PAGE> 19
[PHOTO]
SECO provides QAQC inspection personnel.
In late 1995 SECO was awarded its third consecutive contract to provide E&I
services to another Shell Oil deep water production platform. The Ram/Powell
platform will be designed and fabricated by the "Topside Alliance Construction
Team" (TACT), with J. Ray McDermott, Inc. remaining the lead contractor. SECO
has allied itself with McDermott, whereby SECO is the preferred provider of
complex E&I systems for these massive production platforms being built for deep
water use. With improved exploration technolog y stimulating drilling and
production operations in the deep waters of the Gulf of Mexico, SECO anticipates
additional construction activity throughout 1996 and beyond.
In 1995 we made significant progress with engineering and maintenance alliance
opportunities. We will continue to actively pursue these type of long-term
relationships.
REVENUE GROWTH
For the year ended December 31
(millions of dollars)
[GRAPH]
Progressing into 1996, the newly integrated Serv-Tech EPC organization will
continue to expand its client base focusing on market sectors where we have
successfully differentiated ourselves.
We will continue to pursue multi-disciplined lump sum design/build projects
up to the value range of $100 million. Several potential projects with the
desired differentiating factors have already been identified, and discussions
are underway with a major refinery to qualify for three separate projects
totaling approximately $50 million.
We will aggressively market ourselves as a premier provider of control system
designs and installations, and expect SECO to continue to have success as a
premier electrical and instrumentation contractor for offshore drilling and
production platforms.
We are excited about the opportunities available to our EPC group and the
markets we serve.
REVENUE BACKLOG
As of December 31
(millions of dollars)
[GRAPH]
[PHOTO]
A Shell Tension Leg Platform located dockside during final hookup and
testing.
17
<PAGE> 20
Serv-Tech Environmental and Performance Chemicals provides custom
formulations to meet specific customer needs in hydrocarbon processing, pulp
and paper processing, and wastewater treatment. Specialty chemical programs for
the paper industry include new technologies for de-inking and strengthening
paper and paper board products.
[PHOTO]
<PAGE> 21
Serv-Tech Environmental & Performance Chemicals
[PHOTO]
<PAGE> 22
SERV-TECH ENVIRONMENTAL &
PERFORMANCE CHEMICALS
Serv-Tech offers highly customized solutions to customer needs through the
application of advanced chemical technologies and patented processes.
[PHOTO]
Mastiff(SM) increases paper production and quality, and enables greater
recycling of fibers.
Serv-Tech's Environmental Services and Performance Chemicals segment provides
sophisticated chemicals and systems to the hydrocarbon processing, pulp, paper
and wastewater treatment industries. Serv-Tech offers highly customized
solutions to customer needs through the application of advanced chemical
technologies and patented processes. Such solutions include systems to enhance
finished product quality, maximize production output, minimize downtime and
optimize energy requirements as well as meet environmental regulations and
recommendations.
This segment includes the Chemisolv, Serv-Tech Environmental, and Terminal
Technologies ("TTI") divisions of Serv-Tech, which collectively generated $16
million in revenue for 1995, versus the 1994 level of $9 million. Technology
is a critical component in the continued growth of this group, whether it is
Serv-Tech Environmental's Life Guard(R) Decontamination, TTI's Hydrocarbon
Reclaimer or Chemisolv's Mastiff(SM) technology.
HYDROCARBON PROCESSING
Serv-Tech Environmental provides oil refineries and petrochemical plants with
broad-based chemical expertise and application experience to develop safe and
effective treatment programs for decontamination, towers, vessels, pipework and
heat exchangers. One of the most successful technologies is the patented Life
Guard(R) system which removes free hydrocarbons, including volatile and toxic
products, from refinery towers and vessels. The decontamination is performed
within a closed-loop system to prevent hazardous contaminants from entering a
plant's waste stream. Since its introduction in late 1992, the Life Guard(R)
system has been applied in over 500 systems. In 1995 the ST Environmental
group, which manages the Life Guard(R) system, increased its customer base
by approximately 20 percent, in addition to experiencing an increasing amount
of repeat business from their growing satisfied customer base.
Serv-Tech Environmental and Chemisolv recently introduced a unique energy
management system for heat exchangers that combines Serv-Tech's patented
technologies Fast Draw(R), Fast Clean(R) and Life Guard(R) systems with its
newly developed antifoulant products and monitoring system. This exclusive new
system, Heat Guard(SM), provides plant operators with a means to monitor and
manage the most critical heat transfer areas of the plant and realize
significant energy savings on an ongoing basis, all in a single program.
20
<PAGE> 23
[PHOTO]
The patented HP 2000 system has externally controlled and operated equipment
that allows up to 90 percent of the cleaning to be performed before the tank
is even opened, minimizing out-of-service time.
Another highly successful product line servicing the hydrocarbon processing
and storage industries is the patented Hydrocarbon Reclaimer System developed
by TTI. It provides turnkey tank cleaning, sludge processing and waste
management services on above-ground storage tanks. Its effectiveness is
substantiated by an alliance agreement TTI signed with Amoco's Petroleum
Products division in December 1995, to clean 70 to 100 tanks per year with
the Hydrocarbon Reclaimer System. The system specifically cleans tanks that
store lighter oils and distilates. However, discussions are well under way
to pursue an alliance with Amoco to utilize another Serv-Tech patented
system, the HP 2000, which cleans heavy oil storage tanks.
PULP & PAPER
Chemisolv's well-established expertise in the pulp and paper industry has led
to the development of a potential breakthrough technology that could
significantly improve the way paper is made from recycled fiber. Mastiff(SM)
is a patent pending technology that increases the strength and stiffness of
paper and board. The process has demonstrated meaningful increases in
strength on a wide range of papers, but is particularly suited to the
production of packaging paper and box board using recycled fiber. In addition
to paper strengthening, the process has demonstrated increased paper machine
production speed and reduced energy consumption. Full-scale commercialization
trials are progressing at three separate locations in Europe, and are expected
to be completed during the first half of 1996.
WASTEWATER TREATMENT
Chemisolv solves wastewater treatment problems for oil refineries and
petrochemical plants, as well as the pulp and paper, steelmaking, food
processing and textile industries. Chemisolv's experienced chemists develop
"custom blend" products and programs for virtually every customer, sometimes
creating completely new product concepts. In 1995 Chemisolv launched
Nutrisolv(SM), a program that monitors and adjusts the conditions of
microbiological organisms in water treatment plants to assure their "health"
for optimum removal of waste.
Chemisolv is developing strong relationships with world-class waste treatment
plant EPC companies, which have increasingly led to Chemisolv being specified
as the chemical treatment supplier of choice at the start-up of new
facilities.
1996 should prove to be an exciting year for the Environmental Services and
Performance Chemicals segment, as we seek opportunities to expand into
additional industries and locations utilizing the synergistic marketing
relationships established by other Serv-Tech divisions. For instance,
Chemisolv will seek opportunities to apply its specialty chemical expertise to
help solve problems in the sugar refining industry in alliance with the F.C.
Schaffer group of Serv-Tech EPC. We are also pleased about the opportunity to
further exploit our environmental and performance chemical capabilities on a
global basis.
REVENUE GROWTH
FOR THE YEAR ENDED DECEMBER 31
(millions of dollars)
[GRAPH]
21.
<PAGE> 24
CORPORATE OFFICERS
Robert J. Cresci
Chairman of the Board
Richard L. Daerr
President & Chief Executive Officer
David P. Tusa
Senior Vice President,
Finance & Administration
Frank A. Perrone
Vice President, General Counsel &
Corporate Secretary
H. Pat Solis
Treasurer, Director of Investor Relations
Dale W. Wilhelm
Corporate Controller
Judith A. Dolifka
Assistant Corporate Controller
OPERATING GROUP MANAGEMENT
SERV-TECH SPECIALTY SERVICES
Michael J. Krajicek
President,
Turnaround & Maintenance Services
Mark E. Bortka
Vice President, Turnaround Operations,
Turnaround & Maintenance Services
Robert R. Cradeur
Vice President, Manufacturing Services
James N. Lanclos
Vice President, Business Development
Leslie R. Slack
President, ST Piping, Inc.
Terry L. McGregor
President, Hartney Industrial Services Corp.
Christopher J. Bloch
President, Hill Technical Services, Inc.
SERV-TECH ENVIRONMENTAL &
PERFORMANCE CHEMICALS
Ralph J. Davies
President, Chemisolv, Inc.
James R. Duffy
Vice President & General Manager,
Chemisolv, Inc.
David M. Owen
Director, Research & Development,
Chemisolv, Inc.
Clem C. Armitage
General Manager, Chemisolv, Ltd.
Raju K. Mehta
Technical Director, Chemisolv, Inc.
W. Harry Corbett
Business Manager, Chemisolv, Inc.
Timothy P. Greene
General Manager,
Terminal Technologies, Inc.
Michael D. Bayse
Business Manager,
Serv-Tech Environmental Services
SERV-TECH EPC
James J. Degnan
President,
Serv-Tech EPC, Inc.
Owen J. Batt
Manager of International Operations,
Serv-Tech EPC, Inc.
Steve D. Bieber
Manager of Project Support Services,
Serv-Tech EPC, Inc.
Michael A. Connally
Manager of Projects,
Serv-Tech EPC, Inc.
Glenn G. Dubuc
Manager of District Operations,
SECO Industries
Bryan A. Landry
Manager of Projects,
SECO Industries
Steve R. Pierce
Sr. Vice President, Finance & Administration,
Serv-Tech EPC, Inc.
Francis C. Schaffer
President, F.C. Schaffer & Associates, Inc.
Edward I. Stanley
Senior Vice President &
Manager of Engineering,
Serv-Tech Engineers, Inc.
William P. Taunton
Manager of District Operations,
Serv-Tech EPC, Inc.
James P. Uhl
Manager, Business Development,
Serv-Tech EPC, Inc.
22.
<PAGE> 25
BOARD OF DIRECTORS
[PHOTO]
Back Row (from left to right)
Charles M. Balch, M.D.
Executive Vice President for Health Affairs,
M.D. Anderson Cancer Center
D.D. "Del" Hock
Chairman,
Public Service Company of Colorado
John B. O'Brien
President, Baker & O'Brien, Inc.
James M. Piette
Retired Vice Chairman, Union Camp Corp.
Mike M. Mustafoglu
President, Oxbow Energy, Inc.
Michael T. Willis
President & Chief Executive Officer,
CORESTAFF, Inc.
Front Row (from left to right)
Richard L. Daerr
President & Chief Executive Officer,
Serv-Tech, Inc.
Robert J. Cresci
Chairman of the Board, Serv-Tech, Inc.
Managing Director, Pecks Management Partners Ltd.
23
<PAGE> 26
FINANCIAL REVIEW
<TABLE>
<S> <C>
Management's Discussion and
Analysis of Financial Condition
and Results of Operations....................................... 27
Market and Dividend Information................................... 31
Independent Auditors' Report...................................... 31
Consolidated Balance Sheets....................................... 32
Consolidated Statements of Operations............................. 33
Consolidated Statements of Changes
in Stockholders' Equity......................................... 34
Consolidated Statements of Cash Flows............................. 35
Notes to Consolidated Financial Statements........................ 36
</TABLE>
25
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and related notes thereto and "Financial Highlights"
included elsewhere in this Report.
For the year ended December 31, 1995, the Company recorded net income
of $2.1 million, or $0.31 per share, compared to a net loss of $8.8 million, or
$1.44 loss per share, in 1994 and net earnings of $2.9 million, or $0.50 per
share, in 1993. The 1994 net loss includes a special charge of $10.0 million,
or $1.63 per share. Excluding the effect of the special charge, the Company
generated net earnings in 1994 of $1.2 million, or $0.19 per share.
Consolidated revenues for 1995 were $279.6 million, an increase of
54.4 percent over 1994 revenues of $181.1 million, which were 11.8 percent
higher than 1993 revenues of $162.0 million. The 1995 increase in revenues was
generated primarily from expansion of the Company's engineering, procurement
and construction business ("EPC") which includes its electrical and
instrumentation subsidiary SECO Industries ("SECO"). The increase in 1994
revenues was attributable to increased levels of activity in the Company's
turnaround maintenance and specialty services ("Specialty Services") business
and EPC.
EPC revenues for 1995 includes $32.8 million attributable to the
Finchaa Sugar Factory and Ethanol Plant Project that was approximately 40.0
percent complete at December 31, 1995. Additionally, 1995 EPC revenues include
$16.5 million related to the $20.7 million Conoco Tank Farm Project in
Westlake, Louisiana.
Consolidated gross profit margins as a percentage of revenues were
17.4 percent for 1995, relatively unchanged from 1994 margins of 17.7 percent.
Excluding the Finchaa project, the consolidated gross profit percentage for
1995 was 18.9 percent. The 1995 increased gross profit, excluding the Finchaa
project, is due primarily to improved Specialty Services profit margins over
1994. The 1994 consolidated gross profit percentage decreased slightly from the
1993 level of 18.7 percent. This decrease resulted primarily from the
completion of several large electrical and instrumentation installations on
offshore platforms during 1993 for which there were no comparable projects
during 1994.
Consolidated selling, general and administrative expenses increased
47.2 percent to $42.0 million in 1995 from $28.6 million in 1994. The increase
is attributable primarily to acquisitions during 1995 and the latter half of
1994 including Hartney Industrial Services ("Hartney") in June 1994. Higher
overhead expenses are also due to increased amortization of acquisition costs,
increased international activity and expansion of the Company's EPC and
Environmental and Performance Chemicals businesses. Consolidated selling,
general and administrative expenses in 1994 were $4.8 million, or 20.2 percent,
higher than the 1993 level of $23.8 million, resulting primarily from the
expansion of Specialty Services and the acquisition of Hartney. The
consolidated increases in overhead are consistent with the higher level of
activity and growth of the Company. Consolidated overhead as a percentage of
revenue actually decreased from 15.8 percent in 1994 to 15.0 percent in 1995.
Interest expense increased in 1995 to $2.0 million compared to $1.4
million in 1994. In 1994 interest expense increased $0.4 million from $1.0
million in 1993. The 1995 increase is due to a higher level of working capital
borrowings during the year under the Company's revolving line of credit
necessary to support the higher level of business activity. The 1994 increase
in interest expense over 1993 is due primarily to the Company's issuance of
$15.0 million in 8.41 percent senior notes payable in June 1993.
Interest income decreased $0.5 million in 1995 from 1994's level of
$0.5 million which was a decrease of $0.3 million over 1993. The decreases
resulted primarily from lower available cash balances during the periods.
In 1995, minority interest and other include the earnings
participation by the former shareholders of F. C. Schaffer & Associates, Inc.
in the estimated profits of the Finchaa project amounting to approximately $0.6
million (see Note 4 of Notes to Consolidated Financial Statements). Minority
interest and other also includes the minority shareholders portion of ST
Piping, Inc. earnings. Effective May 18, 1995, the Company acquired an
additional 20 percent of the outstanding common stock of ST Piping, Inc. from
the minority shareholders of that company. Prior to the acquisition, the
Company owned 70 percent (see Note 3 of Notes to Consolidated Financial
Statements).
27
<PAGE> 28
SPECIALTY SERVICES
In 1995, Specialty Services revenues increased $20.9 million, or 18.4
percent, over 1994 revenues of $113.5 million. Specialty Services revenues
increased $22.2 million, or 24.3 percent, in 1994 over 1993 revenues of $91.3
million. The 1995 revenue increase is consistent with increased refinery
maintenance spending during the year. Also, the increases in 1995 and 1994
revenues were attributable to the acquisition of Hartney in June, 1994, which
generated revenues of $21.6 million in 1995 and $14.5 million in 1994. In
addition, during 1994, Specialty Services completed two major projects for a
West Coast refinery which contributed revenues of approximately $28.4 million.
Operating income in 1995 was $4.3 million compared to $5.7 million in
the prior year, excluding a $10.6 million pre-tax special charge recorded
during 1994. Operating income in 1994 (excluding the special charge) was $1.5
million higher than 1993 operating income of $4.2 million. Higher levels of
revenues and gross profit in each period were offset by increased selling,
general and administrative expenses. The increased level of overhead expenses
in both periods was attributable primarily to the acquisition of Hartney in
June, 1994, and an increase in international activity.
EPC
EPC revenues were $134.4 million in 1995, an increase of $71.7
million, or 114.3 percent over 1994 revenues of $62.7 million. The higher level
of revenues resulted primarily from the introduction of procurement and
construction services and expansion of its engineering services in the latter
half of 1994. Also, as previously discussed, 1995 EPC revenues include
approximately $32.8 million and $16.5 million attributable to the Finchaa and
Conoco Tank Farm Projects, respectively. SECO contributed $51.8 million to 1995
EPC revenues, a slight increase over 1994 revenues of $48.7 million. In 1994,
EPC revenues were comparable to the 1993 level of $62.8 million. Revenue growth
of $8.2 million in 1994 from the expansion and introduction of new services
discussed above was offset by an $8.3 million decrease in SECO revenues which
experienced an historically high level of revenues during 1993.
Operating income amounted to $8.2 million in 1995, more than double
the 1994 level. The increase resulted primarily from the higher level of
revenues and gross profits which were offset partially by higher selling,
general and administrative expenses. Additionally, $1.8 million of the 1995
operating income was attributable to the Finchaa project. The increase in
overhead expenses is primarily due to the expansion of these services and is
consistent with the increased level of business activity. In 1994, EPC
operating income was $4.0 million, a decrease of $4.6 million from 1993 levels
of $8.6 million. The decrease was attributable primarily to a $5.4 million
decrease in SECO operating income directly related to the decrease in the
subsidiary's revenues discussed above. Such decrease was offset slightly by a
$0.9 million increase in other EPC services.
ENVIRONMENTAL AND PERFORMANCE CHEMICALS
Environmental and Performance Chemicals ("Environmental") revenues
increased $7.8 million, or 90.6 percent, to $16.4 million in 1995. Chemisolv
Holdings ("Chemisolv"), the Company's performance chemical subsidiary acquired
in November, 1994, contributed $5.1 million to the increase in revenues. The
remaining $2.7 million increase is attributable to increased activity in the
Company's tank cleaning services. Environmental revenues in 1994 were $8.6
million, approximately the same as 1993.
Operating income in 1995 was $0.2 million compared to an operating
loss of $0.2 million in 1994 and an operating loss of $0.4 million in 1993.
Higher gross profit margins recognized on decontamination services and
increased activity in the tank cleaning business have contributed to the
improved operating results which have been partially offset by Chemisolv
operating losses. Chemisolv operating losses are attributable to the higher
levels of overhead expenses incurred primarily with the continued development
of their new paper strengthening technology, Mastiff(SM).
IMPACT OF INFLATION AND CHANGING PRICES
Inflation and changing prices have not significantly affected the
Company's operating results or the markets in which the Company performs
services.
28
<PAGE> 29
BACKLOG
Revenue backlog as of December 31, 1995, was $96.1 million. Revenue
backlog by operating segment for the three years ended December 31, 1995, is as
follows (in thousands):
<TABLE>
<CAPTION>
December 31,
1995 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
EPC............................... $ 83,739 $ 47,255 $ 25,600
Specialty Services................ 9,928 39,708 17,350
Environmental..................... 2,418 1,100 -
---------------------------------------
$ 96,085 $ 88,063 $ 42,950
=======================================
</TABLE>
EPC revenue backlog as of December 31, 1995, includes $48.0 million related to
the Finchaa project. The decrease in Specialty Services revenue backlog from
December 31, 1994, is consistent with a slow starting 1995 turnaround
maintenance season which is attributable to many refineries delaying their
scheduled maintenance until late 1996 or 1997.
While backlog can be an indication of expected future revenues,
backlog is subject to revisions from time-to-time due to cancellations,
modifications and changes in the scope of projects or their design and
construction schedules. There can be no assurance whether or when backlog will
be realized as revenue.
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures for 1995, excluding acquisitions, were $6.2
million, primarily for the purchase of equipment to support the expansion of
the Company's EPC and performance chemical businesses. In addition, the Company
acquired a new computer system and related software. Capital expenditures for
1996, excluding acquisitions, are expected to be approximately $4.0 to $5.0
million, primarily for the purchase and manufacture of equipment to support
continued expansion of the Company's business activities.
At December 31, 1995, the Company's working capital totaled
approximately $23.2 million. The Company has been able to finance its working
capital requirements through its cash flows from operations and bank
borrowings. The Company maintains a $35.0 million revolving line of credit with
two banks which expires in May, 1997. At December 31, 1995, $6.5 million was
outstanding under the revolving line of credit and $22.3 was available for
borrowing. In addition, the Company has $15.0 million in 8.41 percent Senior
Notes Payable due June 2003 (see Note 5 of Notes to Consolidated Financial
Statements).
As further discussed in Note 4 of Notes to Consolidated Financial
Statements, in 1995 the Company secured an $83.0 million contract to engineer,
design, procure and construct a 4,000 metric ton cane-per-day sugar factory and
45,000 liter-per-day ethanol facility in Finchaa, Ethiopia. The project, which
is financed by the African Development Bank, is expected to be completed in the
latter part of 1997. On February 7, 1995, the Company received an advanced
payment equal to 20 percent of the contract value. The Company issued letters
of credit to support performance and the 20 percent advance payment. The
outstanding portion of the letters of credit total $23.4 million at December
31, 1995. Subsequent to December 31, 1995, the outstanding portion has been
reduced to $20.5 million. Contractual payments to the Company are supported by
a revolving letter of credit issued by the Ethiopian government via the African
Development Bank. The project is expected to be self funding and, therefore,
should not require working capital support other than that received from the
project owner.
For the year ended December 31, 1995, net cash flows from operations
were $2.2 million resulting primarily from net income of $2.1 million,
depreciation and amortization of $6.8 million, net increase in accounts payable
and accrued liabilities of $1.3 million, offset by an increase in accounts
receivable of $3.7 million and net increases in uncompleted contracts of $5.7
million. The increases were due primarily to the higher level of business
activity during 1995. Net expenditures used in investing activities amounted to
$6.7 million, consisting primarily of $6.2 million in capital expenditures and
$0.9 million in acquisitions of businesses (see Note 3 of Notes to Consolidated
Financial Statements). Cash flows provided by financing activities totaled $4.0
million resulting from net borrowings under the Company's revolving line of
credit. The borrowings were offset partially by the acquisition of $1.6 million
in treasury stock in October, 1995 (see Note 8 of Notes to Consolidated
Financial Statements).
29
<PAGE> 30
OTHER
Specialty Services revenues and operating income are subject to
significant quarterly fluctuations, affected primarily by the timing of planned
shutdowns at its customers' facilities. In general, scheduled turnarounds fall
predominantly in two seasonal periods--February through May and September
through November. The exact timing and duration of these periods will largely
depend on the demand for the customers' products and availability of feedstocks
for processing. In addition, most of the Specialty Services contracts are short
in duration, and large individual contracts may significantly influence results
in any specific quarter.
The Company has discretionary bonus programs for key personnel
throughout most of its operating groups. Payments under these plans total, in
the aggregate, approximately 8 percent of operating earnings of each unit. For
the Turnaround Maintenance division of Specialty Services and the Chemisolv
division of Environmental and Performance Chemicals, the Company has
established profit sharing programs in lieu of the discretionary programs noted
above. The Specialty Services and Chemisolv programs generally provide for a
profit sharing pool to be established equal to 20 percent of the operating
earnings of the respective group.
Management believes that existing cash, cash flow from operations and
existing credit facilities will be sufficient to meet the current ongoing
requirements of the operations of the Company. In addition, the above sources
can be supplemented with other external sources of funds to meet additional
cash requirements, if necessary.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March, 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 121 "Accounting for
the Impairment of Long-Lived Assets to be Disposed Of". The Company will adopt
SFAS No. 121 during the first quarter of 1996. Management has not yet
determined what impact, if any, the adoption of SFAS No. 121 will have on the
Company's financial position or results of operations.
SFAS No. 123 "Accounting for Stock Based Compensation" was issued in
October, 1995. SFAS No. 123 defines a fair value based 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 service period; however, SFAS No. 123 allows an entity to
continue to measure compensation cost in accordance with Accounting Principal
Board Statement No. 25 ("APB 25"). The Company will continue to account for
stock option grants in accordance with APB 25, and accordingly, recognizes no
compensation expense for stock options granted.
30
<PAGE> 31
MARKET AND DIVIDEND
INFORMATION
The Company's common stock is traded in the over-the-counter market
and is quoted on the National Association of Securities Dealers' Automated
quotations System ("NASDAQ") National Market System under the symbol "STEC".
The following table sets forth the quarterly high and low bid quotations of the
common stock, as quoted by NASDAQ, for the calendar quarters indicated.
<TABLE>
<CAPTION>
Calendar Period High Low
- -------------------------------------------------------------------------------
<S> <C> <C>
1995:
First Quarter.......................................... 8 3/4 6
Second Quarter......................................... 9 1/4 6 5/8
Third Quarter.......................................... 9 6 1/2
Fourth Quarter......................................... 8 1/2 5 1/8
1994:
First Quarter.......................................... 12 3/4 8 3/4
Second Quarter......................................... 10 3/4 7 1/2
Third Quarter.......................................... 10 1/4 7 1/4
Fourth Quarter......................................... 10 1/2 5 7/8
</TABLE>
At March 15, 1996, there were approximately 2,200 shareholders of the
common stock. The average of the high and low bid quotations on such date was
$5.5625. The Company has not paid dividends on its common stock, and the Board
of Directors of the Company presently intends to continue a policy of retaining
earnings for use in the Company's operations and to fund the Company's working
capital requirements and growth opportunities.
INDEPENDENT
AUDITORS'
REPORT
To the Board of Directors and Stockholders of Serv-Tech, Inc.:
We have audited the accompanying consolidated balance sheet of
Serv-Tech, Inc. and Subsidiaries as of December 31, 1995, and the related
consolidated statements of operations, changes in stockholders' equity, and
cash flows for the year then ended. 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. The accompanying consolidated balance sheet of Serv-Tech, Inc. and
Subsidiaries, as of December 31, 1994, and the related consolidated statements
of operations, changes in stockholders' equity and cash flows for each of the
two years in the period ended December 31, 1994, were audited by other auditors
whose report thereon dated February 17, 1995, expressed an unqualified opinion
on those statements.
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 1995 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Serv-Tech, Inc. and Subsidiaries as of December 31, 1995, and the results of
their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Houston, Texas
February 16, 1996
31
<PAGE> 32
Serv-Tech, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents......................................................... $ 1,347,475 $ 1,851,431
Accounts receivable, net ......................................................... 41,686,672 37,887,180
Costs and estimated earnings in excess of billings on uncompleted contracts ...... 8,693,468 3,172,181
Prepaid expenses ................................................................. 1,619,903 1,636,979
Inventory......................................................................... 2,102,245 1,324,568
Deferred income taxes ............................................................ 4,922,070 3,580,581
------------ ------------
Total current assets.......................................................... 60,371,833 49,452,920
Property, plant and equipment, net..................................................... 32,414,756 30,594,051
Investments in and advances to affiliates ............................................. - 966,277
Intangible assets, net................................................................. 17,442,812 15,943,203
Other assets........................................................................... 2,015,984 1,358,807
------------ ------------
Total assets.................................................................. $112,245,385 $ 98,315,258
============ ============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable.................................................................. $ 12,662,352 $ 11,396,235
Accrued liabilities............................................................... 15,278,640 13,500,090
Revolving line of credit.......................................................... 6,500,000 -
Billings in excess of costs and estimated earnings on uncompleted contracts....... 1,343,826 1,407,013
Income taxes payable.............................................................. 728,597 -
Other............................................................................. 626,566 911,483
------------ ------------
Total current liabilities..................................................... 37,139,981 27,214,821
Long-term debt, less current maturities ............................................... 16,594,998 15,025,140
Deferred income taxes ................................................................. 5,095,608 4,649,227
Minority interest and other ........................................................... 484,952 862,429
Commitments and Contingencies (Note 12)
Stockholders' Equity:
Preferred stock, $1 par value, 2,000,000 shares
authorized; no shares issued or outstanding..................................... - -
Common stock, par value $.50, authorized 20,000,000
shares; issued shares of 6,752,671 and 6,504,778, respectively.................. 3,376,336 3,252,390
Additional paid-in capital........................................................ 43,489,763 41,828,709
Retained earnings................................................................. 7,675,586 5,614,467
Cumulative translation adjustments................................................ (64,982) (131,925)
Treasury stock, at cost, 193,358 shares........................................... (1,546,857) -
------------ ------------
Total stockholders' equity.................................................... 52,929,846 50,563,641
------------ ------------
Total liabilities and stockholders' equity.................................... $112,245,385 $ 98,315,258
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
32
<PAGE> 33
Serv-Tech, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues.......................................................... $ 279,566,348 $ 181,086,770 $ 162,021,399
Costs of services................................................. 231,042,006 148,979,186 131,736,993
-----------------------------------------------------
Gross profit.................................................. 48,524,342 32,107,584 30,284,406
Selling, general and administrative expenses...................... 42,046,618 28,563,990 23,764,981
Special charge.................................................... - 12,225,182 -
-----------------------------------------------------
Operating income (loss)....................................... 6,477,724 (8,681,588) 6,519,425
-----------------------------------------------------
Other income (expense):
Interest expense.............................................. (1,990,837) (1,445,116) (1,001,515)
Interest income............................................... 44,929 511,357 785,911
Other, net.................................................... 116,689 4,016 (67,536)
-----------------------------------------------------
Total other expense........................................... (1,829,219) (929,743) (283,140)
-----------------------------------------------------
Minority interest and other....................................... (999,055) (260,305) (419,208)
Equity in losses of affiliates.................................... (24,331) (226,700) (679,216)
-----------------------------------------------------
Income (loss) before provision for income taxes................... 3,625,119 (10,098,336) 5,137,861
Provision (benefit) for income taxes.............................. 1,564,000 (1,303,000) 2,218,724
-----------------------------------------------------
Net income (loss) ................................................ $ 2,061,119 $ (8,795,336) $ 2,919,137
=====================================================
Earnings (loss) per share......................................... $ .31 $ (1.44) $ .50
=====================================================
Weighted average common shares outstanding ....................... 6,720,134 6,117,434 5,888,508
=====================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
33
<PAGE> 34
Serv-Tech, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Retained Cumulative Treasury Stock Total
Paid-In Earnings Translation
Shares Amount Capital Adjustments Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992.......... 5,810,978 $2,905,490 $36,881,683 $11,490,666 $ 74,565 - $ - $51,352,404
Translation adjustments....... - - - - (318,021) - - (318,021)
Net income.................... - - - 2,919,137 - - - 2,919,137
----------------------------------------------------------------------------------------------
Balance, December 31, 1993.......... 5,810,978 2,905,490 36,881,683 14,409,803 (243,456) - - 53,953,520
Exercise of stock options 43,800 21,900 184,526 - - - - 206,426
Issuance of common stock...... 650,000 325,000 4,762,500 - - - - 5,087,500
Translation adjustments....... - - - - 111,531 - - 111,531
Net loss...................... - - - (8,795,336) - - - (8,795,336)
----------------------------------------------------------------------------------------------
Balance, December 31, 1994.......... 6,504,778 3,252,390 41,828,709 5,614,467 (131,925) - - 50,563,641
Exercise of stock options..... 40,000 20,000 121,250 - - - - 141,250
Issuance of common stock...... 207,893 103,946 1,539,804 - - - - 1,643,750
Purchase of treasury stock.... - - - - - (203,873) (1,630,984) (1,630,984)
Transfer of treasury stock
to 401(k) plan.............. - - - - - 10,515 84,127 84,127
Translation adjustments ...... - - - - 66,943 - - 66,943
Net income.................... - - - 2,061,119 - - - 2,061,119
----------------------------------------------------------------------------------------------
Balance, December 31, 1995.......... 6,752,671 $3,376,336 $43,489,763 $ 7,675,586 $ (64,982) (193,358) $(1,546,857) $52,929,846
==============================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
34
<PAGE> 35
Serv-Tech, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ........................................................... $ 2,061,119 $ (8,795,336) $ 2,919,137
Adjustments:
Depreciation and amortization .................................... 6,803,623 5,709,415 4,193,760
Special charge ................................................... - 12,225,182 -
Minority interest and other ................................ 999,055 260,305 419,208
Equity in losses of affiliates ................................ 24,331 226,700 679,216
Provision for losses on accounts and notes receivable .......... 1,245,072 981,536 399,042
Deferred income taxes ............................................ (895,108) (1,394,091) 481,724
Other ......................................................... 22,482 145,320 141,456
-------------------------------------------
10,260,574 9,359,031 9,233,543
Changes in assets and liabilities, net of effect from
acquisitions of businesses:
Accounts receivable ............................................. (3,676,228) (7,647,085) 3,625,304
Net change in billings, costs and estimated earnings on
uncompleted contracts ....................................... (5,697,633) 1,446,123 (3,186,074)
Inventory ........................................................ (374,509) (38,938) 123,339
Prepaid expenses ................................................ 91,190 (304,852) 479,016
Other assets .................................................... (402,401) (49,196) (189,197)
Accounts payable ................................................ 767,864 (2,169,450) (3,240,599)
Accrued liabilities .............................................. 544,461 (581,528) 2,246,370
Income taxes payable ........................................ 728,599 - (707,256)
Other liabilities ........................................ - - (435,000)
-------------------------------------------
Net cash provided by operating activities .................... 2,241,917 14,105 7,949,446
-------------------------------------------
Cash flows from investing activities:
Capital expenditures ..................................................... (6,179,544) (5,193,674) (4,864,423)
Investments in and advances to affiliates ................................ (34,450) (671,387) 1,525,094
Acquisitions of businesses, net of cash acquired ......................... (866,057) (2,435,628) -
Intangible assets ........................................................ (117,306) (337,677) (405,168)
Proceeds from sale of property, plant and equipment ..................... 462,951 77,864 205,484
-------------------------------------------
Net cash used in investing activities ........................ (6,734,406) (8,560,502) (3,539,013)
-------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of debt ........................................ 31,000,000 8,000,000 20,000,000
Principal payments of debt .............................................. (25,521,733) (12,554,198) (13,043,307)
Financing costs ......................................................... - (300,000) (226,843)
Proceeds from issuance of common stock .................................. 141,250 146,426 -
Purchase of treasury stock .............................................. (1,630,984) - -
Payments of dividends on preferred stock of a subsidiary ................. - (42,411) (80,000)
Purchase of preferred stock of a subsidiary .............................. - (800,000) -
-------------------------------------------
Net cash provided by (used in) financing activities .......... 3,988,533 (5,550,183) 6,649,850
-------------------------------------------
Net increase (decrease) in cash and cash equivalents ........................ (503,956) (14,096,580) 11,060,283
Cash and cash equivalents at beginning of year............................... 1,851,431 15,948,011 4,887,728
-------------------------------------------
Cash and cash equivalents at end of year..................................... $ 1,347,475 $ 1,851,431 $ 15,948,011
===========================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
35
<PAGE> 36
Serv-Tech, Inc. and Subsidiaries
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies Basis of Presentation
The consolidated financial statements include the accounts of
Serv-Tech, Inc., and its majority-owned subsidiaries. The Company's investments
in affiliated companies (50% and less owned) are accounted for in accordance
with the equity method. All significant intercompany balances and transactions
are eliminated.
Revenues and Costs Recognition
The Company engages in fixed price and modified fixed price contracts
and contracts based on costs incurred plus applicable profit percentages (time
and material contracts).
Revenues from fixed price and modified fixed price contracts are
recognized on the percentage-of-completion method, measured primarily by the
percentage of costs incurred to date to estimated total costs for each contract
(cost-to-cost method). Management believes this method is the most appropriate
measure of progress on contracts. Revenues from time and material contracts are
recognized currently as costs are incurred in performing the work.
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance, such as indirect labor,
supplies, tools and repairs. Selling, general, and administrative costs are
charged to expense as incurred. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are determined. Changes
in job performance, job conditions and estimated profitability may result in
revisions to costs and income which are recognized in the period in which the
revisions are determined.
The asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed. The liability, "Billings in excess of costs and estimated earnings on
uncompleted contracts", represents billings in excess of revenues recognized.
Cash and Cash Equivalents
Cash and cash equivalents include cash, tax free municipal bond funds
and other highly liquid investments with maturities of three months or less at
the date of acquisition. Cash equivalents are stated at cost which approximates
market value.
Inventory
Inventory consists primarily of materials and supplies and is stated
at the lower of cost or market. Cost is determined principally by the average
cost method.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Major renewals and
betterments which extend the lives of equipment are capitalized while all other
repairs and maintenance are charged to operations as incurred.
Disposals are removed at cost less accumulated depreciation with any
resulting gain or loss reflected in results of operations.
For financial reporting purposes, depreciation for all property,
plant and equipment is provided using the straight-line method over the
estimated useful lives of the depreciable assets, ranging from three to 30
years. Accelerated methods are generally used for income tax purposes.
Intangible Assets
Intangible assets are carried at cost and amortized using the straight
line method over their legal or estimated useful lives. These lives range from
20 to 40 years for excess of costs over net assets of businesses acquired, 17
years for patents and three to five years for covenants not to compete. The
Company's management assesses, at least quarterly, recorded balances of excess
of costs over net assets of businesses acquired net of accumulated amortization
for impairment in light of historic and projected operating trends and
profitability, new product development and strategic direction of the Company.
Restricted Cash
At December 31, 1995 and 1994, cash and cash equivalents, include
restricted balances of $0.6 million. The balances are restricted for the
guarantee of indebtedness of a subsidiary and for the payment of claims,
expenses and premiums under certain insurance policies. Any unused balances
are refundable to the Company.
36
<PAGE> 37
Foreign Currency Translation
The assets and liabilities of the Company's foreign affiliates are
translated at year-end exchange rates, while income and expenses are translated
at average rates during the year. Translation adjustments are recorded as a
separate component of stockholders' equity.
Income Taxes
The Company recognizes deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement carrying amounts and tax basis of assets and liabilities
using enacted tax rates in effect in the years in which the differences are
expected to reverse.
The Company does not provide deferred income taxes on undistributed
earnings of equity affiliates because such earnings are considered to be
permanently reinvested. The amount of deferred income taxes not provided is
immaterial.
Earnings (Loss) per Common Share of Stock
Primary and fully diluted earnings (loss) per common share are based
on the weighted average number of shares outstanding during the year after
consideration of the dilutive effect of stock options reflected under the
treasury stock method. Fully diluted earnings per share are not presented
because such amounts would be similar to amounts computed for primary earnings
per share.
Concentration of Credit Risk
The Company provides specialized turnaround maintenance, engineering,
procurement and construction, and environmental services, primarily to the
hydrocarbon (petroleum and natural gas related products) processing and
production industries principally in the United States. The Company performs
ongoing credit evaluations of its customers' financial condition. Although
generally no collateral is required from its customers, the Company may place
liens against the property constructed or serviced if payment default occurs.
The Company maintains reserves for potential losses and such losses have been
within management's expectations. See Note 4 regarding the Finchaa project.
Excess cash is invested principally in tax-free municipal bond funds
consisting of securities of municipalities with strong credit ratings. These
investments generally mature within three months and, therefore, bear minimal
risk. The Company has not experienced any losses on its investments.
Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
Impact of Recently Issued Accounting Standards
In March, 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 121 "Accounting for
the Impairment of Long-Lived Assets to be Disposed Of". The Company will adopt
SFAS No. 121 during the first quarter of 1996. Management has not yet
determined what impact, if any, the adoption of SFAS No. 121 will have on the
Company's financial position or results of operations.
SFAS No. 123 "Accounting for Stock Based Compensation" was issued in
October 1995. SFAS No. 123 defines a fair value based 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 service period; however, SFAS No. 123 allows an entity to
continue to measure compensation cost in accordance with Accounting Principal
Board Statement No. 25 ("APB 25"). The Company will continue to account for
stock option grants in accordance with APB 25, and accordingly, recognizes no
compensation expense for stock options granted.
Reclassifications
Certain reclassifications have been made in order to conform to
current year presentation with no effect on earnings.
37
<PAGE> 38
2. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS
Additional information regarding certain balance sheet accounts at
December 31, 1995 and 1994 is presented below:
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accounts receivable:
Contracts ....................................................... $ 42,208,999 $ 36,082,430
Income taxes..................................................... - 3,061,820
Other............................................................ 1,420,757 482,361
----------------------------------
43,629,756 39,626,611
Less allowance for doubtful accounts............................. (1,943,084) (1,739,431)
----------------------------------
$ 41,686,672 $ 37,887,180
==================================
</TABLE>
Bad debt expense was approximately $1.2 million, $1.0 million and $0.4
million for the years ended December 31, 1995, 1994, and 1993, respectively.
<TABLE>
<S> <C> <C>
Property, plant and equipment, at cost:
Land and improvements............................................ $ 1,341,646 $ 1,303,646
Buildings and improvements....................................... 5,432,715 4,725,379
Operating machinery and equipment................................ 35,572,153 30,836,180
Furniture and office equipment................................... 7,894,026 4,359,057
----------------------------------
50,240,540 41,224,262
Less accumulated depreciation.................................... (18,590,493) (13,454,446)
----------------------------------
31,650,047 27,769,816
Construction-in-progress ........................................ 764,709 2,824,235
----------------------------------
$ 32,414,756 $ 30,594,051
==================================
</TABLE>
Depreciation expense was approximately $5.5 million, $4.6 million and
$3.3 million for the years ended December 31, 1995, 1994, and 1993,
respectively.
<TABLE>
<S> <C> <C>
Intangible assets:
Patents (net of accumulated amortization of
$468,977 and $363,081 at December 31, 1995
and 1994, respectively) ....................................... $ 1,118,430 $ 996,400
Covenants not to compete (net of accumulated
amortization of $2,079,162 and $1,429,162 at
December 31, 1995 and 1994, respectively) ..................... 1,081,731 1,720,838
Excess of costs over net assets of businesses
acquired (net of accumulated amortization
of $1,176,975 and $601,392 at December 31,
1995 and 1994, respectively) .................................. 15,242,651 13,225,965
----------------------------------
$ 17,442,812 $ 15,943,203
==================================
</TABLE>
Amortization expense was approximately $1.3 million, $1.1 million and
$0.9 million for the years ended December 31, 1995, 1994 and 1993,
respectively.
<TABLE>
<S> <C> <C>
Accrued liabilities:
Wages and payroll taxes ...................................... $ 3,615,702 $ 2,986,835
Insurance ..................................................... 7,843,405 6,483,549
Other.......................................................... 3,819,533 4,029,706
----------------------------------
$ 15,278,640 $ 13,500,090
==================================
</TABLE>
38
<PAGE> 39
3. ACQUISITIONS
Effective May 18, 1995, the Company acquired an additional 20% of the
outstanding common stock of its specialty welding subsidiary, ST Piping, Inc.,
from the minority shareholders of that company. Consideration for the purchase
consisted of $0.6 million cash and 180,000 shares of Company common stock with
a fair market value of approximately $1.4 million (total consideration of $2.0
million). ST Piping, Inc. was formed in January, 1991, between the Company (70%
owner) and the Management Group of that company. This transaction now brings
the Company ownership to 90%. The purchase price and expenses associated with
the acquisition exceeded the fair value of net assets by approximately $1.2
million and is included in intangible assets. The Company's consolidated
financial statements have included the results of operations of ST Piping, Inc.
since January 1, 1991.
Effective July 31, 1995, the Company acquired substantially all the
assets and assumed certain liabilities of Constructors and Fabricators, Inc.
("C&F"), a construction service company located in Orange, Texas. The purchase
price of $2.4 million consisted of $0.5 million in cash and a $1.9 million note
payable (Note 5). The purchase price and expenses associated with the
acquisition exceeded the fair market value of net assets by approximately $0.4
million and has been included in intangible assets. Pro forma results were not
material to the Company's financial position or results of operations.
Effective June 14, 1994, the Company acquired all of the outstanding
common stock of Hartney Industrial Services Corporation ("Hartney"), a Houston,
Texas, company, in exchange for 450,000 shares of Company common stock with a
fair market value of $3.7 million. In addition, the Company paid $0.5 million
in cash for non-competition and confidentiality agreements entered into with
the selling shareholders. Pursuant to the terms of an earnout agreement, the
Company may be required to pay additional amounts based on Hartney's pre-tax
earnings through December 31, 1998. Amounts earned under the terms of the
agreement will be recorded as excess of costs over net assets of businesses
acquired. The purchase price and expenses associated with the acquisition
exceeded the fair value of net assets by approximately $3.0 million.
Hartney is a specialty contractor which provides refractory,
acid-proofing and other corrosion prevention services to the petroleum
refining, petrochemical, cement, power generation and waste incineration
industries.
Effective November 8, 1994, the Company acquired the remaining 50%
interest in its affiliate Chemisolv Holdings, Inc. ("Chemisolv"), a specialty
chemical treatment company with operations in the United Kingdom and the United
States. The purchase price consisted primarily of 200,000 shares of Company
common stock with a fair market value of $1.4 million. In addition, the Company
paid $0.5 million for non-competition and confidentiality agreements entered
into with the selling shareholders, consisting of $0.2 million cash and a $0.3
million note payable due January, 1995. The purchase price and expenses
associated with the acquisition exceeded the fair value of net assets of the
business acquired by approximately $1.8 million.
Unaudited pro forma combined results, assuming the Hartney and
Chemisolv acquisitions had occurred at January 1, 1993, are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
(in thousands, except per share data) 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C>
Revenues ................................. $ 199,853 $ 189,570
Net income (loss)......................... (8,869) 2,295
Earnings (loss) per share................. $ (1.37) $ 0.35
</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.
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 "excess of
costs over net assets of businesses acquired". Under the purchase method of
accounting, the results of operations are included in the consolidated
financial statements from their acquisition dates.
39
<PAGE> 40
4. F.C. Schaffer acquisition and Finchaa Sugar Mill Project
The Company acquired F.C. Schaffer and Associates of Baton Rouge,
Louisiana ("Schaffer"), an engineering and construction management company
specializing in sugar mill design in late 1994. On February 7, 1995, Schaffer
secured an $83 million contract to engineer, design, procure and construct a
4,000 metric ton cane-per-day sugar factory and 45,000 liter-per-day ethanol
plant in Finchaa, Ethiopia. The project, which is financed by the African
Development Bank, is expected to be completed in the latter part of 1997
followed by a twelve month training and warranty period. In conjunction with
the effectiveness of the contract, the Company received an advance payment
equal to 20% of the contract value. The Company issued letters of credit to
support performance and the 20% advance payment totaling $24.0 million. The
outstanding portion of the letters of credit totalled $23.4 million at December
31, 1995. Subsequent to December 31, 1995, the outstanding portion has been
reduced to $20.5 million. Contractual payment amounts to Schaffer are supported
by a revolving letter of credit issued by the Ethiopian government via the
African Development Bank.
Included in the 1995 statement of operations is $32.8 million and $1.8
million in revenues and gross profits, respectively, related to the Finchaa
project.
In accordance with the terms of the acquisition agreement, former
shareholders of Schaffer will participate in the earnings of the Finchaa
project. This deferred purchase price is estimated to be in the range of
30%-35% of the project profits and is recognized as an expense over the life of
the project. The amounts accrued under this arrangement totaled approximately
$0.6 million for the year ended December 31, 1995, and are reflected in the
statement of operations as minority interest and other.
The Schaffer acquisition has been accounted for using the purchase
method of accounting. Pro forma results are not material to the Company's
financial position or results of operations.
5. Long-term Debt
The Company has outstanding with four life insurance companies an
aggregate $15 million in 8.41% Senior Notes Payable due June 2003 ("The
Notes"). The Notes are not collateralized. The Company is required to make six
equal annual sinking fund payments commencing at the end of the fifth year
through the tenth year at par plus accrued interest. The Notes contain certain
covenants which require, among other things, that the Company maintain (i)
minimum tangible net worth, (ii) minimum ratio of total debt to adjusted net
worth, and (iii) minimum fixed charge coverage ratio. In addition, the Notes
provide certain restrictions on the payment of dividends.
At December 31, 1995, the Company maintained a revolving line of
credit agreement with two banks (the "Revolving Note"). The Revolving Note
provides for borrowings up to $35.0 million and expires May, 1997. Interest is
payable monthly, at rates not exceeding the bank's prime rate. The Company's
weighted average borrowing rate at December 31, 1995, was 7.325%. The Revolving
Note contains certain covenants which require, among other things, that the
Company maintain (i) minimum consolidated tangible net worth, (ii) minimum
consolidated net worth, (iii) funded debt coverage ratio, and (iv) fixed charge
coverage ratio. The Revolving Note is not collateralized and the Company pays a
commitment fee of .25% on the unused portion. In addition, the Revolving Note
provides certain restrictions on the payment of dividends. At December 31,
1995, working capital borrowings of $6.5 million were outstanding under the
Revolving Note.
At December 31, 1995, the Company had outstanding, against the
Revolving Note, irrevocable letters of credit amounting to approximately $6.2
million. The letters of credit were issued to guarantee certain of the
Company's insurance programs and bid bonds.
At December 31, 1995 and 1994, long-term debt consisted of the
following:
<TABLE>
<CAPTION>
1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
The Notes............................................................ $ 15,000,000 $ 15,000,000
Promisory note payable (Note 3), due in eight
semi-annual installments of $237,500 plus interest
at 7 1/2% through July 1999. The note is collateralized
by certain acquired assets......................................... 1,662,500 -
Other various notes payable.......................................... 559,064 336,623
-----------------------------------
17,221,564 15,336,623
Less current maturities ........................................... (626,566) (311,483)
-----------------------------------
$ 16,594,998 $ 15,025,140
===================================
</TABLE>
The aggregate maturities of long-term debt during the five years
subsequent to December 31, 1995, are approximately $0.6 million, $0.6 million,
$3.1 million, $3.0 million, and $2.5 million, respectively.
<PAGE> 41
6. Income Taxes
The components of the income tax provision (benefit) for the three
years ended December 31, 1995, were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal:
Current................................................ $ 1,957,000 $ (10,000) $ 1,528,000
Deferred............................................... (780,243) (1,499,487) 419,965
State:
Current................................................ 489,000 382,000 209,000
Deferred............................................... (114,757) (220,513) 61,759
Foreign-current................................................ 13,000 45,000 -
--------------------------------------------------------
$ 1,564,000 $ (1,303,000) $ 2,218,724
========================================================
</TABLE>
The difference between the effective rate reflected in the income tax
provision (benefit) and the statutory federal tax rate for the three years ended
December 31, 1995, is analyzed as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Amount computed
using the statutory rate..................... $ 1,232,540 34.0% $ (3,433,434) (34.0)% $ 1,746,873 34.0%
Losses of tax entities for
which no tax benefit
is recognized................................ 177,000 4.9 181,217 1.8 326,000 6.3
Minority interest..................................... 324,000 8.9 88,504 .9 115,000 2.2
State taxes, net of federal
tax benefit.................................. 323,000 8.9 31,607 .3 200,000 3.9
Write down of certain
equity investments
and other intangibles........................ - - 880,435 8.7 - -
Nondeductible expenses................................ 255,713 7.1 739,450 7.3 198,602 3.9
Foreign tax credit.................................... (505,743) (14.0) - - - -
Other................................................. (242,510) (6.7) 209,221 2.1 (367,751) (7.1)
--------------------------------------------------------------------
$ 1,564,000 43.1% $ (1,303,000) (12.9)% $ 2,218,724 43.2%
====================================================================
</TABLE>
The components of the net deferred income tax asset (liability) at December 31,
1995 and 1994, consisted of the following:
<TABLE>
<CAPTION>
1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current deferred tax assets (liabilities):
Difference in recognition of insurance claims....................... $ 2,739,000 $ 2,179,000
Difference in recognition of certain financial
statement accruals................................................ 1,320,070 757,581
Difference in recognition of allowance for
doubtful accounts................................................. 757,000 644,000
Cash to accrual adjustments by subsidiaries
at acquisition date............................................... 106,000 -
-------------------------------------
Total net current deferred tax asset................................ 4,922,070 3,580,581
-------------------------------------
Noncurrent deferred tax liabilities:
Property, plant and equipment basis and
depreciation differences .............................................. (4,374,000) (3,853,000)
Differences in recognition of certain
intangible assets and other............................................ (721,608) (796,227)
-------------------------------------
Total noncurrent deferred tax liabilities .............................. (5,095,608) (4,649,227)
-------------------------------------
Net deferred tax liability............................................... $ (173,538) $ (1,068,646)
=====================================
</TABLE>
41
<PAGE> 42
7. Minority Interest
In May, 1995, the Company acquired 20% of the minority interest of its
specialty welding subsidiary, ST Piping, Inc. (Note 3).
During 1994, the Company paid $800,000 to purchase all of the
outstanding redeemable preferred stock of SECO held by a former shareholder of
that company. Prior to July, 1994, annual cumulative dividends of $10 per share
were paid monthly and included in minority interest in the statement of
operations.
8. Related Party Transaction/Treasury Stock
In August, 1995, Richard W. Krajicek retired as Chairman of the
Company. Mr. Krajicek has been subsequently retained by the Company under a
five year consulting agreement. Mr. Krajicek, along with certain family
members, owns 815,491 common shares of Company common stock. The Company has
agreed to pay Mr. Krajicek an amount equal to the shortfall, if any, between
the average sales price and $8.00 per share for up to 203,873 shares sold per
year commencing on November 9, 1995, and ending on November 9, 1999. The
average sales price, related to stock sold, shall be computed in arrears at the
end of each twelve month period and shall be based on the highest priced
203,873 shares (or portion thereof) sold during such period.
On October 1, 1995, the Company purchased 203,873 shares of Serv-Tech
stock from Mr. Krajicek at the then fair market price of $8.00 per share or a
total of $1.6 million, leaving 611,618 shares subject to the agreement noted
above.
9. Special Charge
During the third quarter of 1994, management performed a comprehensive
review of the Company's operating investment activities and structure. This
review was performed in light of management's new strategy for growth which
focuses on operations which management believed would generate acceptable
returns on investments and elimination of activities which did not meet this
criteria. As a result of this review, the Company recorded a special charge of
$12.2 million which consisted of noncash write-offs including goodwill and
other intangibles ($3.5 million), equipment ($1.6 million), and investment in
affiliates ($1.2 million). Additionally, the special charge included certain
project related reserves ($2.2 million) and accruals for employee related and
other costs ($3.7 million). The noncash write-offs for goodwill and investments
in affiliates were primarily a result of management's decision to de-emphasize
certain domestic and foreign operations.
10. Long-Term Incentive Compensation, Stock Options and Stock Award Plans
On May 18, 1995, the shareholders approved the 1995 Long-Term
Incentive Plan ("Plan") administered solely by the Long-Term Incentive Plan
Committee of the Board of Directors ("Committee"). The Plan permits the
issuance of stock options, stock appreciation rights ("SARs"), restricted stock
awards, performance grants and any other awards deemed consistent with the plan
to key employees of the Company and certain other key individuals, who perform
services for the Company. The Plan reserves 300,000 shares of Company common
stock for distribution. Under the terms of the Plan, options granted may be
either nonqualified or incentive stock options and the exercise price,
determined by the Committee, may not be less than 50 percent of the fair market
value of the underlying common shares at the time the option is granted;
however, in the case of incentive stock options issued to employees of the
Company, the option price may not be less than the fair market value of a share
on the date of grant.
The Committee may grant SARs either alone, or in conjunction with
stock options, performance grants or other awards. Upon exercise of such
rights, the optionee surrenders the exercisable portion of the option in
exchange for payment of the difference between the aggregate option price and
the aggregate fair market value on the date of surrender. Payment may be in the
form of cash and/or common stock valued at its fair market value on the date of
surrender. SARs utilize the same shares reserved for issuance of options, and
the exercise of a SAR or option automatically cancels the related option or
SAR. SARs become exercisable and expire on the same dates as the related
options. There were no SARs issued during 1995.
Restricted stock awards are issuances of a given number of shares of
Company common stock that are restricted as to the sale and transfer of the
shares; participants are entitled to all rights of a shareholder. Restricted
stock awards vest 20 percent on the date of grant with the remaining shares
vesting within four years. The cost of the awards are charged to expense over
the vesting period. There were no restricted stock awards granted under the
Plan during 1995.
42
<PAGE> 43
Performance grants entitle a participant to receive specified awards,
as determined by the Committee, if certain performance objectives are achieved
during a specified period. There were no performance grants awarded under the
plan during 1995.
Prior to the Plan, the Company had two Incentive Stock Option Plans
("ISO Plans") that provided up to 920,000 shares of common stock to selected
officers and key employees of the Company. The outstanding options are
exercisable for up to ten years at an option price not less than market price
on the date the option is granted. In connection with the establishment of the
Plan, the ISO Plans were amended to prohibit the grant of additional common
stock options, thereby canceling the remaining shares of Company stock
available for future awards, except for any options which become available by
way of forfeiture of any presently outstanding options.
The Company maintains a Director Stock Option Plan that provides up to
50,000 shares of common stock for issuance to certain non-employee directors of
the Company. The stock options are exercisable for up to ten years, at an
option price not less than the market price on the date the option is granted.
The Company has nonqualified stock options, not granted pursuant to a
shareholder approved plan, with certain key officers of the Company. The
Agreements provide for the issuance of 383,000 shares of Company common stock
at exercise prices ranging from $6.25 - $7.75 and are exercisable for up to ten
years.
The following table sets forth pertinent information regarding stock
option transactions for each of the three years in the period ended December
31, 1995:
<TABLE>
<CAPTION>
Number Option Price
of Shares Per Share
<S> <C> <C>
Outstanding December 31, 1992 .................... 642,000 $ 2.500 - 13.000
Granted .......................................... 414,750 6.625 - 7.750
Cancelled ........................................ (284,000) 8.250 - 13.000
----------
Outstanding December 31, 1993 .................... 772,750 2.500 - 13.000
Granted .......................................... 486,500 6.250 - 9.125
Exercised ........................................ (43,800) 2.500 - 6.625
Cancelled ........................................ (102,700) 6.625 - 13.375
----------
Outstanding December 31, 1994 .................... 1,112,750 2.500 - 13.000
Granted .......................................... 256,400 5.625 - 8.750
Exercised ........................................ (40,000) 7.250 - 8.625
Cancelled ........................................ (263,000) 6.250 - 9.125
----------
Outstanding December 31, 1995 .................... 1,066,150 2.500 - 9.125
==========
Exercisable as of December 31, 1995 .............. 435,100
==========
</TABLE>
The Company had 503,050, 280,250, and 7,250, shares of Common Stock
available for grant under existing stock option plans at December 31, 1995,
1994, and 1993, respectively.
11. Preferred Stock
The Company can issue up to 2,000,000 shares of preferred stock with a
par value of $1.00 per share, none of which are issued or outstanding. The
Company's Board of Directors is authorized to divide the preferred stock into
series and to fix and determine the relative rights and preferences of each
series.
43
<PAGE> 44
12. COMMITMENTS AND CONTINGENCIES
Contingencies
On January 26, 1990, the Company filed a petition in the 125th Judicial
District Court of Harris County, Texas, seeking injunctive and monetary relief
against three defendants. The Company alleged various claims, including, the
breach of a secrecy agreement, civil conspiracy, tortious interference with the
Company's business relationships and misappropriation of confidential and/or
trade secret information by all defendants. On June 11, 1992, the jury found in
favor of the Company, awarding $17.5 million in actual damages and legal fees.
In December 1992, the Company received a partial settlement from two of the
defendants of approximately $2.7 million, net of $1.5 million in legal fees and
other expenses. In April, 1994, the 14th Court of Appeals of the State of Texas
reversed the judgment against the three defendants. The reversal by the Appeals
Court does not affect the partial settlement received in December 1992. The
Supreme Court of Texas has affirmed the Court of Appeals decision and has
remanded the case to trial court.
The Company is involved in various claims and disputes incidental to
its business. The Company believes that the disposition of all such claims and
disputes, individually or in the aggregate, should not have a material adverse
effect upon the Company's financial position, results of operations or cash
flows.
Commitments
The Company has entered into operating leases for various types of
equipment and for its building facilities. Most leases contain purchase and
renewal options at fair market and rental values. Rental expense was
approximately $2.8 million, $2.7 million, and $2.0 million for the years ended
December 31, 1995, 1994, and 1993, respectively.
At December 31, 1995, minimum rental commitments under noncancelable
operating leases are as follows:
<TABLE>
<CAPTION>
Years Ending December 31,
<S> <C>
1996............................... $2,448,000
1997............................... 1,920,000
1998............................... 1,232,000
1999............................... 1,016,000
2000............................... 1,828,000
Thereafter......................... 36,000
</TABLE>
Insurance
The Company maintains worker's compensation insurance for its employees
and other coverages for normal business risks. In many cases, the Company is
responsible for the payment of incurred claims up to specified individual and
aggregate limits, over which a third party insurer is contractually liable for
any additional payment of such claims. Accordingly, the Company bears certain
economic risks related to these coverages. The Company records an accrual equal
to the estimated costs expected to result from incurred claims plus an estimate
of claims incurred but not reported based on the best available information.
However, the nature of these claims is such that actual development of the
claims may vary significantly from the estimated accruals. All changes in the
accrual estimates are accounted for on a prospective basis and could have a
significant impact on the Company's financial position or results of operations.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents, accounts receivable
and payable, accrued liabilities and the Revolving Note are considered to
approximate fair value due to the short-term nature of these instruments. The
carrying value of long-term debt is estimated to approximate fair value based
on the Company's current incremental borrowing rates for similar types of
borrowing arrangements.
In the normal course of business, the Company issues letters of credits
and other guarantees which are not reflected in the consolidated balance sheet.
In the past no significant claims have been made against these financial
instruments and management expects no material losses to occur.
44
<PAGE> 45
14. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the three years ended December 31, 1995, for interest
and income taxes was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------------------------------------
<S> <C> <C> <C>
Interest........................... $ 1,960,000 $ 1,432,000 $ 950,000
Income taxes....................... 1,681,000 2,738,000 3,279,000
</TABLE>
The following non-cash transactions have been excluded from the
consolidated statement of cash flows for the three years ended December 31,
1995:
<TABLE>
<CAPTION>
1995 1994 1993
---------------------------------------
<S> <C> <C> <C>
Translation adjustments of
equity investments.............. $ 66,943 $ 111,531 $ (318,021)
Common stock issued in connection
with certain acquisitions....... 1,643,750 5,087,500 --
Treasury stock transferred to the
Company 401(k) plan............. 84,127 -- --
Acquisition of property, plant,
and equipment in settlement of
certain receivables............. -- 536,000 --
Additional compensation earned
under the terms of an earnout
agreement....................... 410,000 -- --
</TABLE>
Components of cash used for acquisitions as reflected in the
Consolidated Statement of Cash Flows for the three years in the period ended
December 31, 1995, are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------------------------------------
<S> <C> <C> <C>
Fair value of current assets,
net of cash acquired............ $ 1,851,859 $ 11,592,501 $ --
Fair value of noncurrent assets,
excluding intangibles........... 2,169,797 5,511,264 --
Intangible assets*................. 760,035 3,047,207 --
Liabilities assumed or incurred.... (3,915,634) (17,715,344) --
----------- ------------ ---------
$ 866,057 $ 2,435,628 $ --
=========== ============ =========
</TABLE>
* Net of approximately $1.6 million in 1995 and $5.1 million in 1994 non-cash
consideration.
15. DEFINED CONTRIBUTION PLANS
The Company maintains a defined contribution plan 401(k) for its
permanent employees. Under the plan, eligible employees may contribute amounts
through payroll deductions for investment in various funds established by the
plan. The Company matches 50% of a participant's voluntary contribution up to a
maximum of 6% of a participant's compensation in Company common stock. The
costs of the plan were $0.8 million, $0.6 million, and $0.6 million in 1995,
1994, and 1993, respectively.
45
<PAGE> 46
16. BUSINESS SEGMENT AND MAJOR CUSTOMERS
The Company's operations include three primary business segments: (i)
Specialty Services, (ii) Serv-Tech EPC ("EPC") and (iii) Environmental and
Performance Chemicals ("Environmental"). Specialty Services provides specialized
turnaround maintenance, welding, boiler repair and refractory services
primarily to the refining, petrochemical, power, paper and cement industries.
The EPC business provides a full range of engineering, construction, project
management services and installation of electrical and instrumentation systems
primarily for the refining, petrochemical and food processing industries.
Environmental includes tank cleaning, decontamination services and the
Company's specialty chemical company, Chemisolv. The operations and assets of
Chemisolv have been included from the date of acquisition, November 1994 (Note
3).
Operating profit (loss) is defined as total revenue less direct and
operating expenses. Identifiable assets are those assets directly identifiable
with operations in each segment. Corporate and Other consist primarily of cash
and cash equivalents, certain receivables and the corporate facilities.
During 1995 the Company redefined its business segments; accordingly,
segment information for 1994 and 1993 has been reclassified to conform to the
1995 presentation. Summarized financial information by business segment for
each of the three years ended December 31, 1995, is set forth below.
<TABLE>
<CAPTION>
Environmental &
Specialty Performance Corporate &
Services EPC Chemicals Other Consolidated
- ----------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
1995
Revenues for customers........... $132,658 $131,753 $15,155 $ -- $279,566
Intersegment revenues............ 1,755 2,620 1,284 (5,659)(1) --
------------------------------------------------------------------
Total revenues................... 134,413 134,373 16,439 (5,659) 279,566
------------------------------------------------------------------
Operating profit (loss).......... 4,292 8,201 230 (6,245) 6,478
Identifiable assets.............. 42,131 48,027 11,039 11,048 112,245
Depreciation and amortization.... 3,238 1,578 1,528 460 6,804
Capital expenditures............. 1,524 1,174 1,588 1,894 6,180
1994
Revenues for customers........... $113,541 $ 58,800 $ 8,624 $ 122 $181,087
Intersegment revenues............ -- 3,895 -- (3,895)(1) --
------------------------------------------------------------------
Total revenues................... 113,541 62,695 8,624 (3,773) 181,087
------------------------------------------------------------------
Special Charge(2)................ 10,599 -- -- 1,626 12,225
Operating profit (loss).......... (4,935) 4,020 (219) (7,548) (8,682)
Identifiable assets.............. 47,786 31,251 5,964 13,314 98,315
Depreciation and amortization.... 3,060 1,249 680 720 5,709
Capital expenditures............. 3,311 1,007 648 228 5,194
1993
Revenues for customers........... $ 91,335 $ 62,204 $ 8,482 $ -- $ 162,021
Intersegment revenues............ -- 561 -- (561)(1) --
------------------------------------------------------------------
Total revenues................... 91,335 62,765 8,482 (561) 162,021
------------------------------------------------------------------
Operating profit (loss).......... 4,194 8,564 (436) (5,803) 6,519
Identifiable assets.............. 39,041 33,348 3,831 17,075 93,295
Depreciation and amortization.... 2,272 956 447 519 4,194
Capital expenditures............. 2,308 985 1,360 211 4,864
</TABLE>
(1) Elimination of intersegment revenue
(2) See Note 9 for additional information regarding the special charge.
Significant sales to individual customers shown as a percentage of
total revenues were 12% in 1995, 27% in 1994 and 20%, 12% and 10% in 1993.
46
<PAGE> 47
17. UNAUDITED SELECTED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
In thousands, except per share data
Quarter
First Second Third Fourth
-------------------------------------------
<S> <C> <C> <C> <C>
1995
Revenues.................... $71,550 $65,748 $ 52,080 $90,188
Gross profit................ 12,549 11,316 8,960 15,699
Net income (loss)........... 1,517 666 (1,314) 1,192
Earnings (loss) per share... 0.23 0.10 (0.19) 0.18
<CAPTION>
Quarter
First Second Third Fourth
-------------------------------------------
<S> <C> <C> <C> <C>
1994
Revenues.................... $57,053 $32,210 $ 41,432 $50,392
Gross profit................ 8,528 7,610 6,920 9,050
Net income (loss)........... 1,509 501 (10,961)(1) 156
Earnings (loss) per share... .25 .08 (1.72) .02
</TABLE>
(1) Includes a $12.2 million special charge. See Note 9 for additional
information.
47
<PAGE> 48
CORPORATE INFORMATION
ANNUAL MEETING
The Annual Meeting of Shareholders of Serv-Tech, Inc.
will be held at 10:00 a.m., on May 23, 1996, at the
Texas Commerce Center Auditorium,
601 Travis, Houston, Texas.
FINANCIAL INFORMATION
Additional financial information such as Form 10-K,
Form 10-Q, and proxy statements may be obtained
at no charge upon written request to:
Serv-Tech, Inc.
5200 Cedar Crest Boulevard
Houston, Texas 77087
(713) 644-9974
MAJOR OFFICE LOCATIONS
SERV-TECH, INC. - CORPORATE OFFICE
5200 Cedar Crest Blvd.
Houston, Texas 77087
(713) 644-9974, 800-666-6252
SERV-TECH SPECIALTY SERVICES
SERV-TECH SERVICES
330 Walcot
Westlake, Louisiana 70669
(318) 882-1313
ST PIPING, INC.
19701 S. Vermont
Torrance, California 90502
(310) 325-1600
HARTNEY INDUSTRIAL SERVICES CORP.
6845 Dixie Drive
Houston, Texas 77087
(713) 643-8434
DELTA INDUSTRIAL SERVICES, INC.
851 Highway 79 South
Winfield, Missouri 63389
(314) 665-5310
HILL TECHNICAL SERVICES, INC.
5200-A Cedar Crest Boulevard
Houston, Texas 77087
(713) 640-1155
STOCK TRADING
NASDAQ-National Market
Symbol: STEC
REGISTRAR AND TRANSFER AGENT
Society National Bank
c/o KeyCorp Shareholder Services, Inc.
700 Louisiana, Suite 2620
Houston, Texas 77002-2729
INVESTOR RELATIONS COUNSEL
Cameron Associates, Inc.
424 Madison Avenue, 5th floor
New York, New York 10017-1106
(212) 644-9560
SERV-TECH EPC
SERV-TECH EPC, INC.,
SERV-TECH ENGINEERS, INC. AND
SECO INDUSTRIES, INC.
Three Lakeway Center
3838 N. Causeway Blvd., Suite 2200
Metairie, Louisiana 70002
(504) 834-8100
F.C. SCHAFFER & ASSOCIATES, INC.
1020 Florida Boulevard
Baton Rouge, Louisiana 70802
(504) 343-9262
SERV-TECH ENVIRONMENTAL & PERFORMANCE CHEMICALS
PERFORMANCE CHEMICALS
CHEMISOLV, INC.
5200 Cedar Crest Boulevard
Houston, Texas 77087
(713) 644-3797
CHEMISOLV, LTD.
Thornley House
Carrington Business Park
Urmston, Manchester, M314SG
011-441-61-775-4488
SERV-TECH ENVIRONMENTAL
5200 Cedar Crest Boulevard
Houston, Texas 77087
(713) 644-9974
TERMINAL TECHNOLOGIES, INC.
3620 Kennesaw North
Industrial Parkway, Suite G
Kennesaw, Georgia 30144
(770) 499-1267
<PAGE> 49
[SERV-TECH LOGO]
Annual Report Design by Alicia W. Noack, Houston, Texas
Printed in the USA.
Copy Rights 1996 Serv-Tech, Inc. All rights reserved.
[RECYCLED PAPER LOGO] As part of our commitment to the environment, this
annual report was printed on recycled paper.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF SERV-TECH, INC.
State or Other Jurisdiction
Name of Subsidiary Incorporation or Organization
- ----------------------------- -----------------------------
SECO Industries, Inc. Louisiana
Serv-Tech EPC, Inc. Nevada
ST Piping, Inc. Texas
Terminal Technologies, Inc. Texas
Serv-Tech Engineers, Inc. Louisiana
Delta Maintenance, Inc. Louisiana
Chemisolv Holdings, Inc. Delaware
Hill Technical Services, Inc. Texas
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Serv-Tech, Inc.:
We consent to incorporation by reference in the registration statements
(Nos. 33-64501, 33-62139, 33-58850 and 33-33378) and the currently effective
amendments thereto on Forms S-8 of Serv-Tech, Inc. of our report dated February
16, 1996, relating to the consolidated balance sheet of Serv-Tech, Inc. and
subsidiaries as of December 31, 1995, and the related consolidated statements of
operations, changes in stockholders' equity, and cash flows for the year ended
December 31, 1995, and all related schedules, which report appears in the
December 31, 1995, annual report on Form 10-K of Serv-Tech, Inc.
KPMG PEAT MARWICK LLP
Houston, Texas
March 29, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF SERV-TECH, INC. AND SUBSIDIARIES
AS OF DECEMBER 31, 1995 AND FOR THE YEAR THEN ENDED AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,347,475
<SECURITIES> 0
<RECEIVABLES> 43,629,756
<ALLOWANCES> 1,943,084
<INVENTORY> 2,102,245
<CURRENT-ASSETS> 60,371,833
<PP&E> 51,005,249
<DEPRECIATION> 18,590,493
<TOTAL-ASSETS> 112,245,385
<CURRENT-LIABILITIES> 37,139,981
<BONDS> 23,721,564
0
0
<COMMON> 3,376,336
<OTHER-SE> 49,553,510
<TOTAL-LIABILITY-AND-EQUITY> 112,245,385
<SALES> 279,566,348
<TOTAL-REVENUES> 279,566,348
<CGS> 0
<TOTAL-COSTS> 231,042,006
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,245,072
<INTEREST-EXPENSE> 1,990,837
<INCOME-PRETAX> 3,625,119
<INCOME-TAX> 1,564,000
<INCOME-CONTINUING> 2,061,119
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,061,119
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.31
</TABLE>
<PAGE> 1
EXHIBIT 99.1
Report of Independent Accountants
To the Board of Directors and Shareholders of Serv-Tech, Inc.:
We have audited the consolidated balance sheet of Serv-Tech, Inc. and
Subsidiaries as of December 31, 1994, and the related consolidated statements
of operations, changes in stockholders' equity and cash flows for each of the
two years in the period ended December 31, 1994. We have also audited the
financial statement schedule for the years ended December 31, 1994 and 1993 as
listed in the index on page 14 of this Form 10-K. These financial statements
and the financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Serv-Tech, Inc.
and Subsidiaries as of December 31, 1994, and the consolidated results of their
operations and cash flows for each of the two years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
In addition, in our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as
a whole, present fairly, in all material respects, the information required to
be included therein.
In 1993 the Company adopted the method of accounting for income taxes
prescribed by Statement of Financial Accounting Standards No. 109.
COOPERS & LYBRAND L.L.P.
Houston, Texas
February 17, 1995
