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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
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-17888
SERV-TECH, INC.
(Exact name of registrant as specified in its charter)
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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)
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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. [X]
As of March 14, 1997, the registrant had 6,861,999 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 $36.0 million.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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SERV-TECH, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 9
Item 3. Legal Proceedings........................................... 9
Item 4. Submission of Matters to a Vote of Security Holders......... 9
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 10
Item 6. Selected Financial Data..................................... 11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 12
Item 8. Financial Statements and Supplementary Data................. 18
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 41
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 41
Item 11. Executive Compensation...................................... 43
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 48
Item 13. Certain Relationships and Related Transactions.............. 49
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 51
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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) SECO Industries, Inc. ("SECO"); 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, and power
industries. SECO provides specialty electrical and instrumentation contracting
services to the processing, petrochemical, power, pulp and paper, and food
processing industries. The Environmental business formulates specialty chemicals
to meet specific customer needs primarily in the hydrocarbon processing, pulp
and paper, and wastewater industries. Also included in Environmental is
specialty decontamination services provided primarily to the hydrocarbon
processing industry through the Company's subsidiary ST Environmental, and
refined-product and heavy oil tank cleaning services provided through Terminal
Technologies, Inc., a subsidiary of the Company.
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 July 1996, the Company announced its intent to discontinue its
engineering, procurement and construction ("EPC") operations. The EPC operations
provided a full range of engineering, procurement and construction services
primarily to the refining, petrochemical and food processing industries. As of
July 1996, the discontinued EPC operations consisted of: (i) several domestic
EPC projects (which have now been completed); (ii) F.C. Schaffer and Associates,
Inc. ("Schaffer") which includes the Finchaa Sugar Factory project, expected to
be completed during the latter part of 1997 (see Discontinued EPC Operations
section below), and a consulting engineering practice; (iii) a construction
company in Orange, Texas (which has been closed and the majority of its
remaining assets sold); and (iv) engineering operations in Lake Charles and New
Orleans, Louisiana (which have been sold). See "Discontinued EPC Operations"
section below for additional information regarding these operations. With the
exception of the Finchaa project, all EPC operations have ceased.
MERGER
On March 5, 1997, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") by and among Philip Environmental Inc., an Ontario,
Canada corporation ("Philip"), Taro Aggregates Ltd., an Ontario, Canada
corporation and wholly-owned subsidiary of Philip ("Taro"), ST Acquisition
Corporation, a Texas corporation and wholly-owned subsidiary of Taro ("Sub"),
and the Company. Pursuant to the Merger Agreement, Sub will be merged with and
into the Company, and the Company will become a wholly-owned subsidiary of Taro
and an indirect, wholly-owned subsidiary of Philip.
Under the terms of the Merger Agreement, each share of the Company's Common
Stock, par value $.50 per share ("Company Common Stock") will be exchanged for
0.403 share of Philip common stock, no
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par value ("Philip Common Stock") (except for shares held by persons who perfect
and exercise dissenters' rights under Texas law), provided that Philip will pay
cash in lieu of any fractional shares of Philip Common Stock to which holders of
Company Common Stock would otherwise be entitled. Based upon the closing price
of Philip Common Stock on March 5, 1997, each share of Company Common Stock is
valued at $6.60 per share. In aggregate, the transaction is valued at
approximately $72.0 million, including the assumption of approximately $21.0
million of Company indebtedness. The transaction is subject to regulatory and
shareholder approvals, and is expected to close by June 30, 1997.
Philip is a fully integrated, resource recovery and industrial services
company providing metals processing and mill services, solid and liquid
by-products recovery and industrial and remediation services to all major
industry sectors. Philip Common Stock trades on the New York Stock Exchange.
SPECIALTY SERVICES
Specialty Service's principal market has been the petroleum refining
industry in the United States. Its customers include the majority of the ten
largest integrated oil companies and many of the large independent 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. Consequently, 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, tower and vessel maintenance services increased, the Company
developed the planning capabilities, operational 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. In
addition, 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 are typically 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, 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, and 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 extreme 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.
SECO
In September 1991, Serv-Tech acquired SECO, a specialty contracting company
engaged primarily in electrical and instrumentation projects. SECO's clients are
primarily petroleum, petrochemical, paper, food processing, mining, marine 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.
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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 hook-up.
SECO begins a project by identifying a project management team, which
reviews the project's scope and specifications, and develops a construction
schedule. Project personnel, including engineers, supervisors, foremen and
craftsmen, are assigned to the project. Weekly schedules are developed through
the joint efforts of the project management team and crew foremen, and progress
against the schedules is closely monitored. In addition, inspections of each
task are conducted to assure compliance with customer specifications and
industry codes. SECO's activities are labor intensive, and the ability to
assemble the right number and mix of skilled craftsmen is critical to project
success. Individual projects may require staffing levels of over 150 craftsmen.
During 1994, SECO diversified into the areas of clean-fuels projects (Mobil
Oil Clean Fuels project in Torrance, California), food processing (carrots in
California; rice and salt in Louisiana) and riverboat casinos. In 1995 and 1996,
SECO executed two large oil production projects, the Shell Mars and Ram Powell
deep-water production platforms. SECO is currently involved in the Shell Ursa
deep-water production platform project. The operations of SECO are expected to
continue to include deep-water production platform projects as well as continued
diversification into food processing, petrochemical and other industries.
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 percent 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 that 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 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 that 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
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leaves the product distribution terminal as a dried solid. An 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-percent
interest in Chemisolv and acquired the remaining 50-percent 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, 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 percent.
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."
DISCONTINUED EPC OPERATIONS
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 provided 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 was able to perform
such jobs, beginning with field inspection activity, through total project
management, which included mechanical, civil, structural, electrical, process
and instrumentation engineering.
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
project was completed in 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 a $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. At December
31, 1996, the Finchaa project was approximately 80 percent complete.
Engineering, procurement and construction projects are typically of longer
duration with more predictable manpower levels than the Company's specialty
services work. Gross profit margins on construction contracts, however, are
lower than specialty services due to the better defined design and scope of work
and less critical nature of completion schedules compared to specialty services
projects.
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In July 1996, the Company announced its intent to discontinue its
engineering, procurement and construction ("EPC") operations. At July 1996, the
discontinued EPC operations consisted of: (i) several domestic EPC projects
(which have now been completed); (ii) Schaffer, which includes the Finchaa Sugar
Factory project as well as a consulting engineering practice; (iii) a
construction company in Orange, Texas (which has been closed and the majority of
its remaining assets sold); and (iv) engineering operations in Lake Charles and
New Orleans, Louisiana (which have been sold). With the exception of the Finchaa
project, which is expected to be completed during late-1997, all EPC operations
have ceased.
BUSINESS SEGMENT FINANCIAL INFORMATION
For certain financial information relating to each of the Company's
operating segments, see Note 15 of Notes to Consolidated Financial Statements.
CUSTOMERS AND MARKETING
The Company derives most of its revenues from continuing operations 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.
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. Chevron USA, Inc. accounted for 15 percent of the Company's revenues
from continuing operations in 1996 and 14 percent in 1995, and Mobil Oil
Corporation accounted for 29 percent of the Company's revenues from continuing
operations in 1994. The following table sets forth the Company's ten largest
customers, based upon revenues from continuing operations, for each of 1996,
1995 and 1994:
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Chevron USA, Inc. Chevron USA, Inc. Mobil Oil Corporation
McDermott, Inc. Mobil Oil Corporation Chevron USA, Inc.
Mobil Oil Corporation Atlas Processing Company Texaco, Inc.
Conoco, Inc. E. I. DuPont Conoco, Inc.
Phillips Petroleum Company Unocal, Inc. Exxon USA, Inc.
Fluor Daniel, Inc. Basis Petroleum, Inc. Atlantic-Richfield Company
Basis Petroleum, Inc. Vista Chemical Uno-Ven, Inc.
Shell Oil Products McDermott, Inc. McDermott, Inc.
B. P. Oil Company Coastal Refining B. P. Oil Company
Nooter Construction Texaco, Inc. Coastal Refining
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The Company maintains close contact with its customers and reviews
available industry information 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 primarily based on
either detailed time and material billing schedules or are fixed-price based.
The Company has encouraged its customers to seek firm-bid turnkey proposals for
its Specialty Services 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
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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 1996,
approximately 78 percent of the Company's revenues were derived from time and
material contracts (versus fixed-price). A new pricing method, "performance
pricing", developed by the Company's Specialty Services group, involves
contractual arrangements with the customer based on performance, considering the
benefits of the Company's expertise, including reducing refinery downtime,
increased efficiency and improved safety.
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.
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. SECO services are marketed through
offices in Metairie, Louisiana, and five 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 19 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 May 10,
2015.
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
Revenue backlog for SECO was $29.1 million, $17.1 million, and $18.0
million as of December 31, 1996, 1995 and 1994, respectively. Revenue backlog at
December 31, 1996, includes $9.4 million related to the Shell URSA project and
$6.0 million related to an additional deep-water drilling platform project, on
which work is scheduled to start in late-1997 and early-1998, respectively.
Backlog for the other operating groups is not meaningful due to the short lead
time and duration of the projects.
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.
COMPETITION
The market for the Company's specialty and environmental services is highly
fragmented and competitive. Many of the Company's competitors have greater
financial and other resources than does 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.
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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 wastewater facilities. The Company has designed and installed for
several of its customers a closed-loop system to circulate and filter water used
in its Fast Clean(R) system. This minimizes water usage and reduces the volume
of wastewater 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 a comprehensive property and casualty risk management
program. This program includes statutory worker's compensation insurance in
accordance with various states requirements and general liability insurance with
an occurrence annual aggregate coverage limit of approximately $100 million. The
Company's general liability insurance, although comprehensive, 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. See Note 5 of
Notes to Consolidated Financial Statements for further discussion of the
Company's working capital facility.
QUARTERLY FLUCTUATIONS
The Company's revenues and operating income have historically been subject
to significant, seasonal fluctuations with respect to its Specialty Services and
Environmental groups. This is due primarily to the
8
<PAGE> 11
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.
EMPLOYEES
At December 31, 1996, the Company had 969 full-time employees, of which 173
were salaried and 796 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 639 to 1,267 per week during 1996, averaging
1,059 employees on a weekly basis. The number of employees fluctuates
significantly due to changing demand during the peak turnaround periods. 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. The Company's two union 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. SECO occupies 27,500 square feet of leased
property located in Metairie, Louisiana. The Company leases an aggregate of
approximately 200,000 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
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.
9
<PAGE> 12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company 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>
1996:
First Quarter............................................. 7 5 1/4
Second Quarter............................................ 8 5 1/4
Third Quarter............................................. 6 1/4 2 3/4
Fourth Quarter............................................ 3 3/8 2
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
</TABLE>
At March 14, 1997, there were approximately 2,160 shareholders of the
Company Common Stock. The average of the high and low bid quotations on such
date was $5.25. 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.
10
<PAGE> 13
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
IN THOUSANDS, EXCEPT PER SHARE DATA
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Revenues........................ $142,386 $194,831 $167,834 $156,277 $144,051
Depreciation and amortization... 6,005 6,161 5,380 3,914 3,241
Special charge.................. -- -- (12,225)(b) -- --
Operating income (loss) from
continuing operations......... (5,860)(a) 2,342 (9,322)(b) 6,791 8,981
Net income (loss) from
continuing operations......... (2,464)(a) (774) (9,313)(b) 3,073 5,472
Earnings (loss) per share from
continuing operations......... (0.37)(a) (0.11) (1.52)(b) 0.52 0.94
Weighted average number of
shares outstanding............ 6,714 6,720 6,117 5,889 5,789
BALANCE SHEET DATA
Cash and short-term
investments................... $ 4,533 $ 287 $ 1,302 $ 15,650 $ 4,813
Working capital................. 6,669 23,815 22,238 30,053 18,414
Property, plant and equipment,
net........................... 26,275 30,023 29,908 25,287 24,152
Total assets.................... 81,144 107,795 94,118 92,368 86,273
Long-term debt, excluding
current maturities............ 13,835 15,170 15,025 15,140 8,152
Stockholders' equity............ 37,232 52,930 50,564 53,954 51,352
Capital expenditures............ 2,027 5,444 4,830 4,666 5,687
</TABLE>
- ---------------
Note:
(a) 1996 results include a $3,480 ($2,297, or $0.35 per share, on an after-tax
basis) charge for the impairment of certain obsolete equipment, the
write-off of an uncollectible receivable, and severance related costs.
Excluding the effect of this charge, the operating loss from continuing
operations was $2,380. Also, included in the 1996 results is the $5,842
($3,856, or $0.57 per share, on an after-tax basis) net proceeds from the
Stewart & Stevenson award, see Note 8 of Notes to Consolidated Financial
Statements. Excluding the effect of these two items, the net loss from
continuing operations was $4,023, or $0.60 per share.
(b) Excluding the effect of the $12,225 ($10,020, or $1.64 per share, on an
after-tax basis) special charge, operating income, net income and earnings
per share from continuing operations for 1994 were $2,903, $707, and $0.12,
respectively. See Note 9 of Notes to Consolidated Financial Statements for
information related to the special charge.
11
<PAGE> 14
ITEM 7. 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 included elsewhere
in this Report.
CONTINUING OPERATIONS
The year ended December 31, 1996 net loss from continuing operations of
$2.5 million, or $0.37 per share, includes a $2.3 million, or $0.35 per share
charge for the impairment of certain equipment that will no longer be utilized
in the future operations of the Company, the write-off of an uncollectible
receivable and severance related costs. Additionally, included in the 1996 loss
is $5.8 million ($3.9 million, or $0.57 per share, on an after-tax basis), of
net proceeds from the Stewart & Stevenson settlement (see Note 8 of Notes to
Consolidated Financial Statements). Excluding the effects of these two items,
the Company generated a net loss from continuing operations of $4.0 million, or
$0.60 per share, compared to a net loss of $0.8 million, or $0.11 per share in
1995, and a net loss of $9.3 million, or $1.52 per share, in 1994. The 1994 net
loss includes a special charge of $10.0 million, or $1.64 per share. Excluding
the effect of the special charge, the Company generated net earnings from
continuing operations in 1994 of $0.7 million, or $0.12 per share.
Consolidated revenues for 1996 decreased 26.9 percent to $142.4 million
from $194.8 million in 1995, which was 16.1 percent higher than 1994
consolidated revenues of $167.8 million. The 1996 decrease in revenues was
attributable primarily to lower levels of activity in the specialty turnaround
maintenance business, Specialty Services, resulting from delays in scheduled
maintenance at refinery facilities. The increase in 1995 was due to increased
levels of activity in Specialty Services and the Company's Environmental and
Performance Chemicals business, which provides tank cleaning, decontamination
services and specialty chemicals.
Consolidated gross profit margins as a percentage of revenues were 21.0
percent for 1996, increasing from 1995 margins of 18.8 percent. This increase in
gross profit margins was due primarily to improved Specialty Services project
mix, management and performance. The 1995 consolidated gross profit margin
increased from 17.2 percent in 1994. This increase was mainly attributable to
improved Specialty Services and Environmental and Performance Chemical profit
margins over 1994.
Consolidated selling, general and administrative expenses for 1996 of $35.8
million include a pre-tax charge of $3.5 million, discussed above. Excluding
this charge, 1996 overhead expenses decreased $2.0 million, or 6.0 percent to
$32.3 million in 1996 from $34.3 million in 1995. The decrease is lower than the
26.9 percent decrease in revenue for the same period due to the level of fixed
overhead costs inherent in the business which do not decrease with lower revenue
levels. Consolidated selling, general and administrative expenses in 1995 were
$8.3 million, or 32.1 percent, higher than the 1994 level of $26.0 million,
resulting primarily from the expansion of the Specialty Services and the
Environmental and Performance Chemical businesses. The expansion of the
Specialty Services business included the acquisition of Hartney Industrial
Services ("Hartney") in June 1994.
Interest expense increased in 1996 to $2.4 million compared to $1.9 million
in 1995. See Note 5 of Notes to Consolidated Financial Statements for discussion
of the restructuring of the Company's debt and the related increase in interest
costs. In 1995 interest expense increased $0.5 million from $1.4 million in
1994. These increases are due to a higher level of working capital borrowings
under the Company's revolving line of credit necessary to support the Company's
level of business activity.
Interest income increased in 1996 to $0.1 million following a decrease in
1995 from 1994 of $0.5 million. The 1996 increase was primarily due to interest
income generated on the Stewart & Stevenson settlement proceeds. The 1995
decrease resulted primarily from lower available cash balances during the year.
In 1996, other income of $5.9 million includes the net effect of the
Stewart & Stevenson litigation settlement which the Company received during the
year. After payment of attorney's fees and a payment to the Company's founder,
Richard W. Krajicek, the Company received and recorded a $5.8 million net
settlement, or $3.9 million on an after-tax basis (see Note 8 of Notes to
Consolidated Financial Statements).
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<PAGE> 15
Minority interest includes the minority shareholders portion of ST Piping,
Inc. ("ST Piping") 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 4 of Notes to Consolidated Financial Statements). The
reduced level of minority ownership in ST Piping coupled with its reduced level
of earnings in 1996 as compared to 1995, due to the lower levels of specialty
turnaround maintenance activity during 1996, have caused the decrease in
minority interest in 1996. Minority interest in 1995 increased over 1994 due to
a higher level of ST Piping earnings in 1995.
SPECIALTY SERVICES
In 1996, Specialty Services revenues decreased $52.9 million, or 40.1
percent from 1995 revenues of $131.9 million. Specialty Services revenues
increased $18.3 million, or 16.1 percent, in 1995 over 1994 revenues of $113.5
million. The 1996 revenue decrease was attributable to lower levels of business
activity throughout the turnaround maintenance business, resulting from delays
in scheduled maintenance at refinery facilities which were experiencing improved
margins. The increase in 1995 was mainly due to the acquisition of Hartney in
June 1994, which generated revenues of $21.6 million in 1995, coupled with
increased refinery spending during the year.
Operating income of $0.1 million in 1996 includes a $1.4 million pre-tax
charge for the impairment of certain obsolete equipment and the write-off of an
uncollectible receivable. Excluding the effect of this charge, operating income
was $1.5 million compared to $4.7 million in the prior year. This decrease is
consistent with the reduced levels of turnaround maintenance revenues as
discussed above. Operating income in 1995 was $1.0 million lower than the 1994
level of $5.7 million, excluding a $10.6 million pre-tax special charge recorded
during 1994. Higher levels of revenues and gross profit in 1995 were offset by
increased selling, general and administrative expenses. The increased level of
overhead expenses was attributable primarily to the acquisition of Hartney in
June, 1994.
SECO
SECO revenues were $50.0 million in 1996, a decrease of $2.2 million from
1995 revenues of $52.2 million. In 1995, revenues increased 5.6 percent from
1994's level of $49.4 million. The 1996 decrease in revenue is attributed to
decreased activity in onshore projects, due to a reduced number of refinery
turnaround projects in 1996, as discussed above, offset partially by an increase
in offshore drilling platform revenue. Revenues from deepwater drilling platform
installations were $10.1 million, $7.1 million and $1.3 million for 1996, 1995
and 1994, respectively. In October 1996, SECO was awarded a contract for work on
the deck module fabrication of the Shell URSA tension leg platform, currently
scheduled for completion in July 1998. Revenues for 1996 included only $0.1
million attributable to the Shell URSA project.
Operating income amounted to $3.5 million in 1996, a decrease of 4.8
percent from the 1995 level of $3.7 million. However, operating income as a
percentage of revenue remained at 7.1 percent for both periods. Operating income
increased by $0.3 million in 1995 from $3.4 million in 1994. This increase is
consistent with the increased level of revenue experienced in 1995.
Revenue backlog was $29.1 million, $17.1 million, and $18.0 million as of
December 31, 1996, 1995 and 1994, respectively. Revenue backlog at December 31,
1996, includes $9.4 million related to the Shell URSA project and $6.0 million
related to an additional deep-water drilling platform project, on which work is
scheduled to start in late-1997 and early-1998, respectively. 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.
ENVIRONMENTAL AND PERFORMANCE CHEMICALS
Environmental and Performance Chemicals 1996 revenues remained constant
with the 1995 level of $16.4 million. In 1995, revenue increased $7.8 million,
or 90.6 percent from $8.6 million in 1994. Chemisolv
13
<PAGE> 16
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 was attributable to increased activity in the
Company's tank cleaning services.
The $1.4 million operating loss in 1996, includes a $0.7 million pre-tax
charge for the write-off of certain tank cleaning equipment that will not be
utilized in the future operations of the Company. Excluding the effects of this
charge, the operating loss of $0.7 million was down $1.0 million from 1995
operating income of $0.2 million. This reduction was due to increased research
and development expenditures related to the development of the new
paper-strengthening technology, Mastiff (SM). Operating income in 1995 increased
$0.4 million from a $0.2 million loss in 1994. Higher gross profit margins
recognized on decontamination services and increased activity in the tank
cleaning business contributed to the improved operating results which were
partially offset by Chemisolv operating losses.
CORPORATE AND OTHER
The operating loss of $8.0 million includes a $1.3 million pre-tax charge
primarily for severance related costs and some consulting and professional fees.
Excluding this charge, the 1996 operating loss of $6.7 million increased $0.4
million from 1995. This increase is mainly attributable to costs related to
professional services necessary to study and identify strategic alternatives
available to the Company. These expenses were incurred during the latter part of
1996.
DISCONTINUED OPERATIONS
In July 1996, the Company announced its intent to discontinue its
engineering, procurement and construction ("EPC") operations. The EPC operations
provided a full range of engineering consultation and project management
services primarily to the refining, petrochemical and food processing
industries. The discontinued EPC operations consisted of, (i) several domestic
EPC projects (which have now been completed), (ii) F.C. Schaffer and Associates,
which includes the Finchaa Sugar Factory project as well as a consulting
engineering practice, (iii) a construction company in Orange, Texas (which has
been closed and substantially all remaining assets have been sold) and (iv)
engineering operations in Lake Charles and New Orleans, Louisiana (which have
been sold).
The 1996 net loss from discontinued operations of $10.3 million (net of
income tax benefit of $4.4 million), or $1.54 per share, included a $9.7 million
($6.6 million, or $0.99 per share, on an after-tax basis) charge primarily for
the write-down of the profitability on several domestic EPC projects and the
Finchaa Sugar Factory project. The Finchaa project was written down to a $4.5
million loss ($2.9 million, or $0.43 per share, on an after-tax basis) during
the fourth quarter. Excluding the effects of this charge, the net loss from
discontinued operations was $3.7 million, or $0.55 per share for 1996 compared
to net income of $2.8 million (net of income tax expense of $0.7 million), or
$0.42 per share for 1995 and net income of $0.5 million (net of income tax
expense of $0.1 million), or $0.08 per share for 1994.
Additionally, in conjunction with the decision to discontinue the EPC
operations, the Company recorded a $4.3 million (net of income tax benefit of
$1.0 million), or $0.64 per share, estimated loss on disposal of the EPC
operations for the estimated loss on sale and disposal of certain EPC divisions
and the related write-off of goodwill. The estimated loss on disposal of the EPC
operations includes a $0.3 million, or $0.05 per share, estimated loss during
phase-out period.
Net current assets from discontinued operations at December 31, 1996
consisted primarily of working capital associated with the Finchaa project and
the consulting engineering practice of F.C. Schaffer and Associates. Net
non-current assets from discontinued operations consisted primarily of property
and equipment, net of a note payable of $0.7 million.
Revenues generated by the discontinued EPC operations for 1996, 1995 and
1994 were $70.3 million, $84.7 million and $13.3 million, respectively. 1996 and
1995 revenues included $38.9 million and $32.8 million related to the Finchaa
Sugar Factory Project, respectively.
14
<PAGE> 17
FINCHAA SUGAR FACTORY PROJECT
During the first quarter of 1995, F. C. Schaffer & Associates ("Schaffer"),
a subsidiary of the Company, 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 warranty and training period. In
conjunction with the effectiveness of the contract, the Company received an
advance payment equal to 20.0 percent of the contract value. The Company has
issued letters of credit to support performance and the 20.0 percent advance
payment. At December 31, 1996, letters of credit of $6.3 million were
outstanding to support the unrecovered portion of the advance payment and $8.3
million to support project performance guarantees, see Note 5 of Notes to
Consolidated Financial Statements. Contractual payment amounts to Schaffer are
supported by a revolving letter of credit issued by the Ethiopian government via
the African Development Bank.
As of December 31, 1996, the Finchaa project was approximately 80 percent
complete.
VOLATILITY AND SEASONALITY OF REVENUES
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 April, and September through
November. The exact timing and duration of these periods will largely depend on
the demand for the customers' products. In addition, most of the Specialty
Services contracts are short in duration, and large individual contracts may
significantly influence results in any specific quarter.
OTHER
The Company has a combination of contractual and discretionary bonus
programs for key personnel throughout most of its operating groups. Payments
under discretionary plans total, in the aggregate, approximately eight 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 contractual 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 20.0 percent of the fully-burdened operating earnings of the respective
group.
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.
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures for 1996, excluding acquisitions, were $2.0 million,
primarily for the purchase of equipment necessary to support the operations and
expansion of the Company's operating groups. Capital expenditures for 1997,
excluding acquisitions, are expected to be approximately $1.5 million, primarily
for the purchase and manufacture of equipment to support the Company's business
activities.
At December 31, 1996, the Company's working capital totaled approximately
$8.2 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 $26.5 million revolving line of credit with two banks (the
"Revolver"), which expires in December 1997. The $26.5 million credit facility
decreases to $23.5 million at April 30, 1997, and $19.5 million at June 30,
1997. At December 31, 1996, $5.6 million was outstanding under the revolving
line of credit. Additionally, the Company has irrevocable letters of credit
totaling $4.6 million outstanding to guarantee certain of the Company's
insurance programs and bid bonds, leaving $16.3 million available for borrowing
under the Revolver. However, subsequent to December 31, 1996, the Company has
drawn approximately $12.9 million against the revolving line of credit in order
to fund working capital requirements
15
<PAGE> 18
consistent with increased first quarter 1997 revenue activity. These amounts are
expected to be repaid during the second quarter of 1997 as receivables are
collected from the seasonably high point of the Company's turnaround maintenance
business. In addition, the Company has $15.0 million in Senior Notes Payable due
June 2003 (See Note 5 of Notes to Consolidated Financial Statements).
As a result of the fourth quarter 1996 net loss, the Company was in
violation of various financial covenants. The Company received waivers from its
lenders with respect to such covenant violations as well as waivers necessary to
enter into the Merger Agreement with Philip Environmental Inc. (See "Subsequent
Event" below).
In 1995, Schaffer secured an $83 million contract to engineer, design,
procure and construct a sugar factory and ethanol plant in Finchaa, Ethiopia. In
conjunction with the effectiveness of the contract, the Company received an
advance payment equal to 20.0 percent of the contract value. The project is
financed by the African Development Bank. Contractual payment amounts to
Schaffer are supported by a revolving letter of credit issued by the Ethiopian
government via the African Development Bank. The Company has issued letters of
credit to support performance and the 20.0 percent advance payment. At December
31, 1996, letters of credit of $6.3 million were outstanding to support the
unrecovered portion of the advance payment and $8.3 million to support project
performance guarantees.
For the year ended December 31, 1996, net cash flows from continuing
operations were $7.9 million resulting primarily from depreciation and
amortization of $6.0 million, the $1.4 million charge, net decrease in accounts
receivable of $9.4 million, offset by a decrease in accounts payable and accrued
liabilities of $6.7 million. The decreases were due primarily to the lower level
of business activity during 1996. Net cash provided by investing activities
amounted to $0.2 million, resulting from $1.7 million in proceeds from sales of
property, plant and equipment and $0.8 million in investing activities related
to the discontinued EPC operations, partially offset by $2.0 million in capital
expenditures. Cash flows used in financing activities totaled $2.1 million
resulting from net principal payments of long-term debt and financing costs
incurred related to the November 1996 debt restructuring (see Note 5 of Notes to
Consolidated Financial Statements), and $0.7 million of debt payments related to
the discontinued EPC operations.
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
may be supplemented with other external sources of funds to meet additional cash
requirements, if necessary.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
During 1996, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 121 "Accounting for the Impairment of Long-Lived Assets
to be Disposed Of". This statement requires that long-lived assets and certain
identifiable intangible assets to be held and used by an entity be reviewed for
impairment whenever events or changes indicate the carrying amount of an asset
may not be recoverable. The adoption of SFAS No. 121 had no effect on the
consolidated financial statements for the year ended December 31, 1996.
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 recognizes no compensation
expense for stock options granted. Accordingly, the Company has adopted the
disclosure-only provisions of SFAS No. 123, see Note 10 of Notes to Consolidated
Financial Statements.
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<PAGE> 19
SUBSEQUENT EVENT
On March 5, 1997, the Company entered into the Merger Agreement. Pursuant
to the Merger Agreement, Sub will be merged with and into the Company, and the
Company will become a wholly-owned subsidiary of Taro and an indirect,
wholly-owned subsidiary of Philip.
Under the terms of the Merger Agreement, each share of Company Common Stock
will be exchanged for 0.403 share of Philip Common Stock (except for shares held
by persons who perfect and exercise dissenters' rights under Texas law),
provided that Philip will pay cash in lieu of any fractional shares of Philip
Common Stock to which holders of Company Common Stock would otherwise be
entitled. Based upon the closing price of Philip Common Stock on March 5, 1997,
each share of Company Common Stock is valued at $6.60 per share. In aggregate,
the transaction is valued at approximately $72.0 million, including the
assumption of approximately $21.0 million of Company indebtedness. The
transaction is subject to regulatory and shareholder approvals, and is expected
to close by June 30, 1997.
Philip is a fully integrated, resource recovery and industrial services
company providing metals processing and mill services, solid and liquid
by-products recovery and industrial and remediation services to all major
industry sectors. Philip Common Stock trades on the New York Stock Exchange.
17
<PAGE> 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Balance Sheets................................. 19
Consolidated Statements of Operations....................... 20
Consolidated Statements of Changes in Stockholders'
Equity.................................................... 21
Consolidated Statements of Cash Flows....................... 22
Notes to Consolidated Financial Statements.................. 23
Independent Auditors' Report................................ 40
</TABLE>
18
<PAGE> 21
SERV-TECH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1995
----------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................. $ 4,532,622 $ 287,356
Accounts receivable, net.................................. 23,402,942 31,941,127
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 1,479,518 2,111,396
Prepaid expenses.......................................... 839,969 768,161
Inventory................................................. 2,026,359 2,102,245
Deferred income taxes..................................... 3,246,448 4,532,761
Net current assets from discontinued operations........... 378,326 16,276,603
----------- ------------
Total current assets.............................. 35,906,184 58,019,649
Property, plant and equipment, net.......................... 26,275,026 30,022,511
Intangible assets, net...................................... 14,189,083 14,748,088
Other assets................................................ 2,230,681 1,884,763
Net non-current assets, discontinued operations............. 1,714,503 3,120,272
----------- ------------
Total assets...................................... $80,315,477 $107,795,283
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 7,497,878 $ 13,295,347
Accrued liabilities....................................... 12,672,252 13,545,808
Revolving line of credit.................................. 5,559,169 6,500,000
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 390,897 359,415
Income taxes payable...................................... -- 295,865
Current maturities of long-term debt...................... 1,587,269 207,732
----------- ------------
Total current liabilities......................... 27,707,465 34,204,167
Long-term debt, less current maturities..................... 13,835,000 15,169,998
Deferred income taxes....................................... 954,317 5,006,320
Minority interest and other................................. 586,905 484,952
Commitments and Contingencies (Note 11)
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 6,873,709 and 6,752,671,
respectively........................................... 3,436,855 3,376,336
Additional paid-in capital................................ 43,346,804 43,489,763
Retained (deficit) earnings............................... (9,457,021) 7,675,586
Cumulative translation adjustments........................ (44,505) (64,982)
Treasury stock, at cost, 13,774 and 193,358 shares,
respectively........................................... (50,343) (1,546,857)
----------- ------------
Total stockholders' equity........................ 37,231,790 52,929,846
----------- ------------
Total liabilities and stockholders' equity........ $80,315,477 $107,795,283
=========== ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
19
<PAGE> 22
SERV-TECH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenues......................................... $142,385,571 $194,830,759 $167,833,853
Costs of services................................ 112,462,899 158,139,025 138,925,050
------------ ------------ ------------
Gross profit........................... 29,922,672 36,691,734 28,908,803
Selling, general and administrative expenses..... 35,782,864 34,349,971 26,005,980
Special charge................................... -- -- 12,225,182
------------ ------------ ------------
Operating income (loss)........................ (5,860,192) 2,341,763 (9,322,359)
------------ ------------ ------------
Other income (expense):
Interest expense............................... (2,357,795) (1,945,683) (1,438,213)
Interest income................................ 148,869 34,832 511,357
Other, net..................................... 5,944,218 126,929 4,016
------------ ------------ ------------
Total other income (expense)........... 3,735,292 (1,783,922) (922,840)
------------ ------------ ------------
Minority interest and other...................... (101,953) (415,425) (260,305)
Equity in losses of affiliates................... -- (24,331) (226,700)
------------ ------------ ------------
Pre-tax income (loss) from continuing
operations..................................... (2,226,853) 118,085 (10,732,204)
Income tax expense (benefit)..................... 237,000 892,000 (1,419,000)
------------ ------------ ------------
Net loss from continuing operations.............. $ (2,463,853) $ (773,915) $ (9,313,204)
Income (loss) from discontinued operations, net
of income taxes................................ (10,342,208) 2,835,034 517,868
Estimated loss on disposal of discontinued
operations, net of tax benefit................. (4,326,546) -- --
------------ ------------ ------------
Net income (loss)...................... $(17,132,607) $ 2,061,119 $ (8,795,336)
============ ============ ============
Loss per share from continuing operations........ $ (0.37) $ (0.11) $ (1.52)
Earnings (loss) per share from discontinued
operations..................................... (2.18) 0.42 0.08
------------ ------------ ------------
Net income (loss) per share............ $ (2.55) $ 0.31 $ (1.44)
============ ============ ============
Weighted average common shares outstanding....... 6,714,335 6,720,134 6,117,434
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
20
<PAGE> 23
SERV-TECH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED CUMULATIVE TREASURY STOCK
---------------------- PAID-IN EARNINGS TRANSLATION ----------------------
SHARES AMOUNT CAPITAL (DEFICIT) ADJUSTMENTS SHARES AMOUNT
--------- ---------- ----------- ------------ ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993........ 5,810,978 $2,905,490 $36,881,683 $ 14,409,803 $(243,456) -- $ --
Exercise of stock options....... 43,800 21,900 184,526 -- -- -- --
Issuance of common stock........ 650,000 325,000 4,762,500 -- -- -- --
Translation adjustments......... -- -- -- -- 111,531 -- --
Net loss........................ -- -- -- (8,795,336) -- -- --
--------- ---------- ----------- ------------ --------- -------- -----------
Balance, December 31, 1994........ 6,504,778 3,252,390 41,828,709 5,614,467 (131,925) -- --
Exercise of stock options....... 40,000 20,000 121,250 -- -- -- --
Issuance of common stock........ 207,893 103,946 1,539,804 -- -- -- --
Purchase of treasury stock...... -- -- -- -- -- (203,873) (1,630,984)
Transfer of treasury stock to
401(k) plan................... -- -- -- -- -- 10,515 84,127
Translation adjustments......... -- -- -- -- 66,943 -- --
Net income...................... -- -- -- 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)
Issuance of common stock........ 73,778 36,889 270,421 -- -- (10,322) (22,767)
Restricted stock awards
issued........................ 64,800 32,400 388,800 -- -- -- --
Restricted stock awards
forfeited..................... (17,540) (8,770) (106,696) -- -- -- --
Transfer of treasury stock to
401(k) plan................... -- -- (695,484) -- -- 189,906 1,519,281
Translation adjustments......... -- -- -- -- 20,477 -- --
Net loss........................ -- -- -- (17,132,607) -- -- --
--------- ---------- ----------- ------------ --------- -------- -----------
Balance, December 31, 1996........ 6,873,709 $3,436,855 $43,346,804 $ (9,457,021) $ (44,505) (13,774) $ (50,343)
========= ========== =========== ============ ========= ======== ===========
<CAPTION>
TOTAL
------------
<S> <C>
Balance, December 31, 1993........ $ 53,953,520
Exercise of stock options....... 206,426
Issuance of common stock........ 5,087,500
Translation adjustments......... 111,531
Net loss........................ (8,795,336)
------------
Balance, December 31, 1994........ 50,563,641
Exercise of stock options....... 141,250
Issuance of common stock........ 1,643,750
Purchase of treasury stock...... (1,630,984)
Transfer of treasury stock to
401(k) plan................... 84,127
Translation adjustments......... 66,943
Net income...................... 2,061,119
------------
Balance, December 31, 1995........ 52,929,846
Issuance of common stock........ 284,543
Restricted stock awards
issued........................ 421,200
Restricted stock awards
forfeited..................... (115,466)
Transfer of treasury stock to
401(k) plan................... 823,797
Translation adjustments......... 20,477
Net loss........................ (17,132,607)
------------
Balance, December 31, 1996........ $ 37,231,790
============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
21
<PAGE> 24
SERV-TECH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................... $(17,132,607) $ 2,061,119 $ (8,795,336)
Adjustments to reconcile net income (loss) to net cash
provided by continuing operations:
(Income) loss from discontinued operations........... 10,342,208 (2,835,034) (517,868)
Loss on disposal of discontinued operations.......... 4,326,546 -- --
Depreciation and amortization........................ 6,004,942 6,160,642 5,380,282
Non-cash charges..................................... 1,387,207 -- 12,225,182
Minority interest and other.......................... 101,953 415,425 260,305
Equity in losses of affiliates....................... -- 24,331 226,700
Provision for losses on accounts and notes
receivable........................................ (850,932) 1,218,579 (1,529,454)
Deferred income taxes................................ 540,000 (883,000) (1,084,647)
Other................................................ (39,399) 64,635 109,805
------------ ------------ ------------
4,679,918 6,226,697 6,274,969
Changes in assets and liabilities, net of effect from
acquisitions of businesses:
Accounts receivable.................................. 9,389,116 554,376 (747,233)
Net change in billings, costs and estimated earnings
on uncompleted contracts.......................... 663,360 315,250 1,259,598
Inventory............................................ 75,886 (374,509) (38,938)
Prepaid expenses..................................... (71,808) 450,807 10,565
Other assets......................................... 179,511 (584,384) (40,703)
Accounts payable..................................... (5,797,469) 4,116,650 (3,447,231)
Accrued liabilities.................................. (873,556) (332,335) (974,535)
Income taxes payable................................. (295,865) 295,865 206,181
------------ ------------ ------------
Net cash provided by operating activities of
continuing operations...................... 7,949,093 10,668,417 2,502,673
Net cash used by discontinued operations............. (1,770,443) (8,426,500) (2,488,568)
------------ ------------ ------------
Net cash provided by operating activities.... 6,178,650 2,241,917 14,105
------------ ------------ ------------
Cash flows from investing activities:
Capital expenditures................................. (2,027,194) (5,443,934) (4,829,855)
Investing activities related to discontinued
operations........................................ 776,265 (1,046,257) (911,432)
Investments in and advances to affiliates............ -- (34,450) (671,387)
Acquisitions of businesses, net of cash acquired..... -- (625,514) (2,316,050)
Intangible assets.................................... (229,274) (243,303) (161,769)
Proceeds from sale of property, plant and
equipment......................................... 1,683,809 148,625 77,864
------------ ------------ ------------
Net cash provided by (used in) investing
activities................................. 203,606 (7,244,833) (8,812,629)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of debt....................... 13,784,423 31,000,000 8,000,000
Principal payments of debt........................... (14,690,162) (24,994,490) (12,554,198)
Financing costs...................................... (525,429) -- (300,000)
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)
Purchase of preferred stock of a subsidiary.......... -- -- (800,000)
Financing activities of discontinued operations...... (705,822) (527,243) --
------------ ------------ ------------
Net cash provided by (used in) financing
activities................................. (2,136,990) 3,988,533 (5,550,183)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents... 4,245,266 (1,014,383) (14,348,707)
Cash and cash equivalents at beginning of year......... 287,356 1,301,739 15,650,446
------------ ------------ ------------
Cash and cash equivalents at end of year............... $ 4,532,622 $ 287,356 $ 1,301,739
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
22
<PAGE> 25
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.
Research and Development Costs
The Company expenses all research and development costs as they are named.
These costs, primarily related to Chemisolv's new paper-strengthening technology
Mastiff (SM), amounted to 0, $0.2 million and $0.9 million for 1994, 1995 and
1996, respectively.
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.
23
<PAGE> 26
SERV-TECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 20 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, 1996 and 1995, cash and cash equivalents include restricted
balances of $0.3 million and $0.6 million, respectively. 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.
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.
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.
24
<PAGE> 27
SERV-TECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Concentration of Credit Risk
The Company provides specialized turnaround maintenance, electrical and
instrumentation, 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 3 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 these type of short-term 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
During 1996, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 121 "Accounting for the Impairment of Long-Lived Assets
to be Disposed Of". This statement requires that long-lived assets and certain
identifiable intangible assets to be held and used by an entity be reviewed for
impairment whenever events or changes indicate the carrying amount of an asset
may not be recoverable. The adoption of SFAS No. 121 had no effect on the
consolidated financial statement for the year ended December 31, 1996.
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 recognizes no compensation
expense for stock options granted. Accordingly, the Company has adopted the
disclosure-only provisions of SFAS No. 123, see Note 10.
Reclassifications
Certain reclassifications have been made in order to conform to current
year presentation with no effect on net income (loss).
25
<PAGE> 28
SERV-TECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS
Additional information regarding certain balance sheet accounts at December
31, 1996 and 1995 is presented below:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Accounts receivable:
Contracts............................................... $23,565,801 $32,741,509
Income taxes............................................ 220,879 --
Other................................................... 520,560 954,848
----------- -----------
24,307,240 33,696,357
Less allowance for doubtful accounts.................... (904,298) (1,755,230)
----------- -----------
$23,402,942 $31,941,127
=========== ===========
</TABLE>
Bad debt expense was approximately $0.2 million, $1.1 million and $0.9
million for the years ended December 31, 1996, 1995, and 1994, respectively.
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Property, plant and equipment, at cost:
Land and improvements................................... $ 1,303,646 $ 1,303,646
Buildings and improvements.............................. 5,219,509 5,065,445
Operating machinery and equipment....................... 33,632,149 35,631,879
Furniture and office equipment.......................... 6,363,635 5,026,875
----------- -----------
46,518,939 47,027,845
Less accumulated depreciation........................... (20,387,080) (17,579,372)
----------- -----------
26,131,859 29,448,473
Construction-in-progress................................ 143,167 574,038
----------- -----------
$26,275,026 $30,022,511
=========== ===========
</TABLE>
Depreciation expense was approximately $5.0 million, $5.2 million and $4.4
million for the years ended December 31, 1996, 1995, and 1994, respectively.
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Intangible assets:
Patents (net of accumulated amortization of $586,686 and
$468,977 at December 31, 1996 and 1995,
respectively)........................................ $ 1,268,314 $ 1,118,430
Covenants not to compete (net of accumulated
amortization of $2,125,000 and $1,712,510 at December
31, 1996 and 1995, respectively)..................... 535,893 948,383
Excess of costs over net assets of businesses acquired
(net of accumulated amortization of $1,444,498 and
$977,001 at December 31, 1996 and 1995,
respectively)........................................ 12,384,876 12,681,275
----------- -----------
$14,189,083 $14,748,088
=========== ===========
</TABLE>
Amortization expense was approximately $1.0 million, for each of the years
ended December 31, 1996, 1995 and 1994.
26
<PAGE> 29
SERV-TECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Accrued liabilities:
Wages and payroll taxes................................. $ 2,482,899 $ 2,493,105
Insurance............................................... 5,443,798 7,433,850
Other................................................... 4,745,555 3,618,853
----------- -----------
$12,672,252 $13,545,808
=========== ===========
</TABLE>
3. DISCONTINUED OPERATIONS
In July 1996, the Company announced its intent to discontinue its
engineering, procurement and construction ("EPC") operations. The EPC operations
provided a full range of engineering consultation and project management
services primarily to the refining, petrochemical and food processing
industries. The discontinued EPC operations consisted of, (i) several domestic
EPC projects (which have now been completed), (ii) F.C. Schaffer and Associates
which includes the Finchaa Sugar Factory project as well as a consulting
engineering practice, (iii) a construction company in Orange, Texas (which has
been closed and substantially all remaining assets have been sold) and (iv)
engineering operations in Lake Charles and New Orleans, Louisiana (which have
been sold).
The 1996 net loss from discontinued operations of $10.3 million (net of
income tax benefit of $4.4 million), or $1.54 per share, included a $9.7 million
($6.6 million, or $0.99 per share, on an after-tax basis) charge primarily for
the write-down of the profitability on several domestic EPC projects and the
Finchaa Sugar Factory project. The Finchaa project was written down to a $4.5
million loss ($2.9 million, or $0.43 per share, on an after-tax basis) during
the fourth quarter of 1996. Excluding the effects of this charge, the net loss
from discontinued operations was $3.7 million, or $0.55 per share for 1996
compared to net income of $2.8 million (net of income tax expense of $0.7
million), or $0.42 per share for 1995 and net income of $0.5 million (net of
income tax expense of $0.1 million), or $0.08 per share for 1994.
Additionally, in conjunction with the decision to discontinue the EPC
operations, the Company recorded a $4.3 million (net of income tax benefit of
$1.0 million), or $0.64 per share, estimated loss on disposal of the EPC
operations for the estimated loss on sale and disposal of certain EPC divisions
and the related write-off of goodwill. The estimated loss on disposal of the EPC
operations includes $0.3 million, or $0.05 per share, estimated losses during
phase-out period.
Net current assets from discontinued operations at December 31, 1996
consisted primarily of working capital associated with the Finchaa project and
the consulting engineering practice of F.C. Schaffer and Associates. Net
non-current assets from discontinued operations consisted primarily of property
and equipment, net of a note payable of $0.7 million.
Revenues generated by the discontinued EPC operations for 1996, 1995 and
1994 were $70.3 million, $84.7 million and $13.3 million, respectively. 1996 and
1995 revenues included $38.9 million and $32.8 million related to the Finchaa
Sugar Factory Project, respectively.
Finchaa Sugar Factory Project
During the first quarter of 1995, F. C. Schaffer & Associates ("Schaffer"),
a subsidiary of the Company, 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 warranty and training period. In
conjunction with the effectiveness of the contract, the Company received an
advance payment equal to 20% of the contract value. The Company has issued
letters of credit to support performance and the 20% advance payment. At
December 31, 1996, letters of credit of $6.3 million were outstanding to support
the unrecovered portion of the advance payment and $8.3 million to support
project
27
<PAGE> 30
SERV-TECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
performance guarantees, see Note 5. Contractual payment amounts to Schaffer are
supported by a revolving letter of credit to be issued by the Ethiopian
government via the African Development Bank.
As of December 31, 1996, the Finchaa project was approximately 80%
complete.
4. ACQUISITIONS
ST Piping
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. Pro forma results were not material to the Company's financial
position or results of operations.
Hartney
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.
Chemisolv
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, 1994, are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
----------------------
<S> <C>
Revenues.................................................... $186,600
Net income (loss)........................................... (8,869)
Earnings (loss) per share................................... $ (1.37)
</TABLE>
28
<PAGE> 31
SERV-TECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
SECO
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.
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.
5. LONG-TERM DEBT
In November 1996, the Company reached agreement with its lenders regarding
the restructuring of its debt facilities including the: (i) $15.0 million notes
held by four insurance companies (the "Notes"), (ii) revolving line of credit
with two banks (the "Revolver"), and (iii) the letters of credit supporting
performance and advance payment amounts related to the Finchaa Sugar Factory
project totaling $14.6 million at December 31, 1996.
Effective November 12, 1996, under the new agreements, the Notes accrue
interest at a rate of 10.50% with 0.25% incremental increases each quarter
beginning January 1, 1998, through December 31, 1998 (rate caps at 11.50%
through maturity). The Notes are collateralized by substantially all assets of
the Company. Monthly principal payments of $208,333 are payable beginning July
1997, through the June 2003 maturity date.
The Revolver permits borrowings up to $26.5 million until April 30, 1997,
when it decreases to $23.5 million, and further reduces to $19.5 million at June
30, 1997, until its scheduled December 31, 1997 maturity. Interest is payable
monthly at a rate equivalent to either eurodollar plus 4.09% (at December 31,
1996 the adjusted rate was 9.59%) or prime plus 1.0% (9.25% at December 31,
1996). Borrowings under the Revolver are collateralized by substantially all
assets of the Company. The Company pays a commitment fee of 0.25 percent on the
unused portion. At December 31, 1996, working capital borrowings of $5.6 million
were outstanding under the Revolver. Additionally, the Company has irrevocable
letters of credit totaling $4.6 million outstanding, to guarantee certain of the
Company's insurance programs and bid bonds, leaving total availability under the
Revolver, at $16.3 million. Borrowings under the Revolver are also subject to a
borrowing base computation, which is limited primarily to 75% of eligible
accounts receivable, as defined.
The Notes, Revolver and Finchaa LOC agreements contain covenants, which
require, among others, that the Company maintain: (i) minimum consolidated net
worth, (ii) minimum cash flow (defined as earnings before interest, taxes,
depreciation and amortization), and (iii) minimum fixed charge coverage.
Additionally, the Company is limited in its debt-to-capitalization ratio as well
as capital expenditures. Draws, if any, under the Finchaa LOC would represent
loans, which would be secured by substantially all assets of the Company.
As a result of the fourth quarter 1996 net loss, the Company was in
violation of various financial covenants. The Company received waivers from its
lenders with respect to such covenant violations as well as waivers necessary to
enter into the definitive merger agreement with Philip Environmental Inc. (See
Note 17).
29
<PAGE> 32
SERV-TECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1996 and 1995, long-term debt consisted of the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
The Notes................................................. $15,000,000 $15,000,000
Other various notes payable............................... 422,269 377,730
----------- -----------
15,422,269 15,377,730
Less current maturities................................... (1,587,269) (207,732)
----------- -----------
$13,835,000 $15,169,998
=========== ===========
</TABLE>
The aggregate maturities of long-term debt during the five years subsequent
to December 31, 1996, are approximately $1.6 million, $2.6 million, $2.5
million, $2.5 million, and $2.5 million, respectively.
6. INCOME TAXES
The components of the income tax provision (benefit) from continuing
operations for the three years ended December 31, 1996, were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- ---------- -----------
<S> <C> <C> <C>
Federal:
Current..................................... $(303,000) $1,430,000 $ (212,000)
Deferred.................................... 468,919 (753,240) (1,396,548)
State:
Current..................................... -- 345,000 350,000
Deferred.................................... 71,081 (129,760) (205,452)
Foreign-current............................... -- -- 45,000
--------- ---------- -----------
$ 237,000 $ 892,000 $(1,419,000)
========= ========== ===========
</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, 1996, is analyzed as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Amount computed using the
statutory rate................ $(757,130) (34.0)% $ 40,149 34.0% $(3,648,949) (34.0)%
Losses of tax entities for which
no tax benefit is
recognized.................... 617,572 27.7 177,000 150.0 181,217 1.7
Minority interest............... 34,664 1.6 141,245 119.6 88,504 0.8
State taxes, net of federal tax
benefit....................... 71,081 3.2 227,452 192.6 10,418 0.1
Write down of certain equity
investments and other
intangibles................... -- -- -- -- 880,435 8.2
Nondeductible expenses.......... 344,370 15.5 242,583 205.4 697,538 6.5
Other........................... (73,557) (3.3) 63,571 53.8 371,837 3.5
--------- ----- -------- ----- ----------- -----
$ 237,000 10.6% $892,000 755.4% $(1,419,000) (13.2)%
========= ===== ======== ===== =========== =====
</TABLE>
30
<PAGE> 33
SERV-TECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the net deferred income tax asset (liability) from
continuing operations at December 31, 1996 and 1995, consisted of the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Current deferred tax assets:
Difference in recognition of insurance claims........... $ 363,190 $ 2,630,595
Difference in recognition of financial statement
accruals............................................. 2,465,453 1,168,794
Difference in recognition of allowance for doubtful
accounts............................................. 417,805 733,372
----------- -----------
Total net current deferred tax asset.................... 3,246,448 4,532,761
----------- -----------
Noncurrent deferred tax liabilities:
Property, plant and equipment basis and depreciation
differences.......................................... (2,971,502) (4,287,000)
Differences in recognition of certain intangible
assets............................................... 453,211 (719,320)
Net operating loss carryforward......................... 2,924,408 --
Alternative minimum tax credit carryforward............. 169,566 --
----------- -----------
Total noncurrent deferred tax assets (liabilities)...... 575,683 (5,006,320)
Less: Valuation allowance............................... (1,530,000) --
----------- -----------
Net noncurrent deferred tax liabilities................. (954,317) (5,006,320)
----------- -----------
Net deferred tax asset (liability)........................ $ 2,292,131 $ (473,559)
=========== ===========
</TABLE>
The Company recorded a valuation allowance for deferred tax assets in 1996
of $1,530,000. In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment. In order
to fully realize all deferred tax assets, the Company will need to generate
future taxable income of approximately $8,600,000 prior to the expiration of the
net operating loss carryforwards in 2011. Based upon the level of historical
taxable income and projections for future taxable income over the periods which
the deferred tax assets are deductible, management believes it is more likely
than not the Company will realize the benefits of these deductible differences,
net of the existing valuation allowances at December 31, 1996. The amount of the
deferred tax asset considered realizable, however, could be reduced in the near
term if estimates of future taxable income during the carryforward period are
reduced.
7. RELATED PARTY TRANSACTION/TREASURY STOCK
In August, 1995, Richard W. Krajicek retired as Chairman of the Company.
Mr. Krajicek was subsequently retained by the Company under a five year
consulting agreement. Mr. Krajicek, along with certain family members, owned
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 "Krajicek Agreement"). 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 Krajicek Agreement.
The Company recently reached an agreement with Mr. Krajicek to defer, to no
earlier than September 30, 1997 unless agreed by the Company, the cash
obligation that may be due, if any, during the period
31
<PAGE> 34
SERV-TECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
beginning November 9, 1996. Additionally, the cash obligation that may be due,
if any, during the period beginning November 9, 1997 has been deferred to no
earlier than February 1, 1998. Based upon the current level of the Serv-Tech
stock price ($5.375 per share as of March 14, 1997), Mr. Krajicek would be due
approximately $0.5 million (associated with the period beginning November 9,
1996), if the stock were sold pursuant to the terms of the Krajicek Agreement.
See Note 8 for additional related party information regarding Mr. Krajicek.
8. STEWART & STEVENSON SETTLEMENT
On July 25, 1996, the Company received a $30.0 million verdict by a
Houston, Texas jury on a retrial against Stewart & Stevenson Services, Inc.
("Stewart & Stevenson") for breach of an agreement that contained confidential
information and trade secrets. Before the trial, the parties entered into a
settlement agreement by which Stewart & Stevenson waived its right of appeal of
the trial-court judgment in the case and guaranteed a minimum recovery of
$250,000 in exchange for a $20.0 million cap on any recovery by the Company. In
September 1996, after payment of attorney's fees and a payment to the Company's
founder, Richard W. Krajicek, the Company received and recorded a $5.8 million
net settlement ($3.9 million on an after-tax basis, or $0.57 per share).
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 that management believed would generate acceptable returns
on investments and elimination of activities that did not meet this criteria. As
a result of this review, the Company recorded a special charge of $12.2 million,
which consisted of non-cash 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 non-cash 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 1996.
32
<PAGE> 35
SERV-TECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. During 1996, 64,800 restricted stock awards were granted
under the Plan. Compensation expense associated with the vesting of stock awards
was $0.1 million in 1996.
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 1996.
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. Subject to various conditions, 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, directors, employees and consultants
of the Company. The Agreements provide for the issuance of 378,000 shares of
Company common stock at exercise prices ranging from $3.00 -- $7.75 and are
exercisable, subject to various conditions, for various terms of 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, 1996:
<TABLE>
<CAPTION>
NUMBER OPTION PRICE
OF SHARES PER SHARE
--------- --------------
<S> <C> <C>
Outstanding December 31, 1993............................. 772,750 2.500 - 12.375
Granted................................................. 486,500 6.250 - 9.125
Exercised............................................... (43,800) 2.500 - 6.625
Cancelled............................................... (102,700) 6.625 - 12.375
---------
Outstanding December 31, 1994........................... 1,112,750 2.500 - 12.375
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
Granted................................................. 1,026,900 3.000 - 6.813
Cancelled............................................... (985,650) 3.000 - 12.375
---------
Outstanding December 31, 1996........................... 1,107,400 3.000 - 9.125
=========
Exercisable as of December 31, 1996....................... 372,500 3.000 - 9.125
=========
</TABLE>
Included in the 1996 stock option cancellations and grants are 736,900
options which were exchanged, in October 1996, for options with a three-year
vesting schedule and an option price of $3.00 per share (the then current market
price of Serv-Tech stock). Of the 1,107,400 stock options outstanding at
December 31, 1996,
33
<PAGE> 36
SERV-TECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
731,900 have an option price of $3.00 per share. The remaining 375,500 stock
options outstanding have option prices ranging from $5.625 to $9.125 per share.
The Company had 461,800, 503,050, and 280,250, shares of Common Stock
available for grant under existing stock option plans at December 31, 1996,
1995, and 1994, respectively.
As discussed in Note 1, the Company has elected to continue to measure
compensation cost related stock options in accordance with APB 25. However, if
compensation costs were measured using the fair value of the stock options on
the date of grant, during 1995 and 1996, in accordance with SFAS No. 123, the
Company's net earnings (loss) would be as follows:
<TABLE>
<CAPTION>
1996 1995
---------------------------- -------------------------
AS REPORTED PROFORMA AS REPORTED PROFORMA
------------ ------------ ----------- ----------
<S> <C> <C> <C> <C>
Net earnings (loss)................... $(17,132,607) $(17,296,362) $2,061,119 $1,986,346
Earnings (loss) per share............. $ (2.55) $ (2.58) $ 0.31 $ 0.30
</TABLE>
The weighted average fair value of options granted in 1995 and 1996 were
$3.74 and $2.11, respectively. The fair value of each option was determined
using the Black-Scholes option valuation model with the following assumptions
(i) risk free interest rate of 6.46 percent, (ii) expected volatility of 49.27
percent, and (iii) expected option life of 6 years and (iv) no annualized
dividend yield.
11. COMMITMENTS AND CONTINGENCIES
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.
At December 31, 1996, the Company had irrevocable letters of credit
outstanding of approximately $19.8 million. The letters of credit were issued
primarily to (i) guarantee certain of the Company's insurance programs amounting
to $4.6 million, (ii) support Finchaa Sugar Factory Project procurement
amounting to $0.6 million, (iii) $6.3 million to support the unrecovered portion
of the Finchaa project advance payment and (iv) to support job performance
guarantees on the Finchaa project amounting to $8.3 million.
Operating Lease 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 $2.5 million, $2.3 million, and $2.2 million for the years ended
December 31, 1996, 1995, and 1994, respectively.
The following is a schedule of minimum rental commitments under
noncancelable operating leases. Minimum lease payments have not been reduced by
minimum sublease rentals of $2,258,000 due in the future.
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- -------------------------
<S> <C> <C>
1997.................................................. $2,678,000
1998.................................................. 1,858,000
1999.................................................. 1,382,000
2000.................................................. 980,000
2001.................................................. 842,000
Thereafter............................................ 3,615,000
</TABLE>
34
<PAGE> 37
SERV-TECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INSURANCE
The Company maintains a comprehensive property and casualty risk management
program including 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.
12. 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.
13. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the three years ended December 31, 1996, for interest and
income taxes was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Interest....................................... $2,337,433 $1,960,000 $1,432,000
Income taxes................................... 980,348 1,681,000 2,738,000
</TABLE>
The following non-cash transactions have been excluded from the
consolidated statement of cash flows for the three years ended December 31,
1996:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ---------- ----------
<S> <C> <C> <C>
Translation adjustments of equity investments... $ 20,477 $ 66,943 $ 111,531
Common stock issued in connection with certain
acquisitions.................................. 280,000 1,643,750 5,087,500
Treasury stock transferred to the Company 401(k)
plan.......................................... 823,797 84,127 --
Acquisition of property, plant, and equipment in
settlement of certain receivables............. -- -- 536,000
Additional compensation earned under the terms
of an earn-out agreement...................... -- 410,000 --
</TABLE>
35
<PAGE> 38
SERV-TECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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,
1996, are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
----------- ------------
<S> <C> <C>
Fair value of current assets, net of cash acquired....... $ 623,917 $ 11,049,660
Fair value of noncurrent assets, excluding intangibles... 1,135,797 5,511,264
Intangible assets*....................................... 338,314 2,047,207
Liabilities assumed or incurred.......................... (1,472,514) (16,292,081)
----------- ------------
$ 625,514 $ 2,316,050
=========== ============
</TABLE>
- ---------------
* Net of approximately $1.5 million in 1995 and $5.1 million in 1994 non-cash
consideration.
14. DEFINED CONTRIBUTION PLANS
The Company maintains a defined contribution 401(k) plan 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 $0.7 million, $0.7 million, and $0.6 million in 1996, 1995, and 1994,
respectively. The Company recently amended its 401(k) plan, effective, April 1,
1997, to replace the Company matching contribution with a discretionary profit
sharing contribution determined by the Company's Board of Directors on an annual
basis (in arrears).
15. BUSINESS SEGMENT AND MAJOR CUSTOMERS
The Company's operations include three primary business segments: (i)
Specialty Services, (ii) SECO Industries ("SECO") 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. SECO
installs electrical and instrumentation systems for offshore production
platforms, refineries, petrochemical processing plants and food processing
plants. 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 (See
Note 4).
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.
36
<PAGE> 39
SERV-TECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summarized financial information by business segment for each of the three
years ended December 31, 1996, is set forth below.
<TABLE>
<CAPTION>
ENVIRONMENTAL
SPECIALTY & PERFORMANCE CORPORATE
SERVICES SECO CHEMICALS & OTHER CONSOLIDATED
--------- ------- ------------- --------- ------------
<S> <C> <C> <C> <C> <C>
1996
Revenues for customers........ $ 78,858 $47,232 $16,296 $ -- $142,386
Intersegment revenues......... 109 2,746 -- (2,855)(1) --
-------- ------- ------- ------- --------
Total revenues................ 78,967 49,978 16,296 (2,855) 142,386
-------- ------- ------- ------- --------
Operating profit (loss)....... 47(2) 3,524 (1,442)(3) (7,989)(4) (5,860)
Identifiable assets........... 36,418 13,557 13,343 12,428 75,746
Depreciation and
amortization............... 2,733 798 1,642 832 6,005
Capital expenditures.......... 998 56 884 89 2,027
1995
Revenues for customers........ $130,103 $49,573 $15,155 $ -- $194,831
Intersegment revenues......... 1,755 2,620 1,284 (5,659)(1) --
-------- ------- ------- ------- --------
Total revenues................ 131,858 52,193 16,439 (5,659) 194,831
-------- ------- ------- ------- --------
Operating profit (loss)....... 4,658 3,699 230 (6,245) 2,342
Identifiable assets........... 42,131 24,180 11,039 11,048 88,398
Depreciation and
amortization............... 3,238 935 1,528 460 6,161
Capital expenditures.......... 1,716 246 1,588 1,894 5,444
1994
Revenues for customers........ $113,541 $45,547 $ 8,624 $ 122 $167,834
Intersegment revenues......... -- 3,895 -- (3,895)(1) --
-------- ------- ------- ------- --------
Total revenues................ 113,541 49,442 8,624 (3,773) 167,834
-------- ------- ------- ------- --------
Special Charge(5)............. 10,599 -- -- 1,626 12,225
Operating profit (loss)....... (4,935) 3,380 (219) (7,548) (9,322)
Identifiable assets........... 47,786 19,970 5,964 13,314 87,034
Depreciation and
amortization............... 3,060 920 680 720 5,380
Capital expenditures.......... 3,311 643 648 228 4,830
</TABLE>
- ---------------
(1) Elimination of intersegment revenue.
(2) Includes a $1.4 million pre-tax charge for the impairment of certain
obsolete equipment and the write-off of an uncollectible receivable.
(3) Includes a $0.7 million pre-tax second quarter charge for the write-off of
certain tank cleaning equipment that will not be used in the future
operations of the Company.
(4) Includes a second quarter pre-tax charge of $1.3 million primarily related
to severance costs, consulting and professional fees.
(5) Includes a $12.2 million pre-tax special charge. See Note 9 for additional
information.
Significant sales to individual customers shown as a percentage of total
revenues were 15% in 1996, 14% in 1995, and 29% in 1994.
37
<PAGE> 40
SERV-TECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. UNAUDITED SELECTED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
QUARTER
------------------------------------------
FIRST SECOND THIRD FOURTH
------- -------- ------- -------
IN THOUSANDS, EXCEPT PER SHARE DATA
<S> <C> <C> <C> <C>
1996
Revenues........................................ $33,314 $ 38,471 $34,375 $36,226
Gross profit.................................... 7,500 7,719 7,196 7,508
Net income (loss) from continuing operations.... 199 (3,327)(a) 3,174(b) (2,510)
Income (loss) from discontinued operations, net
of income taxes(c)........................... (1,229) (10,505) -- (2,935)(d)
Net income (loss)............................... (1,030) (13,832) 3,174 (5,445)
Earnings (loss) per share from continuing
operations................................... 0.03 (0.50) 0.47 (0.37)
Earnings (loss) per share from discontinued
operations................................... (0.18) (1.57) -- (0.43)
Net income (loss) per share..................... (0.15) (2.07) 0.47 (0.80)
</TABLE>
<TABLE>
<CAPTION>
QUARTER
------------------------------------------
FIRST SECOND THIRD FOURTH
------- -------- ------- -------
<S> <C> <C> <C> <C>
1995
Revenues........................................ $60,324 $ 45,877 $30,017 $58,613
Gross profit.................................... 10,817 8,307 6,048 11,520
Net income (loss) from continuing operations.... 836 (252) (1,648) 290
Income (loss) from discontinued operations, net
of income taxes.............................. 682 919 333 901
Net income (loss)............................... 1,517 666 (1,314) 1,192
Earnings (loss) per share from continuing
operations................................... 0.12 (0.04) (0.24) 0.04
Earnings (loss) per share from discontinued
operations................................... 0.10 0.14 0.05 0.13
Net income (loss) per share..................... 0.23 0.10 (0.19) 0.18
</TABLE>
- ---------------
(a) Includes a $3.5 million pre-tax (or $2.3 million after-tax) charge for the
impairment of certain equipment, an uncollectible receivable, and severance
related costs.
(b) Includes a $5.8 million pre-tax (or $3.9 million after-tax) Stewart &
Stevenson settlement. See Note 8 for additional information.
(c) See Note 3 for a discussion of the discontinued EPC operations.
(d) Increase in loss from discontinued operations related to an additional
Finchaa project write-down, see Note 3.
17. SUBSEQUENT EVENT
On March 5, 1997, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") by and among Philip Environmental Inc. an Ontario,
Canada corporation, ("Philip"), Taro Aggregates, Ltd., an Ontario, Canada
corporation and wholly-owned subsidiary of Philip ("Taro"), ST Acquisition
Corporation, a Texas corporation and wholly-owned subsidiary of Taro ("Sub"),
and the Company. Pursuant to the Merger Agreement, Sub will be merged with and
into the Company, and the Company will become a wholly-owned subsidiary of Taro
and an indirect, wholly-owned subsidiary of Philip.
Under the terms of the Merger Agreement, each share of the Company's Common
Stock, par value $.50 per share ("Company Common Stock") will be exchanged for
0.403 share of Philip common stock, no par
38
<PAGE> 41
SERV-TECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
value ("Philip Common Stock") (except for shares held by persons who perfect and
exercise dissenters' rights under Texas law), provided that Philip will pay cash
in lieu of any fractional shares of Philip Common Stock to which holders of
Company Common Stock would otherwise be entitled. Based upon the closing price
of Philip Common Stock on March 5, 1997, each share of Company Common Stock is
valued at $6.60 per share. In aggregate, the transaction is valued at
approximately $72.0 million, including the assumption of approximately $21.0
million of Company indebtedness. The transaction is subject to regulatory and
shareholder approvals, and is expected to close by June 30, 1997.
Philip is a fully integrated, resource recovery and industrial services
company providing metals processing and mill services, solid and liquid
by-products recovery and industrial and remediation services to all major
industry sectors. Philip Common Stock trades on the New York Stock Exchange.
39
<PAGE> 42
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Serv-Tech, Inc.:
We have audited the accompanying consolidated balance sheets of Serv-Tech,
Inc. and Subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for the years 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 audits. The
accompanying consolidated statements of operations, changes in stockholders'
equity and cash flows of Serv-Tech, Inc. and Subsidiaries, for the year 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 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 1996 and 1995 consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Serv-Tech, Inc. and Subsidiaries at December 31, 1996 and 1995, and
the results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Houston, Texas
February 26, 1997
40
<PAGE> 43
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information as of March 14, 1997, with respect
to each of the members of the Board of Directors and Executive Officers,
including the business experience of each during at least the past 5 years and
the age of each on March 14, 1997.
Robert J. Cresci, 53, has been a Director of the Company since November,
1984, Chairman of the Board since August, 1995, and President and Chief
Executive Officer since May, 1996. Mr. Cresci has been a Managing Director of
Pecks Management Partners Ltd., an investment management firm, since September,
1990. Mr. Cresci currently serves on the boards of Bridgeport Machines, Inc.,
EIS International, Inc., Sepracor, Inc., Vestro Natural Foods, Inc., Olympic
Financial, Ltd., GeoWaste, Inc., Hitox, Inc., Natures Elements, Inc., Garnet
Resources Corporation, HarCor Energy, Inc., Meris Laboratories, Inc., Film
Roman, Inc., Educational Medical, Inc. and several private companies.
D.D. (Del) Hock, 62, was appointed a Director of the Company by the Board
of Directors in January, 1996. Mr. Hock is the retired Chairman and Chief
Executive Officer of Public Service Company of Colorado, an investor-owned
electric, natural gas, and thermal energy utility. He began his career with
Public Service Company in 1962 and held numerous positions in the Company,
including Vice President of accounting, Senior Vice President of utility
services, President, Chief Operating Officer, and Chief Executive Officer. Mr.
Hock serves on the board of numerous charitable and power industry
organizations, including Edison Electric Institute, Electric Power Research
Institute, The Western Energy Supply and Transmission (WEST) Associates, and the
Association of Edison Illuminating Companies. He is also a director of Hathaway
Corporation and American Century Investments.
Mike M. Mustafoglu, 46, has been a Director of the Company since May, 1995.
Since 1991, he has served as President of TransGlobal Financial Corporation, a
merchant banking and financial advisory firm. Between 1984 and June, 1996, he
served in executive capacities with the Oxbow Group of companies as President of
Oxbow Energy, Oxbow Hydrocarbons and Oxbow Petroleum, and, between 1992 and
1995, has served as a Director and co-founder of ECO(2), Inc., a NASDAQ listed
recycling company. From 1977 to 1984, Mr. Mustafoglu was Vice President Finance
of Getty Oil Canada, owned by Getty Oil Company, an integrated natural resources
company, and from 1974 to 1977, he was an Exploration Geophysicist for Shell Oil
Company, an integrated petroleum company. In addition, he is a former member of
the Board of Directors of National Petroleum Refiners Association; Independent
Petroleum Association of America and the Economic Council of Palm Beach County.
John B. O'Brien, 54, was elected a Director of the Company in May, 1993. He
has served as President of Baker & O'Brien, Inc., a Dallas, Texas based
engineering consulting firm serving the oil, gas and related industries, since
January, 1993. From 1987 through 1992, Mr. O'Brien was Vice President and a
director of Muse, Stancil & Co., an energy consulting firm. He has been involved
in the domestic and international petroleum refining industry for more than 30
years, first as a chemical engineer with Caltex Petroleum Corporation and later
as a consultant.
James M. Piette, 72, was appointed a Director of the Company by the Board
of Directors in January, 1995. Mr. Piette is the retired Vice Chairman, of Union
Camp Corp., a paper, chemical, and wood products company, where he served from
1951 to 1991 as a director, Senior Executive Vice President and Vice Chairman.
Mr. Piette also serves on the Boards of Union Mission and Savannah Electric and
Power Company, and is a Fellow and member of the Technical Association of the
Pulp and Paper Industry (TAPPI). In addition, Mr. Piette is a member of several
vocational, community and charitable organizations.
41
<PAGE> 44
Frank A. Perrone, 51, has been a Director of the Company since May, 1996,
and has served as Vice President, General Counsel and Corporate Secretary since
November, 1994. Mr. Perrone was the Senior Corporate Counsel, Southern District
of Jacobs Engineering Group Inc. from August, 1994 to November, 1994. He was
Vice President, General Counsel and Corporate Secretary of CRSS Inc. from 1983
to July, 1994. He served as General Attorney for Dresser Industries, Inc. from
1977 to 1982 and as an Assistant District Attorney for Harris County, Texas from
1973 to 1977.
David P. Tusa, 36, has been Senior Vice President, Finance and
Administration since August, 1994. Mr. Tusa previously held positions of Vice
President, Controller of National Convenience Stores and Corporate Controller of
CRSS Inc. since April, 1990. Prior to this Mr. Tusa was with the public
accounting and consulting firm of KPMG Peat Marwick since January 1983, and most
recently as a Senior Manager. He holds a B.B.A. in Accounting from the
University of Houston and is a Certified Public Accountant.
Dale W. Wilhelm, 34, has been Corporate Controller since September, 1994.
Mr. Wilhelm previously held the position of Assistant Corporate Controller of
CRSS Inc. since May, 1990. Prior to this Mr. Wilhelm was with the public
accounting and consulting firm of KPMG Peat Marwick since September 1995, and
most recently as an Audit Manager. He holds a B.B.A. in Accounting from the
University of Texas at Austin and is a Certified Public Accountant.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company directors and
executive officers, and persons who own more than 10% of a registered class of
the Company's equity securities ("Reporting Persons") to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and NASDAQ. Reporting Persons are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file.
Based solely upon a review of such forms and any amendments thereto
furnished to the Company during the period January 1, 1996, to December 31,
1996, and on written representations of certain Reporting Persons that no Forms
5 were required for those persons, the Company believes there were no known
failures to file or unreported transactions by Reporting Persons.
42
<PAGE> 45
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth all compensation
paid by the Company in 1996 to the Chief Executive Officer and to each of the
four most highly compensated executive officers of the Company whose
compensation exceeded $100,000 ("Named Executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION ----------------------- -------
------------------------------------ RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) AWARDS(2) OPTIONS(3) PAYOUTS COMPENSATION(4)
- --------------------------- ---- -------- ------- --------------- ---------- ---------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert J. Cresci(5),....... 1996 0 0 $103,650 0 86,900(6) 0 --
Chairman of the Board, 1995 0 0 $ 37,500 0 10,900(6) 0 --
President and Chief 1994 0 0 $ 5,000 0 0 0 --
Executive Officer
Richard L. Daerr(5),....... 1996 $ 99,836(7) 0 $ 7,900(7) 0 20,000 0 $465,837(12)
Former President and 1995 $200,000 0 $ 11,856 0 0 0 $ 2,058
Chief Executive Officer 1994 $ 63,030 $40,000 $ 13,000 0 180,000 0 --
Larry A. Talbert(5),....... 1996 $ 54,754(8) 0 $ 3,216(8) $19,500 0 0 $404,738(13)
Former President, 1995 $138,145 $40,000 $ 15,772 0 0 0 $ 20,749
Serv-Tech EPC, Inc. 1994 $125,525 $25,000 $ 1,044 0 75,000 0 $ 3,238
David P. Tusa(5),.......... 1996 $140,000 $50,000 $ 10,248 $12,188 75,000(9) 0 $ 5,111
Senior Vice President, 1995 $132,000 $25,000 $ 11,736 0 10,000(9) 0 $ 1,193
Finance & Administration 1994 $ 40,392 $25,000 $ 3,274 0 50,000(9) 0 $ 132
Frank A. Perrone(5),....... 1996 $122,000 $20,000 $ 8,616 $12,188 50,000(10) 0 $ 4,410
Vice President, General 1995 $115,000 $15,000 $ 10,056 0 0 0 $ 320
Counsel and Corporate 1994 $ 16,668 $ 7,500 $ 1,119 0 35,000(10) 0 $ 29
Secretary
Dale W. Wilhelm(5)......... 1996 $ 83,000 $32,500 $ 8,616 $ 3,047 15,000(11) 0 $ 204
Corporate Controller 1995 $ 79,000 $ 7,500 $ 10,056 0 0 0 $ 226
1994 $ 24,148 $ 7,500 $ 3,364 0 15,000(11) 0 $ 50
</TABLE>
- ---------------
(1) "Other Annual Compensation" includes amounts paid as auto allowances and
company paid insurance of $10,248 for Mr. Tusa, and $8,616 for Mr. Perrone
and Mr. Wilhelm. Also includes $90,000 in Retainer Fees and $13,650 in
Board and Committee Meeting Fees for Mr. Cresci.
(2) Includes the number and value of restricted (unvested) shares held by the
Named Executives as of December 31, 1996, as follows: Mr. Talbert 6,000
shares and $14,625, Mr. Tusa 3,000 shares and $7,313, Mr. Perrone 3,000
shares and $7,313, and Mr. Wilhelm 750 shares and $1,828, respectively.
Under the Securities and Exchange Commission rules on executive
compensation disclosure, all restricted stock was valued using the average
of the high and low prices of the Company's unrestricted Common Stock on
the National Association of Securities Dealers Automated Quotation System
("NASDAQ") as of December 31, 1996, which was $2.4375.
(3) On October 1, 1996, the Compensation Committee approved an exchange of
outstanding options held by current directors and active employees for
options with an exercise price of $3.00 per share and a 3 year vesting
schedule (see Serv-Tech, Inc. Compensation Committee Report On Executive
Compensation -- Compensation Program Components).
(4) "All Other Compensation" includes Company matching contributions to the
Company's 401(k) Plan and the premiums paid on life insurance policies in
excess of $50,000 under the Group Life Insurance Plan. Under the Company's
401(k) Plan, each eligible employee may elect to contribute up to 20% of
his or her salary and to have such deferred amounts invested in the plan.
The Company contributes $.50 (in Company common stock) for every $1.00
contributed by a participant, limited to 6% of the salary of such
participating employee.
(5) Mr. Cresci has been a Director of the Company since November, 1984, and
Chairman of the Board since August, 1995, and President and Chief Executive
Officer since May, 1996. Mr. Daerr joined the
43
<PAGE> 46
Company in August, 1994 and served as President and Chief Executive Officer
from October, 1994 to May 23, 1996. Mr. Talbert served as Executive Vice
President, Operations from August 9, 1995, until January 29, 1996. Mr. Tusa
joined the Company in August, 1994 and became an executive officer of the
Company in October, 1994. Mr. Perrone joined and became an executive
officer of the Company in November, 1994. Mr. Wilhelm joined and became an
executive officer of the Company in September, 1994.
(6) Includes 30,900 share options previously granted and outstanding, including
the 10,900 share options originally granted in 1995, which were
subsequently exchanged for a like number of new share options granted on
October 1, 1996, at an exercise price of $3.00 per share. See footnotes (1)
and (2) of the table entitled "Option Grants In Last Fiscal Year".
(7) "Salary" includes $99,836 from January, 1996 to May 23, 1996. "Other Annual
Compensation" includes $2,400 auto allowance and $5,500 company paid
insurance.
(8) "Salary" includes $18,251 for January, 1996. "Other Annual Compensation"
includes $3,216 company paid insurance.
(9) Includes 60,000 share options originally granted in 1994 and 1995 that were
subsequently exchanged for a like number of new share options granted on
October 1, 1996, at an exercise price of $3.00 per share vesting over 3
years. See footnotes (1) and (3) of the table entitled "Option Grants In
Last Fiscal Year".
(10) Includes 35,000 share options originally granted in 1994 that were
subsequently exchanged for a like number of new share options granted on
October 1, 1996, at an exercise price of $3.00 per share vesting over 3
years. See footnotes (1) and (4) of the table entitled "Option Grants In
Last Fiscal Year".
(11) Includes 15,000 share options originally granted in 1994 that were
subsequently exchanged for a like number of new share options granted on
October 1, 1996, at an exercise price of $3.00 per share vesting over 3
years. See footnotes (1) and (5) of the table entitled "Options Grants In
Last Fiscal Year".
(12) "All Other Compensation" includes a $440,000 separation payment and $21,600
auto allowance (2 years allowance) pursuant to Mr. Daerr's Employment
Agreement in conjunction with the termination of his employment on May 23,
1996.
(13) "All Other Compensation" includes a $440,503 separation payment pursuant to
Mr. Talbert's Employment Agreement in conjunction with the termination of
his employment on January 29, 1996.
Employment Agreements. On August 29, 1994, and November 10, 1994, the
Company entered into employment agreements with Messrs. David P. Tusa, Senior
Vice President, Finance & Administration and Frank A. Perrone, Vice President,
General Counsel and Corporate Secretary, respectively. These agreements are for
3 year rolling terms and provide that in the event of termination of employment,
the executive will receive as a lump sum his annual base salary plus employee
benefits up to 1 year after such termination, except that in the event of a
termination within 3 years of a Change in Control of the Company, as defined in
the agreement, Messrs. Tusa and Perrone would receive 18 months base salary and
benefits. The agreements further require that the executive not engage as an
officer, employee or otherwise in providing turnaround services for a competitor
of the Company for 1 year after termination by the executive of his employment
with the Company.
The Company has agreed to provide certain supplemental benefits to Dale W.
Wilhelm, Corporate Controller. Specifically, if Mr. Wilhelm's employment is
terminated either by the Company, without cause or by resignation of Mr. Wilhelm
prior to reaching the age of 64 1/2, the Company will pay Mr. Wilhelm a lump sum
severance payment equal to 12 months of his salary (plus car allowance) at the
time of such termination or resignation. In addition, Mr. Wilhelm will be
entitled to retain certain benefits (group health, dental and car allowance) on
the then current terms and cost for the 12 months subsequent to such termination
or resignation, unless Mr. Wilhelm becomes eligible for such benefits from a
subsequent employer.
Directors' Fees and Options. The Company paid non-Chairman directors who
are not employees of the Company at an annual rate of $12,000. The Company paid
the Chairman of the Board at an annual rate of $75,000 until May 23, 1996, at
which time the annual rate was increased to $100,000 when the Chairman also
44
<PAGE> 47
assumed the position of Company President and Chief Executive Officer. The
Company also paid $1,000 for each Board meeting attended and $800 for each
Committee meeting attended by non-employee directors and reimburses their
expenses incurred in attending Board and Committee meetings. Additionally, each
newly elected Board member receives a non-qualified stock option for 5,000
shares vesting over 5 years, and each re-elected Board member receives a
non-qualified stock option for 1,000 fully vested shares.
Option Grants. The following table sets forth the individual grants of
stock options made by the Company during 1996 to the Named Executives:
OPTION GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS GRANTED
OPTIONS TO EMPLOYEES IN EXERCISE OR EXPIRATION GRANT DATE
NAME GRANTED 1996 FISCAL YEAR BASE PRICE DATE PRESENT VALUE
---- ---------- ---------------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Robert J. Cresci.............. 86,900(2) 8.46% $3.00 10-1-06 $174,193(6)
Richard L. Daerr.............. 20,000 1.95% $6.25 5-24-97 --
Larry A. Talbert.............. -- -- -- -- --
David P. Tusa................. 75,000(3) 7.30% $3.00 10-1-06 $147,750(6)
Frank A. Perrone.............. 50,000(4) 4.87% $3.00 10-1-06 $ 98,500(6)
Dale W. Wilhelm............... 15,000(5) 1.46% $3.00 10-1-06 $ 29,550(6)
</TABLE>
- ---------------
(1) On October 1, 1996, the Compensation Committee approved an exchange of
outstanding options held by current directors and active employees for new
options with an exercise price of $3.00 per share and a 3 year vesting
schedule (see Serv-Tech, Inc. Compensation Committee Report On Executive
Compensation -- Compensation Program Components).
(2) Includes 30,900 share options previously granted and outstanding, which were
exchanged for a like number of new share options granted on October 1, 1996,
at an exercise price of $3.00 per share. Of the 86,900 share options
granted, 25,000 share options vested on the date of grant (October 1, 1996).
The remaining 61,900 share options vest on various dates over a 3 year
period ending October 1, 1999 (see footnote (1) above).
(3) Includes 60,000 share options previously granted and outstanding, which were
exchanged for a like number of new share options granted on October 1, 1996,
at an exercise price of $3.00 per share. The 75,000 share options vest over
a 3 year period ending October 1, 1999 (see footnote (1) above).
(4) Includes 35,000 share options previously granted and outstanding, which were
exchanged for a like number of new share options granted on October 1, 1996,
at an exercise price of $3.00 per share. The 50,000 share options vest over
a 3 year period ending October 1, 1999 (see footnote (1) above).
(5) Includes 15,000 share options previously granted and outstanding, which were
exchanged for a like number of new share options granted on October 1, 1996,
at an exercise price of $3.00 per share. The 15,000 share options vest over
a 3 year period ending October 1, 1999 (see footnote (1) above).
(6) Grant date present value is based upon the Black-Scholes option pricing
model. The Black-Scholes option value was based upon the following
assumptions: (i) no annualized dividend yield, (ii) an annualized stock
price volatility factor of .4927, (iii) a risk free interest rate of 6.46%,
(iv) options exercised 10 years from the date of grant, and (v) a discount
rate of 3% per year during the 3 year vesting period to reflect the risk of
forfeiture of unvested stock options. These assumptions were based upon 6
years of historical monthly trading data.
Option Exercises and Year-End Option Values. The following table sets forth
the year-end values of unexercised options held by the Named Executives at
December 31, 1996, where the value of the underlying stock exceeds the exercise
price. The Company has not granted any stock appreciation rights.
45
<PAGE> 48
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
DECEMBER 31, 1996 OPTION VALUES
None of the Named Executives exercised any stock options in the 1996 fiscal
year.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 31, 1996 AT DECEMBER 31, 1996(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert J. Cresci........................... 25,000 61,900 0 0
Richard L. Daerr........................... 200,000 0 0 0
Larry A. Talbert........................... 69,000 36,000 0 0
David P. Tusa.............................. 0 75,000 0 0
Frank A. Perrone........................... 0 50,000 0 0
Dale W. Wilhelm............................ 0 15,000 0 0
</TABLE>
- ---------------
(1) The value of options was calculated using the average of the high and low
prices of the Company's Common Stock on the NASDAQ as of December 31, 1996,
which was $2.4375.
During October, 1996, 736,900 then outstanding stock options were exchanged
for stock options with a 3 year vesting schedule and an option price of $3.00
per share, the then current market price of Company Stock (the "Exchange").
Participation in the Exchange by Named Executives is as follows:
EXCHANGE OF OPTIONS TABLE
<TABLE>
<CAPTION>
MARKET
PRICE EXERCISE LENGTH OF ORIGINAL
NUMBER OF OF STOCK PRICE NEW OPTION TERM
OPTIONS AT TIME OF AT TIME OF EXERCISE REMAINING AT DATE
NAME DATE EXCHANGED EXCHANGE EXCHANGE PRICE OF EXCHANGE
---- --------- --------- ---------- ---------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Cresci...... 10/1/96 10,000 $ 3.00 $12.375 $ 3.00 4 years, one month
10/1/96 5,000 $ 3.00 $ 8.25 $ 3.00 6 years, seven months
10/1/96 6,000 $ 3.00 $ 7.75 $ 3.00 7 years, one month
10/1/96 1,000 $ 3.00 $ 6.75 $ 3.00 8 years, four months
10/1/96 8,900 $ 3.00 $ 5.625 $ 3.00 8 years, ten months
---------
30,900
David P. Tusa......... 10/1/96 50,000 $ 3.00 $ 6.25 $ 3.00 8 years, one month
10/1/96 10,000 $ 3.00 $ 6.75 $ 3.00 8 years, four months
---------
60,000
Frank A. Perrone...... 10/1/96 35,000 $ 3.00 $ 6.25 $ 3.00 8 years, one month
Dale W. Wilhelm....... 10/1/96 15,000 $ 3.00 $ 6.25 $ 3.00 8 years, one month
</TABLE>
SERV-TECH, INC. COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
In fiscal year 1996, the Compensation Committee (the "Committee") was
comprised of 3 non-salaried directors, Messrs. O'Brien (Chairman) Hock and
Piette, who also comprise the Administrative Committee of the Company's Long
Term Incentive Plan. For the remainder of this report, the Administrative
Committee is considered a part of the Compensation Committee except as otherwise
indicated.
The Compensation Committee makes recommendations to the Board regarding
executive officer salaries and bonuses, and the Administrative Committee of the
Long Term Incentive Plan makes decisions regarding stock option grants and stock
awards. All recommendations of the Compensation Committee are reviewed and
approved by the entire Board of Directors (except that directors who are also
executive officers or serve as Chairman of the Board abstain from voting with
respect to their own compensation) except as otherwise indicated.
46
<PAGE> 49
COMPENSATION POLICY
The compensation policy of the Company, which is endorsed by the Committee,
is that a substantial portion of the annual compensation for each executive
officer should relate to and be dependent upon the performance of the Company as
well as the individual contribution of each officer. Consequently, the
compensation program is designed to motivate senior management and to align the
interests of executive officers with the long-term interest of shareholders.
COMPENSATION PROGRAM COMPONENTS
The executive compensation program is comprised of salary, annual cash
bonus awards and long-term incentive opportunities primarily in the form of
stock options.
Base Salary -- At senior executive levels, base salaries are modest by
industry standards. Actual salaries are based on individual performance,
comparative levels of responsibility and competitive marketplace relationships.
Annual Bonus Awards -- Except for bonus amounts awarded on the basis of
exceptional and meritorious achievement, the Company awards annual bonuses based
on the attainment of certain operating objectives. Executive officer bonuses are
derived from a specific quantitative formula approved by the Compensation
Committee based on ultimate financial performance of the Company and its
operating subsidiaries as measured against Board approved financial goals.
Stock Option Plans -- The Committee strongly believes that it is in the
best interest of the shareholders for the Company compensation to be tied
directly to shareholder return by the participation of key executives in
long-term incentive stock awards. Therefore, key executives and management are
eligible to receive, from time to time, stock options which give them the right
to purchase stock in the future at a specified price. The number of stock
options granted to executive officers is based on individual performance,
performance of the Company's subsidiaries and competitive practices. In view of
the decline in price of the Company's stock price in 1996 and the need to
maintain an incentive for Company management, the Committee approved the
exchange of all outstanding stock options held by current directors and active
employees for new stock options with a $3.00 per share exercise price and a new
3 year vesting period. Except with respect to non-employee directors and except
with respect to 25,000 share options to the Chairman, Mr. Cresci, all stock
options issued pursuant to the October 1, 1996, exchange have a new 3 year
vesting schedule regardless of the majority-vested status of the stock options
so exchanged.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
As Chairman of the Board, Mr. Cresci's retainer is determined by the
members of the Compensation Committee based on the performance of the Company
and the efforts of Mr. Cresci. The Board raised Mr. Cresci's annual retainer
from $75,000 to $100,000 effective May 23, 1996, to reflect Mr. Cresci's
additional duties as President and Chief Executive Officer of the Company
commencing as of that date.
COMPENSATION COMMITTEE
John B. O'Brien, Chairman
D. D. Hock
James M. Piette
47
<PAGE> 50
PERFORMANCE GRAPH
The following graph compares the performance of the Company's Common Stock
to the NASDAQ Total Return Index and to an index of peer companies selected by
the Company since December 31, 1991.
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) SERV-TECH S&P 500 PEER GROUP
<S> <C> <C> <C>
1991 100.00 100.00 100.00
1992 93.30 107.70 75.10
1993 82.20 118.20 64.40
1994 57.80 119.80 58.40
1995 52.20 164.80 49.90
1996 21.70 203.20 58.10
</TABLE>
The lines in the graph assume that the value of an investment in the
Company's Common Stock on each index was $100 on December 31, 1991 and that any
dividends were reinvested. The companies in the peer group are Allwaste, Inc.,
Chempower, Inc., Gundle SLT Environmental, Inc., GZA Geoenvironmental
Technology, Inc., C. H. Heist Corp. and Matrix Service Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Principal Holders of Securities. The following table sets forth certain
information as of March 14, 1997, with respect to: (i) each person known by the
Company to own beneficially more than 5% of the Company's shares of outstanding
Common Stock; and (ii) all directors and executive officers as a group.
<TABLE>
<CAPTION>
NAME OF BENEFICIAL AMOUNT AND NATURE OF PERCENT
OWNER AND ADDRESS BENEFICIAL OWNERSHIP OF CLASS
------------------ -------------------- --------
<S> <C> <C>
Heartland Advisors, Inc....................... 1,013,100(1) 14.9%
790 North Milwaukee Street
Milwaukee, WI 53202
Richard W. Krajicek........................... 559,618(2) 8.16%
1111 Hermann Drive
Houston, TX 77004
Dimensional Fund Advisors Inc................. 354,655(3) 5.21%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
All directors and executive officers.......... 247,590(4) 3.61%
as a group (8 persons)
</TABLE>
- ---------------
(1) The shares of common stock are held in investment advisory accounts of
Heartland Advisors, Inc. As a result, various persons have the right to
receive or the power to direct the receipt of dividends from, or the
proceeds from the sale of, the securities. The interests of one such
account, Heartland Group, Inc., a
48
<PAGE> 51
registered investment company, relates to more than 5% of the class. The
number of Company shares owned was as of December 31, 1996, as Heartland
Advisors, Inc. has not provided more current data.
(2) Includes 25,313 shares owned by Mr. Krajicek's spouse and 102,850 shares
held by Merit Systems, Inc., a Louisiana corporation, of which Mr. Krajicek
is a principal shareholder, an officer and a director, and also includes
shares that represent options currently exercisable or exercisable within 60
days to purchase 8,000 shares of Common Stock.
(3) Officers of Dimensional Fund Advisors Inc. also serve as officers of DFA
Investment Dimensions Group Inc. (the "Fund") and The DFA Investment Trust
Company (the "Trust"), both of which are registered open-end management
investment companies. In their positions as officers of the Fund and the
Trust, those persons vote an aggregate of 56,900 additional shares owned by
the Fund and 50,355 shares owned by the Trust. The number of Company shares
shown owned was as of December 31, 1996, as Dimensional Fund Advisors Inc.
has not provided more current data.
(4) Includes shares that represent options currently exercisable or exercisable
within 60 days to purchase 85,000 shares of Common Stock granted to all
directors and executive officers as a group.
Security Ownership of Management. The following table sets forth certain
information as of March 14, 1997, with respect to: (i) each Named Executive;
(ii) each director; and (iii) all directors and executive officers as a group.
<TABLE>
<CAPTION>
NAME OF AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) OF CLASS
---------------- ------------------------ --------
<S> <C> <C>
Robert J. Cresci............................ 170,000(2) 2.48%
Richard L. Daerr............................ 200,000(2) 2.91%
Larry A. Talbert............................ 82,800(2) 1.21%
David P. Tusa............................... 6,440(2) 0.09%
Frank A. Perrone............................ 4,440(2) 0.06%
Dale W. Wilhelm............................. 1,210(2) 0.02%
D. D. Hock.................................. 13,000(2) 0.19%
Mike M. Mustafoglu.......................... 12,000(2) 0.17%
John B. O'Brien............................. 16,000(2) 0.23%
James M. Piette............................. 24,500(2) 0.36%
All directors and executive officers........ 247,590(2) 3.61%
as a group (8 persons)
</TABLE>
- ---------------
(1) Except as otherwise indicated below, all shares are owned directly and the
owner has sole voting and dispositive authority with respect to such shares.
(2) Includes shares that represent options currently exercisable or exercisable
within 60 days to purchase 354,000 shares of Common Stock. The foregoing
includes the following specific individuals: Mr. Daerr 200,000 shares; Mr.
Talbert 69,000 shares; Mr. Cresci 31,000 shares; Mr. Hock 12,000 shares; Mr.
Mustafoglu 12,000 shares; Mr. O'Brien 16,000 shares; and Mr. Piette 14,000
shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As disclosed in Note 17 of Notes to the Consolidated Financial Statements
in Item 8 above, the Company recently entered into an Agreement and Plan of
Merger with Philip Environmental, Inc. (the "Merger"). Upon consummation of the
Merger, the Company will pay to Mr. Robert J. Cresci, Chairman, President and
Chief Executive Officer an amount equal to $150,000. In addition, upon
consummation of the Merger, the Company will pay transaction bonuses to David P.
Tusa, Senior Vice President, Finance and Administration, Frank A. Perrone, Vice
President, General Counsel and Corporate Secretary, and Dale W. Wilhelm,
Corporate Controller, in the amounts of $140,000, $50,000, and $45,000,
respectively.
The Employment Agreement of Mr. Tusa dated as of August 29, 1994, as
amended, and the Employment Agreement of Mr. Perrone dated as of November 10,
1994, as amended, (collectively, the "Employment Agreements"), each provide for
the payment of certain benefits to Mr. Tusa and Mr. Perrone
49
<PAGE> 52
(each being referred to as the "Executive") upon termination of their employment
within three years after a Change in Control (as defined in the Agreements). The
Merger will constitute a "Change in Control" under the Agreements. Accordingly,
if within three years after the consummation of the Merger, either (i) the
Company terminates the Executive's employment for any reason (other than the
Executive's retirement, disability or death) or (ii) the Executive resigns from
his employment with the Company for any reason, then the Executive will be
entitled to receive the following benefits from the Company:
(i) a cash payment equal to (a) the Executive's base salary (plus car
allowance) for either the 18 month period ending immediately before
consummation of the Merger or the 18 month period ending immediately before
the termination of the Executive's employment, whichever is greater, minus
(b) the minimum amount required to avoid certain adverse excise tax and
federal income tax consequences to the Executive and the Company,
respectively, resulting from "excess parachute payments";
(ii) medical and life insurance coverage, paid by the Company, as in
effect immediately before the Merger for a period of 18 months after the
Executive's termination, unless the Executive becomes eligible for such
coverage from a subsequent employer; and
(iii) 18 months of additional service credit for all purposes,
including vesting, retirement, eligibility, and benefit accrual, under all
employee benefit plans sponsored by the Company in which the Executive
participated immediately before the Merger.
The Company has agreed to provide certain supplemental benefits to Mr.
Wilhelm. Specifically, if Mr. Wilhelm's employment is terminated either by the
Company, without cause or by resignation of Mr. Wilhelm prior to reaching the
age of 64 1/2, the Company will pay Mr. Wilhelm a lump sum severance payment
equal to 12 months of his salary (plus car allowance) at the time of such
termination or resignation. In addition, Mr. Wilhelm will be entitled to retain
certain benefits (group health, dental and car allowance) on the then current
terms and cost for the 12 months subsequent to such termination or resignation,
unless Mr. Wilhelm becomes eligible for such benefits from a subsequent
employer.
50
<PAGE> 53
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules:
(1) Consolidated Financial Statements:
See Index to Financial Statements in Item 8, which information is herein
incorporated by reference.
(2) Consolidated Financial Statement Schedules:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
II. Valuation and Qualifying Accounts....................... 53
Independent Auditors' Report............................. 54
</TABLE>
(3) Exhibits:
The exhibits listed on the accompanying Exhibit Index are filed as part of
this report.
(b) Reports on Form 8-K:
The Company filed on March 6, 1997, a Current Report on Form 8-K dated
March 5, 1997, with the Securities and Exchange Commission in connection with
entering an Agreement and Plan of Merger with Philip Environmental Inc., an
Ontario, Canada corporation.
The Company filed on October 9, 1996, a Current Report on Form 8-K dated
September 30, 1996, with the Securities and Exchange Commission in connection
with termination of merger negotiations with HydroChem Holdings, Inc.
51
<PAGE> 54
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 /s/ ROBERT J. CRESCI
-----------------------------------
Robert J. Cresci,
Chairman, President, CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ROBERT J. CRESCI Chairman, President, CEO, Director March 28, 1997
- -----------------------------------------------------
(Robert J. Cresci)
/s/ DAVID P. TUSA Senior Vice President, Finance and March 28, 1997
- ----------------------------------------------------- Administration
(David P. Tusa)
/s/ MIKE M. MUSTAFOGLU Director March 28, 1997
- -----------------------------------------------------
(Mike M. Mustafoglu)
/s/ JOHN B. O'BRIEN Director March 28, 1997
- -----------------------------------------------------
(John B. O'Brien)
/s/ D. D. (DEL) HOCK Director March 28, 1997
- -----------------------------------------------------
(D. D. (Del) Hock)
/s/ JAMES M. PIETTE Director March 28, 1997
- -----------------------------------------------------
(James M. Piette)
/s/ FRANK A. PERRONE Director, Vice President, General March 28, 1997
- ----------------------------------------------------- Counsel, Secretary
(Frank A. Perrone)
/s/ DALE W. WILHELM Corporate Controller March 28, 1997
- -----------------------------------------------------
(Dale W. Wilhelm)
</TABLE>
52
<PAGE> 55
SCHEDULE II
SERV-TECH, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
COL. A. COL. B COL. C -- ADDITIONS COL. D COL. F
------- ---------- ---------------------------- ----------- ------------
(1) (2)
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER ACCOUNTS- DEDUCTIONS- AT END
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD
----------- ---------- ---------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
December 31, 1996:
Allowance for doubtful
accounts................. 1,755,230 177,476 -- 1,028,408(A) 904,298
December 31, 1995:
Allowance for doubtful
accounts................. 1,677,334 1,123,775 74,043(B) 1,119,922(A) 1,755,230
December 31, 1994:
Allowance for doubtful
accounts................. 225,388 903,809 835,285(B) 287,148(A) 1,677,334
</TABLE>
- ---------------
(A) Represents recoveries and uncollectible accounts written off.
(B) Represents allowance for doubtful accounts of companies acquired at date of
acquisition.
53
<PAGE> 56
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Serv-Tech, Inc.:
Under date of February 26, 1997, we reported on the consolidated balance
sheets of Serv-Tech, Inc. and Subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of operations, changes in stockholders'
equity and cash flows for each of the years in the two year period ended
December 31, 1996, as contained in the annual report on Form 10-K for the year
1996. In connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedule as listed in the accompanying Index to Financial Statements. 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 audits.
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 26, 1997
54
<PAGE> 57
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1(5) -- Agreement and Plan of Merger dated June 14, 1994, among
Serv-Tech, Inc., Hartney Acquisition Corporation and
Hartney Industrial Services Corporation.
3.1(1) -- Restated Articles of Incorporation of Serv-Tech, Inc.
3.2(1) -- Bylaws, as amended, of Serv-Tech, Inc.
4.1(1) -- Specimen stock certificate evidencing Common Stock of
Serv-Tech, Inc.
10.1(1) -- United States Patent Number 4,817,653 (Tank Cleaning,
Water Washing Robot), dated April 4, 1989.
10.2(1) -- United States Patent Number 4,805,653 (Mobile
Articulatable Tube Bundle Cleaner), dated February 21,
1989.
10.3(1) -- United States Patent Number 4,666,365 (Tube Bundle
Pulling Apparatus), dated May 19, 1987.
10.4(1) -- United States Patent Number 4,575,305 (Truck-Mounted Tube
Bundle Pulling Apparatus), dated March 11, 1986.
10.5(2) -- United States Patent No. 4,856,545 (Multi-Lance Tube
Bundle Cleaner), dated August 15, 1989.
10.6(2) -- United States Patent No. 4,869,638 (Aerial Bundle
Puller), dated September 26, 1989.
10.7(3) -- United States Patent No. 4,954,267 (Hydrocarbon Reclaimer
System), dated September 4, 1990.
10.8(3) -- United States Patent No. 4,945,933 (Liquid Circulator
Useful for Dispersing Sediment Contained in a Storage
Tank), dated August 7, 1990.
10.9(3) -- United States Patent No. 5,032,054 (Aerial Bundle
Puller), dated July 16, 1991.
10.10(3) -- United States Patent No. 5,091,016 (Method for Dispersing
Sediment Contained in a Storage Tank), dated February 25,
1992.
10.11(6) -- United States Patent No. 5,356,482 (Process for Vessel
Decontamination), dated October 18, 1994.
10.12(6) -- United States Patent No. 5,261,600 (Vertical Tube Bundle
Cleaner), dated November 16, 1993.
10.13(6) -- United States Patent No. 5,173,007 (Method and Apparatus
for In-Line Blending of Aqueous Emulsions), dated
December 22, 1992.
10.14(6) -- United States Patent No. 5,389,156 (Decontamination of
Hydrocarbon Process Equipment), dated February 14, 1995.
10.15(3)(10) -- Amended and Restated 1986 Incentive Stock Option Plan of
Serv-Tech, Inc.
10.16(3)(10) -- Amended and Restated 1989 Incentive Stock Option Plan of
Serv-Tech, Inc.
10.17(3)(10) -- Amended and Restated 1989 Director Stock Option Plan of
Serv-Tech, Inc.
10.18(4) -- 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.
10.19(4)(10) -- Employment Agreement, dated May 11, 1992, between the
Company and Larry A. Talbert.
10.20(4) -- Registration Rights Agreement, dated May 11, 1992,
between Serv-Tech, Inc. and Larry A. Talbert.
</TABLE>
<PAGE> 58
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.21(4) -- Earnout Agreement, dated May 11, 1992, between Serv-Tech,
Inc. and Larry A. Talbert.
10.22(6)(10) -- Employment Agreement, dated August 9, 1994, between
Serv-Tech, Inc., and Richard L. Daerr.
10.23(6)(10) -- Employment Agreement, dated August 29, 1994, between
Serv-Tech, Inc., and David P. Tusa.
10.24(6)(10) -- Employment Agreement, dated November 10, 1994, between
Serv-Tech, Inc., and Frank A. Perrone.
10.25(9)(10) -- Serv-Tech, Inc. 1995 Long Term Incentive Plan.
10.26(7) -- United States Patent No. 5,403,145 (Street Legal, Mobil,
Truck Mounted Tube Bundle Pulling Apparatus), dated April
4, 1995.
10.27(7) -- United States Patent No. 5,425,814 (Method for Quick
Turnaround of Hydrocarbon Processing Units), dated June
20, 1995.
10.28(7) -- United States Patent No. 5,460,331 (Apparatus for
Dispersion of Sludge in a Crude Oil Storage Tank), dated
October 24, 1995.
10.29(7) -- United States Patent No. 5,485,966 (Remotely Controlled
Chopping Machine for Tank Cleaning), dated January 23,
1996.
10.30(7) -- 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.
10.31(7)(10) -- Agreement for Serv-Tech Turnaround Services Management
Group.
10.32(7)(10) -- Agreement Relating to Employment Performance Bonuses by
and between Chemisolv, Limited and Chemisolv Holdings,
Inc. and Serv-Tech, Inc. and the Chemisolv Management
Group.
10.33(7)(10) -- Option Assignment Agreement by and between Chemisolv
Holdings, Inc. and Chemisolv, Limited and Serv-Tech, Inc.
and the Chemisolv Option Holders and Laserdisk, Limited.
10.34(7) -- Guaranteed Unsecured Loan Notes by and between Chemisolv
Holdings, Inc. and Serv-Tech, Inc. and the Chemisolv
Management Group.
10.35(8) -- Agreement and Plan of Merger, dated March 5, 1997, by and
among Philip Environmental Inc., an Ontario, Canada
corporation ("Philip"), Taro Aggregate Ltd, an Ontario,
Canada corporation and wholly-owned subsidiary of Philip
("Taro"), ST Acquisition Corporation, a newly-formed
Texas Corporation and wholly-owned subsidiary of Taro and
Serv-Tech, Inc.
10.36 -- First Amended and Restated Credit Agreement among
Serv-Tech, Inc. and Texas Commerce Bank National
Association, and Bank One, Texas, N.A., dated November
12, 1996.
10.37 -- Note Restructuring Amendment, dated November 12, 1996, to
Note Purchase Agreement by and between Serv-Tech, Inc.
and Principal Mutual Life Insurance Company, TMG Life
Insurance Company, The Security Mutual Life Insurance
Company, and Berkshire Life Insurance Company.
10.38 -- Amended and Restated Continuing Reimbursement Agreement,
dated November 12, 1996, by and between F.C. Schaffer &
Associates, Inc. and ABN AMRO Bank, N.V.
</TABLE>
<PAGE> 59
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.39 -- Intercreditor Agreement, dated November 12, 1996, by and
among Principal Mutual Life Insurance Company, TMG Life
Insurance Company, Berkshire Life Insurance Company, and
The Security Mutual Life Insurance Company; Texas
Commerce Bank National Association and Bank One, Texas,
N.A.; and ABN AMRO Bank, N.V.
10.40(10) -- Amendment to Employment Agreement, dated March 5, 1997,
by and between David P. Tusa and Serv-Tech, Inc.
10.41(10) -- Amendment to Employment Agreement, dated March 5, 1997,
by and between Frank A. Perrone and Serv-Tech, Inc.
10.42(10) -- Employment Agreement, dated March 5, 1997 by and between
Dale W. Wilhelm and Serv-Tech, Inc.
10.43 -- First Amendment to the First Amended and Restated Credit
Agreement, dated March 17, 1997, among Serv-Tech, Inc.
and Texas Commerce Bank National Association, and Bank
One, Texas, N.A.
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
statements of operations, changes in stockholders' equity
and cash flow for the period ended December 31, 1994.
</TABLE>
- ---------------
(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.
(3) Incorporated by reference from the registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1991.
(4) Incorporated by reference from the registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993.
(5) Incorporated by reference from the registrant's Report on Form 8-K, dated
June 14, 1994.
(6) Incorporated by reference from the registrant's Annual Report on Form 10-K
for the fiscal year December 31, 1994.
(7) Incorporated by reference from the registrant's Annual Report on Form 10-K
for the fiscal year December 31, 1995.
(8) Incorporated by reference from the registrant's Current Report on Form 8-K
dated March 5, 1997.
(9) Incorporated by reference from the registrant's Form S-8 (Registration No.
33-62139) filed with the Securities and Exchange Commission on August 25,
1995.
(10) Management contract or compensatory plan or agreement.
<PAGE> 1
EXHIBIT 10.36
================================================================================
FIRST AMENDED AND RESTATED
CREDIT AGREEMENT
$23,500,000.00 REDUCING REVOLVING CREDIT LOAN
AMONG
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
DATED AS OF NOVEMBER 12, 1996
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I DEFINITIONS; ACCOUNTING TERMS; INTERPRETATION .......... 1
Section 1.01. Definitions ............................................ 1
Section 1.02. Types of Advances ...................................... 15
Section 1.03. Accounting Terms ....................................... 15
ARTICLE II THE LOANS .............................................. 15
Section 2.01. The Loans .............................................. 15
Section 2.02. The Notes .............................................. 16
Section 2.03. Notice of Advance ...................................... 16
Section 2.04. Disbursement of Funds .................................. 16
Section 2.05. Conversions and Continuances ........................... 17
Section 2.06. Voluntary Prepayments .................................. 17
Section 2.07. Mandatory Repayments and Reduction of Commitment ....... 18
Section 2.08. Method and Place of Payment ............................ 18
Section 2.09. Pro Rata Advances ...................................... 19
Section 2.10. Interest ............................................... 19
Section 2.11. Interest Periods ....................................... 20
Section 2.12. Interest Rate Not Ascertainable ........................ 21
Section 2.13. Change in Legality ..................................... 21
Section 2.14. Increased Costs, Taxes or Capital Adequacy
Requirements ........................................... 22
Section 2.15. Eurodollar Advance Prepayment and Default Penalties .... 23
Section 2.16. Voluntary Reduction of Commitment ...................... 23
Section 2.17. Tax Forms .............................................. 23
ARTICLE III LETTERS OF CREDIT ...................................... 24
Section 3.01. Letters of Credit ...................................... 24
Section 3.02. Letter of Credit Requests .............................. 25
Section 3.03. Letter of Credit Participations ........................ 25
Section 3.04. Increased Costs ........................................ 27
Section 3.05. Conflict between Applications and Agreement ............ 27
ARTICLE IV FEES ................................................... 28
Section 4.01. Fees ................................................... 28
ARTICLE V CONDITIONS PRECEDENT AND WAIVER
OF PRIOR DEFAULTS ...................................... 28
Section 5.01. Conditions Precedent to the Initial Advance ............ 28
Section 5.02. Conditions Precedent to All Credit Events .............. 31
Section 5.03. Delivery of Documents .................................. 32
Section 5.04. Waiver of Existing Known Defaults ...................... 32
</TABLE>
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ARTICLE VI REPRESENTATIONS AND WARRANTIES ......................... 33
Section 6.01. Organization and Qualification ......................... 33
Section 6.02. Authorization and Validity ............................. 33
Section 6.03. Governmental Consents .................................. 33
Section 6.04. Conflicting or Adverse Agreements or Restrictions ...... 33
Section 6.05. Title to Assets ........................................ 34
Section 6.06. Litigation ............................................. 34
Section 6.07. Financial Statements ................................... 34
Section 6.08. Default ................................................ 34
Section 6.09. Investment Company Act. ................................ 34
Section 6.10. Public Utility Holding Company Act ..................... 34
Section 6.11. ERISA .................................................. 35
Section 6.12. Tax Returns and Payments ............................... 35
Section 6.13. Environmental Matters .................................. 35
Section 6.14. Purpose of Loans ....................................... 36
Section 6.15. Franchises and Other Rights ............................ 36
Section 6.16. Subsidiaries and Assets ................................ 36
Section 6.17. Solvency ............................................... 36
ARTICLE VII AFFIRMATIVE COVENANTS .................................. 36
Section 7.01. Information Covenants .................................. 36
Section 7.02. Books, Records and Inspections ......................... 39
Section 7.03. Insurance and Maintenance of Properties ................ 39
Section 7.04. Payment of Taxes ....................................... 39
Section 7.05. Corporate Existence .................................... 39
Section 7.06. Compliance with Statutes ............................... 40
Section 7.07. ERISA .................................................. 40
Section 7.08. Additional Subsidiaries ................................ 40
ARTICLE VIII NEGATIVE COVENANTS ..................................... 40
Section 8.01. Change in Business and Compensation Structure .......... 40
Section 8.02. Consolidation, Merger or Sale of Assets ................ 41
Section 8.03. Indebtedness ........................................... 41
Section 8.04. Liens .................................................. 42
Section 8.05. Investments ............................................ 42
Section 8.06. Restricted Payments .................................... 42
Section 8.07. Change in Accounting ................................... 43
Section 8.08. Change of Certain Indebtedness ......................... 43
Section 8.09. FINCHAA Project ........................................ 43
Section 8.10. Transactions with Affiliates ........................... 43
Section 8.11. Consolidated Net Worth ................................. 43
Section 8.12. Minimum EBITDA ......................................... 44
Section 8.13. Total Debt to Capitalization Ratio ..................... 44
</TABLE>
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Section 8.14. Capital Expenditures ................................... 44
Section 8.15. Fixed Charge Coverage Ratio ............................ 44
ARTICLE IX GUARANTY ............................................... 44
Section 9.01. Guaranty ............................................... 44
Section 9.02. Continuing Guaranty .................................... 45
Section 9.03. Effect of Debtor Relief Laws ........................... 46
Section 9.04. Waiver of Subrogation .................................. 46
Section 9.05. Subordination .......................................... 47
Section 9.06. Waiver ................................................. 47
Section 9.07. Full Force and Effect .................................. 48
ARTICLE X EVENTS OF DEFAULT AND REMEDIES ........................ 48
Section 10.01. Events of Default ..................................... 48
Section 10.02. Primary Remedies ...................................... 50
Section 10.03. Other Remedies ........................................ 50
ARTICLE XI THE AGENT ............................................. 50
Section 11.01. Authorization and Action .............................. 50
Section 11.02. Agent's Reliance ...................................... 51
Section 11.03. Agent and Affiliates; TCB and Affiliates .............. 51
Section 11.04. Bank Credit Decision .................................. 52
Section 11.05. Agent's Indemnity ..................................... 52
Section 11.06. Successor Agent ....................................... 53
Section 11.07. Notice of Default ..................................... 53
ARTICLE XII MISCELLANEOUS ......................................... 54
Section 12.01. Amendments ............................................ 54
Section 12.02. Notices ............................................... 54
Section 12.03. No Waiver; Remedies ................................... 55
Section 12.04. Costs, Expenses and Taxes ............................. 55
Section 12.05. Release and Indemnity ................................. 56
Section 12.06. Right of Setoff ....................................... 57
Section 12.07. Governing Law ......................................... 57
Section 12.08. Interest .............................................. 57
Section 12.09. Survival of Representations and Warranties ............ 58
Section 12.10. Successors and Assigns; Participations ................ 58
Section 12.11. Confidentiality ....................................... 59
Section 12.12. Pro Rata Treatment .................................... 60
Section 12.13. Separability .......................................... 60
Section 12.14. Execution in Counterparts ............................. 60
Section 12.15. Additional Exposure ................................... 60
Section 12.16. Interpretation ........................................ 61
</TABLE>
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Section 12.17. Submission to Jurisdiction ............................ 62
Section 12.18. Waiver of Jury Trial .................................. 62
Section 12.19. Final Agreement of the Parties ........................ 63
</TABLE>
Exhibits and Schedules:
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Exhibit 1.01 Form of Borrowing Base Certificate
Exhibit 1.01A Administrative Questionnaire
Exhibit 2.02 Form of Revolving Credit Note
Exhibit 2.03 Form of Notice of Advance
Exhibit 2.05 Form of Notice of Conversion
Exhibit 3.02 Form of Letter of Credit Request
Exhibit 12.10 Form of Assignment and Acceptance
Exhibit 12.10(d) Form of Participation Certificate
Schedule 1.01 Eligible Accounts
Schedule 3.01(a) Existing Letters of Credit
Schedule 6.04 Agreements
Schedule 6.06 Litigation
Schedule 6.13 Exceptions to Environmental Matters
Schedule 6.16A Subsidiaries
Schedule 6.16B Material Subsidiaries
Schedule 7.03 Existing Insurance Policies
Schedule 8.03(b) Existing Indebtedness
Schedule 8.04(a) Existing Liens
Schedule 8.05(b) Investments
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First Amended and Restated Credit Agreement
INTRODUCTION
THIS FIRST AMENDED AND RESTATED CREDIT AGREEMENT dated as of
November 12, 1996 (this "Agreement") is among 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"), as the Issuing Bank, and as agent for the other
Banks (in such capacity together with any other Person who becomes the agent
the "Agent").
The Company, the Guarantors, the Agent and the Banks are parties
to that one certain Credit Agreement dated May 15, 1995 (as amended and
modified from time to time, the "Prior Credit Agreement") pursuant to which the
Banks extended up to a $35,000,000.00 revolving credit to the Company and the
Guarantors guaranteed same (the "Prior Indebtedness"). The Company has now
requested that the Banks provide the Company with a new credit facility,
pursuant to which the Banks will commit to make a reducing revolving credit
loan of up to $23,500,000.00 to the Company to refinance the Prior
Indebtedness, to finance permitted capital expenditures, to provide for the
issuance of Letters of Credit by the Issuing Bank, and for use as working
capital. The Company has also asked the Banks to waive certain defaults under
the Prior Credit Agreement, including defaults occasioned by the Company's
default under documentation with the Other Senior Lenders (as herein defined),
and to consent to the modification of such documentation in a manner consistent
herewith. In connection therewith, the Banks have agreed to restate the Prior
Credit Agreement and the Agent has agreed to serve as Agent for the Banks. The
Agent, the Banks and the Company hereby agree that, upon the fulfillment of the
conditions contained in Section 5.01 and the refinancing of the Prior
Indebtedness, the Prior Credit Agreement shall automatically terminate and
shall be restated by this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants set forth herein, the Company, the Agent and the Banks agree to amend
and restate the Prior Credit Agreement in its entirety 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:
"ABN AMRO" has the meaning provided in the definition of Other
Senior Lenders.
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"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 or services
rendered billed within thirty (30) days of the providing of such goods
or services or, in the case of cost-plus contracts only, for which there
is no fixed, maximum guaranteed price, 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.
"Additional Exposure" means the additional credit exposure of
TCB, up to a maximum of $2,000,000.00, incurred due to the cash
management services and daily advances provided by TCB to the Company or
any of its Subsidiaries in addition to TCB's portion of the Commitment
and any other services described herein.
"Administrative Questionnaire" means the questionnaire attached
hereto as Exhibit 1.01A to be completed by each Bank and returned to the
Agent.
"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 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
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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 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.
"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 75% 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.
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"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 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 the Internal Revenue Code of 1986 and the
regulations promulgated thereunder.
"Collateral" means all, or substantially all, of the assets of
the Company and its material Subsidiaries, real and personal, tangible
and intangible, all as more fully described in the Security Documents.
"Collateral Agent" means TCB in its capacity as Collateral Agent
under the Intercreditor Agreement.
"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, which Commitment shall, until June
30, 1997 include the Supplemental Commitment and shall total
$23,500,000.00 and after said date, shall total $19,500,000.00, except
as otherwise provided herein in Sections 2.01(b), 2.07(c) or elsewhere.
"Commitment Fee" has the meaning specified in Section 4.01(b).
"Company" has the meaning specified in the introduction to this
Agreement.
"Consolidated Net Worth" means total assets minus total
liabilities.
"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.
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"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.
"Default Rate" means the lesser of (i) the Highest Lawful Rate
and (ii) the Alternate Base Rate plus three percent (3%).
"Designated Payment Date" means the first day of each month;
provided, however, if 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 pre-tax income
for such period, plus the aggregate amount which was deducted for such
period in determining such consolidated, pre-tax income in respect of
interest expense (including amortization of debt discount, imputed
interest and capitalized interest), plus depreciation and amortization,
plus income attributable to any minority interest in any Person, for so
long as said Person remains a Guarantor, provided, the calculations of
EBITDA for the period up to and including September 30, 1996, but not
thereafter, shall be based on consolidated, pre-tax income from
continuing operations only and shall exclude all special charges and
non-recurring write downs. For periods after September 30, 1996 such
calculations shall include all special charges and all non-continuing
operations.
"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 (a) any Account which meets all of the
following criteria on the date of determination:
(i) 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;
(ii) 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);
(iii) does not include any amount that is held back by
any party as retainage or assurance of the future performance of
the Company unless the applicable project is fully and finally
completed and the Company is entitled to and does bill for such
retainage;
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(iv) has not been challenged by the obligor thereon;
(v) in respect of which no notice of the bankruptcy,
insolvency or dissolution of the obligor thereon is known to the
Company;
(vi) is not owed by (i) a foreign Person unless
supported by a letter of credit or other insurance satisfactory
to the Agent (including the Revolving Letter of Credit issued by
ABN AMRO for the account of the African Development Bank and all
renewals, extensions or replacements thereof), (ii) the United
States government or (iii) any Affiliate of the Company or of any
Subsidiary; and
(vii) is not owed by an obligor that has 30% or more of
its aggregate accounts payable to the Company more than 120 days
old.
(b) Notwithstanding the above, for the interim, weekly updates
only of the monthly Borrowing Base Certificate required by Section
7.01(f), (but not for the monthly Borrowing Base Certificate required by
Section 7.01(e)), Eligible Accounts may also include costs in excess of
current billings on fixed-price, maximum guaranteed contracts, subject
to the other limitations therefor contained in the definition of
Accounts.
"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 $1,000,000,000.00; (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 $1,000,000,000.00; 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.
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"ERISA" means the Employee Retirement Income Security Act of 1974
and the regulations promulgated thereunder.
"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, the Guarantors and the Banks.
"Existing Letters of Credit" means all letters of credit issued
by TCB, outstanding on the Execution Date and described on Schedule
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" has the meaning provided in the introduction to this
Agreement and, except as otherwise agreed by the Banks and the Company,
shall include all of the Subsidiaries of the Company.
"Guaranty" means the document described in Section 5.01(c), and
contained in 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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"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, hedge or swap agreements 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.
"Intercreditor Agreement" means that certain Intercreditor
Agreement of even date herewith, executed by the Banks, the Agent as
Collateral Agent and the Other Senior Lenders, and approved and agreed
to by the Company and the Guarantors, setting forth certain agreements
between said parties in regard to the Collateral, all as described
therein, and, among other things, establishing that the Liens in favor
of the Banks are first and prior Liens in respect of the Supplemental
Commitment and are pari passu with Liens in favor of the Other Senior
Lenders in respect of the balance of the Commitment.
"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.
"Krajicek Note" means that certain promissory note to Richard W.
Krajicek payable by the Company, due November, 1999, bearing interest at
8% per annum given to satisfy the Company's obligations to pay the
"short-fall" as that term is used in paragraph 17 of that certain
consulting agreement between the Company and R. W. Krajicek dated August
9, 1995.
"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).
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"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.
"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, (a) with respect to any Eurodollar Rate Advance
for any Margin Period, 4.09%, and (b) with respect to any Alternate Base
Rate Advance, 1.0%.
"Margin Period" means a period commencing on the date on which
the quarterly or annual financial statements of the Company are required
to be 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
required to be 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), but excluding
occurrences affecting the industry as a whole and routine cycles in the
business of the Company and its Subsidiaries, (a) a material adverse
effect on the financial condition, 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.
"Material Subsidiary" means any Subsidiary of the Company listed
on Schedule 6.16B.
"Maturity Date" means the earlier of: December 31, 1997, unless
accelerated pursuant to Section 2.07(d) or Section 10.02, provided all
sums advanced under the Supplemental Commitment shall be due on June 30,
1997, and the Supplemental Commitment shall expire on such date.
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"Maximum Guaranteed Amount" means for each Guarantor the maximum
amount which any Guarantor could pay under the Guaranty without having
such payment set aside as a fraudulent transfer or conveyance or similar
action under the Bankruptcy Code or any applicable state law.
"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.
"Noteholders" has the meaning provided in the definition of Other
Senior Lenders.
"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.
"Other Senior Lenders" means ABN AMRO N.V., Houston Agency ("ABN
AMRO"), a banking organization organized under the laws of the
Netherlands, with an office in Houston, Texas, and the following
entities: Principal Mutual Life Insurance Company ("Principal"), having
its principal place of business at 711 High Street, Des Moines, Iowa
50392-0800, TMG Life Insurance Company, having its principal place of
business at 401 North Executive Drive, Brookfield, Wisconsin 53008,
Berkshire Life Insurance Company, having its principal place of business
at 700 South Street, Pittsfield, Massachusetts 01202, and Security
Mutual Life Insurance Company, having its principal place of business at
200 Centennial Mall North, Lincoln, Nebraska 68501 (said latter four
entities herein referred to as the "Noteholders").
"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.
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to all or any of its functions under ERISA.
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<PAGE> 17
"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 $100,000,000.00 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 $2,000,000,000.00 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.
"Permitted Liens" shall mean: (a) Liens for taxes, assessments,
levies or other governmental charges not yet due or which are being
contested in good faith by appropriate proceedings and for which
adequate reserves are maintained in accordance with GAAP; (b) Liens in
connection with worker's compensation, unemployment insurance or other
social security, old age pension or public liability obligations not yet
due or which are being contested in good faith by appropriate
proceedings and for which adequate reserves are maintained in accordance
with GAAP; (c) operator's, vendors', carriers', warehousemen's,
repairmen's, mechanics', workers', materialmen's or other like Liens
arising by operation of law in the ordinary course of business (or
deposits to obtain the release of any such Lien) and securing amounts
not yet due or which are being contested in good faith by appropriate
proceedings and for which adequate reserves are maintained in accordance
with GAAP; (d) deposits to secure insurance in the ordinary course of
business; (e) deposits to secure the performance of bids, tenders,
contracts (other than contracts for the payment of money or the
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<PAGE> 18
deferred purchase price of goods or services), leases, licenses,
franchises, trade contracts, statutory obligations, surety and appeal
bonds and performance bonds and other obligations of a like nature
incurred in the ordinary course of business; (f) easements, rights of
way, covenants, restrictions, reservations, exceptions, encroachments,
zoning and similar restrictions and other similar encumbrances (other
than to secure the payment of borrowed money or the deferred purchase
price of goods or services) or title defects, in each case incurred in
the ordinary course of business which, in the aggregate, are not
substantial in amount, and which do not in any case singly or in the
aggregate materially detract from the value or usefulness of the
Property subject thereto for the business conducted by the Company and
its Subsidiaries or materially interfere with the ordinary conduct of
the business of the Company and its Subsidiaries; (g) bankers' liens
arising by operation of law; (h) inchoate Liens arising under ERISA to
secure contingent liabilities of the Company and its Subsidiaries; and
(i) Liens on assets of Subsidiaries to secure indebtedness to the
Company provided same are collaterally assigned to the Collateral Agent,
provided further, such Liens may be incurred only to the extent the
underlying Indebtedness is otherwise permitted under the terms of this
Agreement.
"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 contributes or has an obligation or
liability to contribute, including any such plan that may have been
terminated.
"Principal" has the meaning provided in the definition of Other
Senior Lenders.
"Prior Credit Agreement" has the meaning provided in the
introduction to this Agreement.
"Prior Indebtedness" has the meaning provided in the introduction
to this Agreement.
"Property" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Regulations A, D, U and X" means Regulations A, D, U and X of
the Board as the same are from time to time in effect, and all official
rulings and interpretations thereunder or thereof.
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<PAGE> 19
"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 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.
"Security Documents" means the documents described in Section
5.01 (c) and (d), executed by the Company and its Subsidiaries in favor
of TCB, as Collateral Agent, for the benefit of the Banks and the Other
Senior Lenders, pursuant to the terms hereof and of the Intercreditor
Agreement.
"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
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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.
"Supplemental Commitment" means the $4,000,000.00 of additional
funds available over and above the basic Commitment of $19,500,000.00,
which Supplemental Commitment shall be available only until June 30,
1997, and which Supplemental Commitment shall, while existent, unless
otherwise specified, be considered a part of the Commitment.
"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
(including, as applicable, the Supplemental Commitment) less (i) the
outstanding Advances, (ii) any outstanding Letters of Credit, and (iii)
any unreimbursed fundings under any Letters of Credit, all as provided
in Section 3.01(c).
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.
ARTICLE II
THE LOANS
SECTION 2.01. The Loans. (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 up to the maximum amount of its Commitment, 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) in the case of Eurodollar Rate Advances, shall be made in the
minimum amount of $500,000.00 and integral multiples thereof or in the
remaining balance of the Commitment, (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, (iv) shall, in the aggregate,
not exceed the lesser of the Borrowing Base or the maximum total
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amount of the Commitment (which shall, prior to June 30, 1997, but not
thereafter, include the Supplemental Commitment) and (v) shall be made under
the Supplemental Agreement only if the remainder of the Commitment is fully
advanced. There shall be no further Advances after the Maturity Date.
(b) Any mandatory repayments made pursuant to Section
2.07(a)(i) as a result of a reduction in the Commitment pursuant to Section
2.07(c) shall automatically reduce the Commitment by the amount of all such
repayments. If the Supplemental Commitment, or any portion thereof is still in
existence at the time of such payments, they shall first reduce the
Supplemental Commitment until it is fully extinguished, and, thereafter, the
remainder of the Commitment.
(c) The Loans shall be used to refinance the Prior
Indebtedness, 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.
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
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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"), substantially in the
form of Exhibit 2.05 hereto, 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 of
Conversion.
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 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; and (b) 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 and Reduction of Commitment.
(a) The Company shall repay Advances on any day on which the aggregate
outstanding principal amount of the Loans exceeds the lesser of (i) the
Commitment or, (ii) as shown by the most recent
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Borrowing Base Certificate or interim update thereof, the then current
Borrowing Base, in the amount of such excess.
(b) The Company shall repay any outstanding portion of the
Supplemental Commitment on or before June 30, 1997, and such Supplemental
Commitment shall terminate on that date.
(c) In addition to the above, the Commitment shall reduce, at
any time the Company or any of its Subsidiaries makes a payment to any of the
Other Senior Lenders, in an amount sufficient to maintain the identical ratio
between the total amount of the Commitment and the amount of Indebtedness owing
to such Other Senior Lenders, which reduction, as of the Effective Date, in
respect of the Indebtedness owing to the Noteholders, will equal a minimum of
$201,389.00 per month, payable on each Designated Payment Date, commencing July
1, 1997.
(d) The aggregate amount of all Advances under the Notes, if
not sooner paid, (and all accrued, unpaid interest) shall be due and payable,
and the Commitment shall terminate, on the Maturity Date.
SECTION 2.08. Method and Place of Payment. (a) 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.
(b) All of the Company's and the Subsidiaries' accounts
receivable (excluding any accounts receivable of Schaffer required to be
deposited into any other account as agreed to by the Banks and the Other Senior
Lenders) will be deposited by the Company's and its Subsidiaries' third party
account debtors into one or more of the Company's or one or more of its
Subsidiaries lockbox and lockbox accounts maintained with the Agent, pursuant
to the Cash Management Lock Box Agreements (the "Cash Management and Lock Box
Agreements") currently in effect between the Company or one or more of its
Subsidiaries and the Agent. Said accounts shall be restricted accounts and the
Agent shall have the right, but not the obligation, and the Company hereby
grants the Agent the right, to deduct and set-off any amounts owing to the
Banks or the Other Senior Lenders under this Agreement from the collections
made pursuant to the above-referenced Cash Management and Lock Box Agreements.
All collected funds will be swept daily by the Agent and applied to reduce the
amount outstanding on the Loans. The Company irrevocably authorizes the Bank to
make, and irrevocably appoints the Bank as its attorney-in-fact (which power
shall be coupled with an interest), to make transfers of funds to and from the
Cash Management and Lock Box Account, necessary to accomplish the purposes of
the Loan Documents.
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
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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 plus the Margin for Alternate
Base Rate Advances. 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.
(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 Margin for Eurodollar Rate Advances. 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, may be adjusted, if
applicable, 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 one month, 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 December 1, 1996 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
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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 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 applicable Maturity Date.
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(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 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
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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 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
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payable (at the due date thereof, by notice of prepayment or otherwise). Such
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 and, provided, further, the Company
shall have made comparable provisions reducing the outstanding principal
balance owing on its Indebtedness owing to the Other Senior Lenders in
accordance with the terms of the Intercreditor Agreement.
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 may 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 equal to $6,000,000.00, 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 outstanding and all
other Advances under the Notes then outstanding, would exceed the lesser of the
Borrowing Base or the Commitment; 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 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 so long as said Letters of Credit are outstanding 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 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
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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 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
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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, the 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.
(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 the Issuing Bank's gross
negligence or willful misconduct. IT IS THE EXPRESS INTENTION OF THE PARTIES
HERETO THAT THE 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 SOLE OR CONTRIBUTORY
NEGLIGENCE. The Company agrees that any action taken or omitted by the 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
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of Commerce and adhered to by the Issuing Bank) 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
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 for 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 on the
Execution Date the fees described in that one certain letter agreement of even
date herewith by and between Chase Securities Inc. and the Company.
(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
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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 $40,000.00 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 2% of the face amount of such Letters of
Credit of which .125% goes to the Issuing Bank and 1.875% 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 AND WAIVER OF PRIOR DEFAULTS
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, all in form
and substance satisfactory to the Agent:
(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, except as otherwise agreed, as
Guarantors, for the benefit of the Banks;
(d) each of the following security documents (the "Security
Documents") granting a first and prior Lien or security interest on the
Collateral to the Agent for the benefit of itself and the Banks as security for
the Supplemental Commitment, pro rata, and a second lien, subordinate only to
said first and prior Lien, to the Collateral Agent for the Banks and the Other
Senior Lenders as security for the Obligations, for the Additional Exposure
owed to TCB, and for certain Indebtedness owed to the Other Senior Lenders, all
to the extent described therein:
(i) Security Agreements executed by the Company and its
domestic Subsidiaries for the benefit of the Collateral Agent covering
all personal property assets of the Company and each of such
Subsidiaries (except as otherwise agreed to by the Banks and the Other
Senior Lenders and provided therein), accompanied by all documents,
instruments
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and other items necessary to obtain and perfect a Lien thereon,
including all promissory notes, certificates of title to vehicles and
equipment, chattel paper and similar items;
(ii) Pledge Agreements executed by the Company and any
of its Subsidiaries owning stock in any other Subsidiary (except as
otherwise agreed to the Bank and the Other Senior Lenders and provided
therein) for the benefit of the Collateral Agent pledging to the
Collateral Agent all stock in any domestic Subsidiaries or Affiliates
and 65% of all stock in any foreign Subsidiaries owned by any of the
pledging parties, accompanied by original stock certificates evidencing
such shares and executed stock powers for such certificates;
(iii) Mortgages or deeds of trust executed by the Company
and its Subsidiaries for the benefit of the Collateral Agent granting to
the Collateral Agent a Lien on all real property, including owned real
estate, leases, mineral interests or similar items owned by the Company
or any of its Subsidiaries, except as otherwise agreed to by the Banks
and the Other Senior Lenders, accompanied by, if reasonably requested by
the Collateral Agent, the following, all in form, substance and amount
reasonably satisfactory to the Collateral Agent:
(x) a mortgagee's title insurance policy issued
by a company satisfactory to the Collateral Agent insuring the
Liens granted as first and prior Liens;
(y) MAI appraisals for all real estate on which
a Lien in favor of the Agent is being granted, such appraisals to
set forth the market value of each parcel and to be in compliance
with Title XI of the Financial Institutions Reform, Recovery and
Enforce Act of 1989, as amended 12 U.S.C. 3331, et seq., and The
Regulations and Statements of General Policy on Appraisals
promulgated by the Federal Deposit Insurance Corporation, 12
C.F.R. Part 32, as amended; and
(z) an environmental assessment of any parcel of
the real property owned by the Company valued in excess of
$100,000.00 on which a Lien in favor of the Collateral Agent is
being granted, conducted by an environmental engineering firm
reasonably accepted to the Collateral Agent and a Phase II
environmental audit or other supplemental data on such parcels of
land as the Collateral Agent may reasonably request based on the
information received in the environmental assessment on such
site, conducted by an environmental engineering firm reasonably
acceptable to the Collateral Agent and containing recommended
remediation measures and cost estimates associated with such
measures satisfactory to the Collateral Agent in its sole
discretion.
Failure of the Collateral Agent to request the information
contained in this paragraph prior to the Execution Date shall not
preclude it from requesting such
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information at any time thereafter, in its sole discretion,
during the time the Loan is outstanding; and
(iv) UCC-1 and UCC-3 Financing Statements and other
documents or instruments necessary to perfect the Liens granted in the
Security Documents.
(e) 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;
(f) 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 Material Subsidiaries, the
bylaws, as amended and in effect, of the Company and each of its Material
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 since June
30, 1996;
(g) favorable, signed opinions addressed to the Agent and the
Banks from Liddell, Sapp, Zivley, Hill and LaBoon, L.L.P., counsel to the
Company and the Guarantors, and to the Collateral Agent, the Banks and the
Other Senior Lenders in form and substance satisfactory to said Persons and
their counsel;
(h) the most current, revised budget for the FINCHAA Project;
(i) 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;
(j) 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
business requires such qualifications and where the failure to so qualify would
have a Material Adverse Effect;
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<PAGE> 36
(k) certificates of insurance as contemplated by Section
7.03(a);
(l) UCC searches and other title information reasonably
requested by the Agent on the Company and each of its Material Subsidiaries;
(m) evidence satisfactory to the Agent of the repayment of the
Prior Indebtedness and termination of all parties' rights and obligations in
regard thereto;
(n) the Intercreditor Agreement executed by the Banks and the
Other Senior Lenders and approved and accepted by the Company and the
Guarantors; and
(o) evidence satisfactory to the Banks that the Company, its
relevant Subsidiaries and the Other Senior Lenders have all executed documents
resulting in the Company and such Subsidiaries being in compliance with all
documentation evidencing any Indebtedness owing to such Other Senior Lenders.
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.
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(e) No Material Adverse Effect shall have occurred since the
delivery of the most recent financial statements delivered pursuant to Section
7.01(b).
(f) Except for any foreign Subsidiaries, all Persons that have
become Subsidiaries subsequent to the Execution Date shall have executed a
Guaranty.
(g) The Agent shall have received or waived all required
Borrowing Base Certificates and all weekly interim updates thereof and the most
recently received certificate or weekly update shall indicate that such Advance
will not cause the total of outstanding Advances and issued Letters of Credit
to exceed the Borrowing Base.
(h) The Agent shall have received such other approvals,
opinions or documents as the Agent or the Banks may reasonably request.
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.
SECTION 5.04. Waiver of Existing Known Defaults. The Company has
disclosed in writing to the Agent and the Banks all defaults and Events of
Default that may exist under the Prior Credit Agreement and the Loan Documents
executed in connection therewith immediately prior to closing under this
Agreement. Each of the Banks, in consideration of the agreements of the Company
hereunder, hereby waives each such default or Event of Default. The Banks
hereby represent and warrant to the Company that, as of the Execution Date,
they known of no other default or Event of Default under the Prior Credit
Agreement, or the Loan Documents executed in connection therewith, and no
default or Event of Default resulting from the execution and delivery of this
Agreement or any of the Loan Documents or any of the other documentation
executed and delivered or transactions effected as of the Execution Date. It is
specifically agreed and understood that such waivers of defaults or Events of
Default by the Banks shall not constitute a waiver of any other, similar or
future default or Event of Default under any of the Loan Documents.
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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 duly formed or organized, validly existing
and, except for Mac-TecTech, Inc., is in good standing under the laws of the
state of its organization, (b) has the power to own its property and to carry
on its business as now conducted and (c) is duly qualified 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.
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.
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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, 1995
and the unaudited consolidated balance sheet, income statement and statement of
cash flows for the six (6) months ended June 30, 1996 (such 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 June 30, 1996.
SECTION 6.08. Default. After giving effect to the transactions
on the date hereof, including the transactions with the Other Senior Lenders,
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
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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 all material respects, 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 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.
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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 has 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 and Assets. The Subsidiaries listed on
Schedule 6.16A are all of the Subsidiaries of the Company as of the Execution
Date. None of said Subsidiaries, except for the Material Subsidiaries listed on
Schedule 6.16B, or Subsidiaries chartered and existing in jurisdictions outside
the United States, owns assets having an aggregate market value in excess of
$100,000.00.
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 and (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).
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 30 days
after the close of each month, the consolidated and consolidating balance sheet
of the Company and its Subsidiaries as of the end of such month and the related
consolidated and consolidating statements of income for such month and, within
40 days after the close of each month, statements of cash flows for such month
and in each case, also for the portion of the fiscal year ended at the end of
such month, setting forth, in each case, comparative consolidated figures for
the related periods in the prior fiscal year, all of
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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.
(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
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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 statements
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 20
days after the end of each month, (i) a Borrowing Base Certificate and (ii) a
summary report of all Accounts of the Company and its Subsidiaries and, within
30 days after the end of each month, (x) the monthly FINCHAA Project status
report,, (y) a statement of income and a balance sheet for F. C. Schaffer, and
(z) 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) Weekly, on Tuesday of each week for the week preceding the
immediately prior week:
(i) an interim update of the most recently submitted
Borrowing Base Certificate;
(ii) the listing of accounts receivable for the FINCHAA
Project; and
(iii) a summary report of the balance and activity of all
bank accounts of the Company, F. C. Schaffer or any other Subsidiary
relating in any way to the FINCHAA Project.
(g) Promptly following 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.
(h) 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.
(i) 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
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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
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, which policies shall name the Collateral
Agent for the benefit of the Banks and the Other Senior Lenders, as a loss
payee. 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 which shall name the Collateral Agent, for the benefit of the
Banks and the Other Senior Lenders, as an additional insured. The Company shall
provide the Agent a listing of all such insurance and such other certificates
and other evidence thereof, prior to the execution date hereof and annually
thereafter. 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 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. Except as otherwise previously
disclosed to the Agent with respect to Serv-Tech Europe, GmbH and Refinery
Maintenance, Inc., each of the Company and its Subsidiaries will do all things
necessary to preserve and keep in full force and effect (a) the existence of
such Person, and (b) unless the failure to do so would not reasonably be
expected to have a Material Adverse Effect, the rights and franchises of each
of the Company and its Subsidiaries.
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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.
SECTION 7.08. Additional Subsidiaries. The Company will
immediately cause any Person that becomes a domestic 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, except as
otherwise provided herein, 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 and Compensation Structure. The
Company will not, and will not permit any of its Subsidiaries to, engage in any
businesses not of the same general type as those conducted by the Company on
the Execution Date. The Company and its Subsidiaries, on a consolidated basis,
will not materially increase its compensation structure for its existing staff
or increase overall salary levels or bonuses for its existing staff in any year
by more than 7 1/2% in excess of the prior year's level, provided nothing
herein shall prevent the Company or
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any Subsidiary from hiring additional personnel as needed in accordance with
prudent business practice.
SECTION 8.02. Consolidation, Merger or Sale of Assets. Except as
previously disclosed to the Agent, 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.
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;
(d) Indebtedness arising as a result of the endorsement in the
ordinary course of business of negotiable instruments in the course of
collection;
(e) guaranties of any Indebtedness of any Person not to exceed
in the aggregate $250,000.00, 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 or the guaranty by the Subsidiaries of the
Indebtedness owing by the Company to the Noteholders as of the Execution Date;
(f) 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 $250,000.00
in the aggregate during the term hereof; and
(g) renewals and extensions (in the same or lesser principal
amount on similar terms and conditions) of any Indebtedness listed in
subparagraphs (b), (e) and (f) 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
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(a) Liens existing on the Execution Date and listed on
Schedule 8.04(a);
(b) Liens securing currently secured Indebtedness permitted
under Section 8.03 (b) or (f) above;
(c) Permitted Liens; and
(d) any renewal, extension or replacement of any Lien referred
to in subparagraphs (a) and (b) 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 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), including Investments in the Subsidiaries, direct and indirect;
(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 Company may make Investments permitted under Section
8.09 below.
SECTION 8.06. Restricted Payments. (a) The Company will not pay
any dividends or redeem, retire, purchase, guaranty the value of 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, except to the extent that the consideration
therefor consists solely of shares of stock (including warrants, rights or
options relating thereto) of the Company or except as previously disclosed to
the Agent in respect of dividends paid by ST Piping, Inc., a Subsidiary of the
Company.
(b) The Subsidiaries may declare dividends, make or repay any
loans or advances, or otherwise transfer any money or other assets to the
Company during the term hereof except in the ordinary course of business, all
such dividends, loans or transfers which represent the proceeds of any sale or
disposition of non-inventory assets, or of any divestiture of all or part of
the stock of any
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entity shall be simultaneously transferred to the Collateral Agent for the
benefit of the Banks and the Other Senior Lenders in accordance with the terms
of the Intercreditor Agreement.
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 Event of Default to make any voluntary
prepayments of principal or interest on any other of the Company's Indebtedness
except in accordance with the terms of the Intercreditor Agreement.
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 $2,000,000.00 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. Consolidated Net Worth. The Company will not permit
its Consolidated Net Worth to be less $38,500,000.00 as of December 31, 1996,
(ii) $39,000,000.00 as of March 31, 1997, (iii) $39,500,000.00 as of June 30,
1997, (iv) $40,000,000.00 as of September 30, 1997 and (v) $40,500,000.00 as of
December 31, 1997, and at all times thereafter during the term hereof, plus, in
all cases increasing by 100% of the value of any consideration received (other
than from the Company or any Subsidiary) 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 8.12. Minimum EBITDA. The Company will not permit its
consolidated EBITDA, computed quarterly on a rolling four quarters basis, to be
less than (i) $4,000,000.00 for the four (4) fiscal quarters ending December
31, 1996, (ii) $5,000,000.00 for the four (4) fiscal quarters ending March 31,
1997, (iii) $7,100,000.00 for the four (4) fiscal quarters ending June 30,
1997, (iv) $9,000,000.00 for the four (4) fiscal quarters ending September 30,
1997
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and (v) $11,000,000.00 for the four (4) fiscal quarters ending December 31,
1997, and at all times thereafter during the term hereof, provided, the special
charge taken by the Company, in regard to the Krajicek Note, shall not be
included in making these calculations.
SECTION 8.13. Total Debt to Capitalization Ratio: The Company
will not permit the ratio of (a) its total Funded Debt to (b) the Company's
total capitalization to be greater than (i) .5 to 1.0 as of December 31, 1996,
March 31, 1997 and June 30, 1997 and (ii), .45 to 1.0 as of September 30, 1997
and December 31, 1997 and at all times thereafter.
SECTION 8.14. Capital Expenditures. The Company will not permit
total consolidated capital expenditures (including Capitalized Lease
Obligations) (i) for the fiscal quarters ending December 31, 1996, March 31,
1997 and June 30, 1997 to be greater than $250,000.00 per fiscal quarter, and
(ii) for the fiscal quarter ending September 30, 1997 and December 31, 1997, to
be greater than $500,000.00 per fiscal quarter.
SECTION 8.15. Fixed Charge Coverage Ratio. The Company will not
permit the ratio of (a) EBITDA to (b) the sum of: required principal repayments
on all Funded Debt, plus required interest payments, all calculated for the
preceding four (4) quarters on a rolling four quarter basis, to be less than
(i) 1.34 to 1.0 for the fiscal quarter ending December 31, 1996, (ii) 1.46 to
1.0 for the fiscal quarter ending March 31, 1997, (iii) 2.32 to 1.0 for the
fiscal quarter ending June 30, 1997, (iv) 1.82 to 1.0 for the fiscal quarter
ending September 30, 1997 and (v) 2.5 to 1.0 for the fiscal quarter ending
December 31, 1997, provided the special charge taken by the Company in regard
to the Krajicek Note shall not be included in making these calculations.
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. This
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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.
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
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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
(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. 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, unless and until the Obligations of the
Company guaranteed hereby have been fully and finally satisfied. Until such
time, 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 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, or any security that the Agent
or any Bank now has or
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hereafter acquires, whether or not such claim, right or remedy arises in
equity, under contract, by statute, under common law or otherwise. If any
amount shall be paid to a Guarantor by the Company or another Guarantor after
payment in full of the Obligations, and the Obligations shall thereafter be
reinstated in whole or in part and the Agent or any Bank forced to repay and
sums received by any of them in payment of the Obligations, this Guaranty shall
be automatically reinstated and 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 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,
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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; 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; or
(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 and Indebtedness owing to the Other
Senior Lenders) 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
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(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) the Company shall be in default in respect of any
Indebtedness owing to any of the Other Senior Lenders; or
(h) any Person shall make any draw under or present any Letter
of Credit issued by ABN AMRO for the account of the Company, F. C. Schaffer or
any direct or indirect Subsidiary of either, for payment in whole or in part;
or
(i) 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
(j) a Change of Control shall occur.
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
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(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 or under any applicable
state or federal law.
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 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
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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 or cable)
reasonably believed by it to be genuine and signed or sent by the proper party
or parties.
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,
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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 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
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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 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.
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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
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: Gale Manning
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<PAGE> 60
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, and
provided further that communications sent by telecopy after 5:00 P.M., Houston,
Texas time, shall be effective on the next succeeding business day.
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 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,
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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. Release and Indemnity. (a) The Company and each
of its Subsidiaries, for themselves, their officers, agents, successors and
assigns (the "Releasing Parties") do hereby release and forever discharge the
Agent and the Banks and each Affiliate thereof and their respective employees,
officers, directors, trustees, agents, successors, assigns or other
representatives from any and all claims (civil or criminal), demands, damages,
actions, cross-actions, causes of action, costs and expenses (including legal
expenses), of any kind or nature whatsoever, which any Releasing Party has held
or may now or in the future own or hold, whether known or unknown, for or
because of any matter or thing done, omitted or suffered to be done on or
before the Execution Date hereof by any of such Person (i) arising directly or
indirectly out of the Prior Credit Agreement or the Loan Documents or any other
documents, instruments or any other transactions relating thereto and/or (ii)
relating directly or indirectly to all transactions by and between any of the
Releasing Parties and the Agent or the Banks. Such release, waiver, acquittal
and discharge shall and does include, without limitation, any claims of usury
which may or could be asserted by the Releasing Parties. This release shall not
include a release of the Agent or the Banks from any claim by the Releasing
Parties for breach by the Agent or the Banks of this Agreement.
(b) The Company shall and hereby does 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.
(C) WITHOUT LIMITING ANY PROVISION OF THIS AGREEMENT, IT IS
THE EXPRESS INTENTION OF THE PARTIES HERETO THAT EACH PERSON TO BE INDEMNIFIED
HEREUNDER SHALL BE INDEMNIFIED AND HELD HARMLESS AGAINST ANY AND ALL LOSSES,
LIABILITIES, CLAIMS OR 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 OF STRICT LIABILITY. Without prejudice to the
survival of any other obligations of the Company hereunder and under the other
Loan Documents,
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<PAGE> 62
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. 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 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
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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 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
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<PAGE> 64
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, substantially
in the form of Exhibit 12.10(c) hereto, 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 from the Assignee Bank 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 (unless otherwise agreed to by the assigning
Bank, the Eligible Assignee thereunder and the Agent) shall be at least five
Business Days after the execution thereof, (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).
(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, (i) 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 and (ii) make
any assignment or participation in order to effect the terms and requirements
of the Intercreditor Agreement. In the event of any participation under this
paragraph (d) of Section 12.10, the participation certificate utilized shall be
in the form of Exhibit 12.10(d).
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
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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 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. Additional Exposure. The Company and its
Subsidiaries acknowledge that TCB, individually, is incurring the Additional
Exposure because of the cash management services and daylight overdraft
advances provided by TCB to the Company and its Subsidiaries on a completely
voluntary basis and without obligation to do so. The Company hereby
acknowledges and agrees that TCB may, at any time, cease to provide such
services and neither Company nor any Subsidiary shall have any claim or right
against TCB in regard to said services or TCB's decision to stop providing
same.
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SECTION 12.16. 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;
(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.
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(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 12.17. 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 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 ANY SUCH
COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM.
SECTION 12.18. 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.
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SECTION 12.19. 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.
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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/DEBTOR:
SERV-TECH, INC.
By: /s/ DAVID P. TUSA
--------------------------------------
David P. Tusa
Senior Vice President of
Finance and Administration
DEBTORS/SUBSIDIARIES:
ADVANCED REFRACTORY SERVICES, INC.
AMERICAN MECHANICAL SERVICES, INC.
CASTING CONCEPTS, INC.
CON-SEAL, 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.
ST PIPING, INC.
TOTAL REFRACTORY SYSTEMS, INC.
TURNAROUND MAINTENANCE, INC.
UNITED INDUSTRIAL MATERIALS, INC.
By: /s/ DAVID P. TUSA
---------------------------------------
David P. Tusa
Vice President
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<PAGE> 70
SECO INDUSTRIES, INC.
SERV-TECH ENGINEERS, INC.
SERV-TECH EPC, INC.
By: /s/ DAVID P. TUSA
---------------------------------------
David P. Tusa
Senior Vice President of
Finance and Administration
PRS HOLDINGS, INC.
By: /s/ DAVID P. TUSA
---------------------------------------
David P. Tusa
Senior Vice President
DELTA MAINTENANCE, INC.
PETRO RECOVERY SYSTEMS, INC.
SERV-TECH CONSTRUCTION AND MAINTENANCE,
INC. (Formerly Serv Tech EPC -
Houston, Inc.)
SERV-TECH INTERNATIONAL SALES, INC.
SERV-TECH OF NEW MEXICO, INC.
SERV-TECH SERVICES, INC.
TERMINAL TECHNOLOGIES, INC.
TIPCO ACQUISITION CORP.
By: /s/ DAVID P. TUSA
---------------------------------------
David P. Tusa
President
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AGENT/SECURED PARTY:
AMOUNT OF COMMITMENT TEXAS COMMERCE BANK NATIONAL
- -------------------- ASSOCIATION, as Agent and Individually,
as a Bank
$16,786,050.00
By: /s/ CURTIS D. KARGES
--------------------------------------
Curtis D. Karges
Senior Vice President
BANKS:
AMOUNT OF COMMITMENT BANK ONE, TEXAS, NA
- --------------------
$6,713,950.00
By: /s/ JOHN E. ELAM, JR.
---------------------------------------
John E. Elam, Jr.
Vice President
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EXHIBIT 10.37
NOTE RESTRUCTURING AMENDMENT
TO
NOTE PURCHASE AGREEMENTS
DATED AS OF NOVEMBER 12, 1996
SERV-TECH, INC.
$15,000,000
RESTATED SENIOR NOTES DUE JUNE 15, 2003
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TABLE OF CONTENTS
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1. STATUS OF ORIGINAL NOTE PURCHASE AGREEMENT AND PRIOR AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . 3
2. ISSUANCE OF RESTATED SENIOR NOTES IN EXCHANGE FOR ORIGINAL SENIOR NOTES . . . . . . . . . . . . . . . . . . 3
2.1 ISSUANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 REPAYMENT OF PRINCIPAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.4 MATURITY DATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.5 CALCULATION AND PAYMENT OF MAKE-WHOLE AMOUNT . . . . . . . . . . . . . . . . . . . . . . . 4
3. COLLATERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.1 COLLATERAL SECURITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 PRIORITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. FEES AND EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.1 RESTRUCTURING FEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.2 EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5. ACKNOWLEDGMENT OF FULL PERFORMANCE; RELEASE; WAIVER OF EXISTING DEFAULTS . . . . . . . . . . . . . . . . . . 7
5.1 FULL PERFORMANCE BY NOTEHOLDERS AND RELEASE . . . . . . . . . . . . . . . . . . . . . . . . 7
5.2 WAIVER OF EXISTING KNOWN DEFAULTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.1 TIME AND PLACE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.2 DOCUMENTS TO BE DELIVERED AT CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.3 CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7. WARRANTIES AND REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.1 RESTATEMENT OF CERTAIN WARRANTIES AND REPRESENTATIONS . . . . . . . . . . . . . . . . . . . 10
7.2 FINANCIAL STATEMENTS; INDEBTEDNESS; MATERIAL ADVERSE CHANGE. . . . . . . . . . . . . . . . 11
7.3 SUBSIDIARIES AND AFFILIATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.4 FULL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.5 SALE OF RESTATED SENIOR NOTES IS LEGAL AND AUTHORIZED; OBLIGATIONS ARE ENFORCEABLE . . . . 13
7.6 GOVERNMENTAL CONSENT TO SALE OF RESTATED SENIOR NOTES . . . . . . . . . . . . . . . . . . . 13
7.7 NO DEFAULT AT CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8. REGISTRATION; EXCHANGE; SUBSTITUTION OF RESTATED SENIOR NOTES . . . . . . . . . . . . . . . . . . . . . . . 13
9. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
9.1 PRIOR COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
9.2 CONSOLIDATED NET WORTH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
9.3 FIXED CHARGE COVERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
9.4 LEVERAGE RATIO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
9.5 FUNDED DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
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9.6 RESTRICTED SUBSIDIARY INDEBTEDNESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
9.7 LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9.8 RESTRICTED PAYMENTS AND RESTRICTED INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . 19
9.9 MERGER, CONSOLIDATION, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.10 TRANSFER OF PROPERTY, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.11 TRANSACTIONS WITH AFFILIATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.12 CONSOLIDATED EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.13 CONSOLIDATED CAPITAL EXPENDITURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
10. INFORMATION AND CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
10.1 ADDITIONAL FINANCIAL AND BUSINESS INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 23
11. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
11.1 NATURE OF EVENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
12. TERMS DEFINED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
12.1 RESTRICTED INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
12.2 CONSOLIDATED EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
12.3 CONSOLIDATED CAPITAL EXPENDITURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
12.4 R.W. KRAJICEK NOTE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Exhibits
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Exhibit A - Form of Restated Senior Note
Exhibit B - Property to be Encumbered
Exhibit C - Collateral Documentation List
Exhibit D - Schedule of Restated Senior Notes with Payees
Exhibit E - Form of Closing Opinion from Company's Counsel
Exhibit F - Secretary's Certificate with
- Resolutions
- Amendments to Articles
- Amendments to Bylaws
- Incumbency
Exhibit G - Officer's Closing Certificate
Exhibit H - List of Affiliates for which Good Standing Certificates are Delivered
Annexes
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Annex 1 - Financial Statements
Annex 2 - Indebtedness of Company and Restricted Subsidiaries
Annex 3 - Subsidiaries and Affiliates
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NOTE RESTRUCTURING AMENDMENT
This Note Restructuring Amendment to Note Purchase Agreements (this
"Amendment") is made and entered into as of the 12th of November, 1996, by and
between SERV-TECH, INC. (the "Company") and PRINCIPAL MUTUAL LIFE INSURANCE
COMPANY, TMG LIFE INSURANCE COMPANY, THE SECURITY MUTUAL LIFE INSURANCE
COMPANY, and BERKSHIRE LIFE INSURANCE COMPANY ("Noteholders"), purchasers of
the Company's $15,000,000 of 8.41% Senior Notes due June 15, 2003 (the
"Original Senior Notes") pursuant to certain Note Purchase Agreements dated as
of June 1, 1993 between the Company and each Noteholder (the "Original Note
Purchase Agreements"), as amended by First, Second, Third, Fourth, Fifth and
Sixth Amendments to Note Purchase Agreements, executed as of March 22, 1995,
August 8, 1995, November 13, 1995, March 11, 1996, May, 1996 and August 14,
1996, respectively (together the "Prior Amendments").
RECITALS
A. The Company currently owes $15,000,000 in aggregate principal
amount to the Noteholders as evidenced by the Original Senior Notes.
B. The Company currently owes an aggregate of $19,454,067 (the
"Existing Bank Loan") to Texas Commerce Bank National Association and BankOne
Texas, N.A. (the "Banks"), pursuant to a Credit Agreement dated as of May 15,
1995, as amended and restated by Amendments to Credit Agreement effective as of
July 19, 1995 and August 14, 1996 and as further amended contemporaneously
herewith (the "Credit Agreement") and the notes thereunder (the "Bank Notes").
The Company is also obligated on certain conditions to reimburse TCB for
certain liabilities incurred from time to time by the Company through its use
of cash management services provided by TCB, including any overdrafts by the
Company and amounts of automated clearing house funds that may erroneously be
credited to the Company's account with TCB (the "Cash Management Liabilities").
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C. The Company and certain of its subsidiaries are obligated, on
certain conditions, pursuant to a Guaranty (the "ABN Guaranty") dated as
November 1, 1994, to reimburse ABN AMRO Bank, N.V. ("ABN") with respect to
performance security and advance payment letters of credit (the "ABN Letters of
Credit"), currently in the aggregate amount of $15,195,368.77, issued by ABN
pursuant to its Continuing Reimbursement Agreement with F.C. Schaffer &
Associates, Inc. dated as of November 1, 1994 as amended by First and Second
Amendments to Continuing Reimbursement Agreement dated July ___, 1995 and April
30, 1996, respectively. (The ABN Guaranty, ABN Letters of Credit, Continuing
Reimbursement Agreement and related documents, as amended to date, are
hereinafter referred to as the "ABN Documents").
D. The Company is now in default and has therefore requested
certain financial accommodations from the Noteholders, the Banks, and ABN by
way of amendment and adjustment to the terms, conditions, and provisions of the
Original Note Purchase Agreement, the Credit Agreement, and the ABN Documents.
E. The Noteholders have agreed to modification of the Original
Note Purchase Agreements and, in connection therewith, to exchange of the
Original Senior Notes for Restated Senior Notes (defined below) all on the
terms and conditions provided for below.
F. Terms capitalized in this Amendment shall have the meanings
assigned to them in the Original Note Purchase Agreement except as otherwise
specifically provided for herein.
AGREEMENT
NOW, THEREFORE, in consideration of these premises and for other good
and valuable consideration, the receipt of which is acknowledged by all
parties, the parties to this Amendment agree as follows:
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1. STATUS OF ORIGINAL NOTE PURCHASE AGREEMENT AND PRIOR AMENDMENTS
1.1 Except as specifically amended or waived below, the Original
Note Purchase Agreements shall continue in full force and effect and references
to "Notes" therein shall instead be read as references to the Restated Senior
Notes.
1.2 At Closing hereunder the Prior Amendments shall be replaced
and superseded in their entirety by this Amendment.
2. ISSUANCE OF RESTATED SENIOR NOTES IN EXCHANGE FOR ORIGINAL SENIOR
NOTES
2.1 ISSUANCE.
The Company has authorized the issuance of Fifteen Million Dollars
($15,000,000) in aggregate principal amount of its Restated Senior Notes due
June 15, 2003 (the "Restated Senior Notes"). The Restated Senior Notes shall
be in the form of Exhibit A hereto, and shall have the terms as herein and
therein provided, and the terms therein provided are incorporated herein by
reference as if set forth herein in full. At Closing hereunder, the Restated
Senior Notes shall be delivered to the Noteholders in exchange for the Original
Senior Notes, which shall be replaced and superseded by Restated Senior Notes
dated November 1, 1996. At Closing the Original Senior Notes shall be marked
"CANCELLED" and returned to the Company.
2.2 INTEREST.
(a) PAYMENT. Accrued and unpaid interest on the Restated
Senior Notes shall be payable on the first Business Day of each month
beginning December 1, 1996.
(b) INTEREST RATE. The Restated Senior Notes shall bear
interest at an annual rate:
(i) From November 1, 1996, through December 31,
1997, of ten and one-half percent (10.50%);
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(ii) From January 1, 1998, through March 31, 1998,
of ten and three-quarters percent (10.75%); and
(iii) For each fiscal quarter beginning after March
31, 1998, at a rate that is one-quarter percent (0.25%) per
annum greater than the rate for the next preceding fiscal
quarter, but not to exceed eleven and one-half percent
(11.50%) per annum.
2.3 REPAYMENT OF PRINCIPAL.
SCHEDULED MANDATORY PRINCIPAL AMORTIZATION PAYMENTS. The
Company shall pay, and there shall become due and payable, Two Hundred
Eight Thousand Three Hundred Thirty-three and 33/100 Dollars
($208,333.33) in principal amount of the Restated Senior Notes on the
first Business Day of each month beginning July 1, 1997, until
maturity or full repayment of the Restated Senior Notes in accordance
with the terms hereof.
2.4 MATURITY DATE.
MATURITY DATE. Unless sooner accelerated pursuant to the terms
thereof or the terms of the Original Note Purchase Agreement as
amended hereby or prepaid in full, all then outstanding principal and
accrued and unpaid interest on the Restated Senior Notes shall be due
and payable in full on June 15, 2003 (the "Maturity Date").
2.5 CALCULATION AND PAYMENT OF MAKE-WHOLE AMOUNT.
(a) ASSUMED 8.41% INTEREST RATE. Notwithstanding the
adjustment to interest rate provided in Section 2.2 above, an interest
rate of 8.41% per annum, payable semi-annually on June 15 and December
15 in each year, shall be assumed for the sole purpose of calculating
any Make-Whole Amount that may come due under the Original Note
Purchase Agreement as amended hereby.
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(b) NO MAKE-WHOLE AMOUNT DUE FROM CHANGE IN SCHEDULED
MANDATORY PRINCIPAL AMORTIZATION PAYMENTS. No Make-Whole Amount shall
ever be due on Closing hereunder or as a result of the change in
scheduled mandatory principal amortization payments from the Original
Senior Notes to the Restated Senior Notes as provided in Section 2.3
above. Otherwise, Make-Whole Amounts shall be due and payable upon
any optional or mandatory prepayment of principal or repayment of
principal upon acceleration or demand prior to the Maturity Date.
3. COLLATERAL
3.1 COLLATERAL SECURITY.
The Restated Senior Notes and all obligations of the Company to the
Noteholders under the Original Note Purchase Agreement as amended hereby shall
be guaranteed by those Affiliates and Subsidiaries of the Company listed on
Annex 3 hereto ("Guarantors") and shall be secured by security agreements,
pledges, mortgages, trust deeds and/or other collateral transfer or assignment
documentation (the "Collateral Security Documentation") to TCB as collateral
agent for the Noteholders, the Banks and ABN encumbering in favor of the
Noteholders, the Banks and ABN substantially all of the material assets of the
Company and its Subsidiaries. Property to be encumbered pursuant to the
Collateral Security Documentation includes, but is not limited to, that
property listed on Exhibit B hereto. The Collateral Security Documentation and
related collateral documentation is listed on Exhibit C hereto.
3.2 PRIORITY.
The liens and security interests to be granted to TCB as collateral
agent for the Noteholders pursuant to Section 3.1 above shall be the same liens
and security interests to be contemporaneously granted in favor of the Banks
and ABN to secure all obligations of the Company to the Banks and ABN for the
Cash Management Liabilities not exceeding $2,000,000.00 at any one time
outstanding and under the Credit Agreement and the ABN
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Documents. Such liens and security interests shall be junior only to liens and
security interests in favor of the Banks granted to secure repayment of a new
revolving line of credit to the Company in an aggregate amount not to exceed $4
million at any one time outstanding (the "Senior Secured Loan"), available
until and maturing on June 30, 1997.
4. FEES AND EXPENSES
4.1 RESTRUCTURING FEE.
At Closing hereunder the Company shall pay to each Noteholder other
than Principal Mutual Life Insurance Company a fee ("Note Restructuring Fee")
in an amount equal to one half percent (0.50%) of the principal balance of each
Restated Senior Note to be issued hereunder to it. A Note Restructuring Fee
shall be paid at such time to Principal Mutual Life Insurance Company in the
amount of six tenths percent (0.60%) of the principal balance of the Restated
Senior Note to be issued hereunder to Principal Mutual Life Insurance Company.
4.2 EXPENSES.
The Company shall pay upon presentation of an invoice therefor the
reasonable fees and expenses incurred by the Noteholders in connection with the
debt restructuring which is the subject of this Amendment, including but not
limited to, the reasonable fees and expenses of outside counsel, reasonable
travel expenses, filing and recording fees, postage, courier, copying,
telecopy, telephone expenses and the like. The Company shall not be
responsible for the fees and expenses of more than one outside law firm for all
Noteholders.
5. ACKNOWLEDGMENT OF FULL PERFORMANCE; RELEASE; WAIVER OF EXISTING
DEFAULTS
5.1 FULL PERFORMANCE BY NOTEHOLDERS AND RELEASE.
By executing this Amendment the Company confirms and acknowledges that
the Noteholders, and each of them, have fully paid the purchase price for the
Original Senior Notes and the Restated Senior Notes and have fully, fairly and
completely performed each and every obligation of the Noteholders to the
Company owing in connection with the Original Senior
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Notes and the Restated Senior Notes. The Company further acknowledges that the
indebtedness evidenced by the Original Senior Notes, before exchanged for the
Restated Senior Notes, and by the Restated Senior Notes, once exchanged for the
Original Senior Notes, is the just indebtedness of the Company, owing to the
Noteholders according to its terms, without defense, setoff or counterclaim.
In consideration of the execution of this Amendment by the Noteholders, the
Company by executing this Amendment releases and waives any claim it might have
as of Closing hereunder against the Noteholders, or any of them, whether known
or unknown, in any way related to the Original Senior Notes, the Original Note
Purchase Agreement, the Restated Senior Notes or this Amendment.
5.2 WAIVER OF EXISTING KNOWN DEFAULTS.
The Company has disclosed in writing to the Noteholders all Events of
Default that may exist under the Original Note Purchase Agreements and the
Original Senior Notes immediately prior to closing under this Amendment. Each
of the Noteholders, in consideration of the agreements of the Company
hereunder, hereby waives each such default or Event of Default. The
Noteholders hereby represent and warrant to the Company that, as of Closing
hereunder, they know of no other default or Event of Default under the Original
Note Purchase Agreements, or the Original Senior Notes, and no default or Event
of Default resulting from the execution and delivery of the Restated Senior
Notes, this Amendment, the Collateral Documentation or any of the other
documentation executed and delivered or transactions effected at Closing. It
is agreed and understood that such waivers of defaults or Events of Default by
the Noteholders shall not constitute a waiver of any other, similar or future
default or Event of Default under the Original Note Purchase Agreements as
amended hereby or the Restated Senior Notes.
6. CLOSING
6.1 TIME AND PLACE.
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The closing ("Closing") of the Company's exchange of the Original
Senior Notes for the Restated Senior Notes will be held on November 13, 1996
(the "Closing Date") at 10:00 a.m., local time, at the office of Andrews &
Kurth, Houston, Texas. At the Closing the Company will exchange the Restated
Senior Notes for the Original Senior Notes held by the Noteholders in the
principal amounts indicated on Exhibit D hereto.
6.2 DOCUMENTS TO BE DELIVERED AT CLOSING.
At the Closing the Company will deliver to the Noteholders or their
agents, duly executed by the Company where appropriate, the following documents
and things:
(a) This Amendment;
(b) The Restated Senior Notes;
(c) Copies of the Collateral Security Documentation;
(d) The Note Restructuring Fee and payment of all
expenses of Noteholders as provided in Section 4.2 above;
(e) Payment of all accrued interest due the Noteholders
through Closing;
(f) The opinion of Liddell, Sapp, Zivley, Hill & LaBoon,
L.L.P. addressed to Noteholders substantially in the form of Exhibit
E hereto;
(g) Secretary's Certificate from the Company in the form
of Exhibit F attaching copies of board resolutions authorizing entry
into this Amendment, issuance of the Restated Senior Notes and related
matters; any amendments to Company Articles and Bylaws since June 1,
1993; and as to the incumbency of officers authorized to sign
documents for the Company and Guarantors in connection with Closing;
(h) An Officer's Closing Certificate in the form of
Exhibit G concerning accuracy of warranties of the Company and other
matters at and as of the Closing Date;
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(i) Copies of all amendments or supplements to the Credit
Agreement and all documents relating to the Senior Secured Loan;
(j) Copies of all amendments or supplements to the ABN
Documents; and
(k) Good Standing Certificates for the Company and each
Affiliate listed on Exhibit H hereto.
At the Closing the Noteholders will deliver to the Company or its
agents the Original Senior Notes marked "CANCELLED".
6.3 CONDITIONS TO CLOSING.
The Noteholders' obligation at Closing to exchange the Original Senior
Notes for the Restated Senior Notes is subject to the following conditions
precedent to be met at or prior to Closing and upon Closing such conditions
shall be deemed satisfied or if not satisfied, deemed waived:
(a) The Noteholders shall have received each of the
documents identified in Section 6.2 above, and any other documents
relating thereto which Noteholders may reasonably request, each in
form and content satisfactory to the Noteholders and their counsel;
(b) All amounts due for interest accrued and unpaid
through the date of Closing, the Note Restructuring Fee, and
reimbursement of fees and expenses to the Noteholders under Section
4.2 shall be paid to the Noteholders;
(c) Noteholders shall be satisfied in their sole
discretion with the credit restructuring arrangements reached between
the Company and the Banks and between the Company and ABN;
(d) No default or condition which would constitute a
default with the giving of notice and/or the passage of time, except
those that are the subject of a written waiver as called for in
Section 5.2, shall exist under the Original Note Purchase
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Agreement as amended hereby, the Credit Agreement, as amended, or the
ABN Documents, as amended;
(e) An intercreditor and collateral agency agreement or
agreements, on terms satisfactory to Noteholders, shall be entered
into by and among the Noteholders, the Banks, and ABN relating to the
rights and obligations among said creditors in dealing with the
Company and collateral for the Company's obligations to said
creditors; and
(f) All proceedings taken in connection with the issuance
and exchange of the Restated Senior Notes for the Original Senior
Notes and all documents and papers relating thereto shall be
satisfactory to the Noteholders and their counsel. The Noteholders
and their counsel shall have received copies of such documents and
papers as they may reasonably request in connection therewith, all in
form and substance satisfactory to the Noteholders and their counsel.
7. WARRANTIES AND REPRESENTATIONS
The Company hereby supplements and modifies the warranties and
representations contained in Article 2 of the Original Note Purchase Agreement
as follows:
7.1 RESTATEMENT OF CERTAIN WARRANTIES AND REPRESENTATIONS.
The Company hereby restates as of Closing hereunder, with the
modifications specified below, the warranties and representations contained in
Section 2.4 ("Title to Properties"), Section 2.5 ("Taxes"), Section 2.6
("Pending Litigation"), Section 2.8 ("Corporate Organization and Authority"
except as to the good standing of Mac-Tech, Inc.), Section 2.9 ("Charter
Instruments, Other Agreements"), Section 2.10 ("Restrictions on Company and
Subsidiaries"), Section 2.11 ("Compliance with Laws"), and Section 2.13
("Environmental Compliance") of the Original Note Purchase Agreement.
(a) SECTION 2.4(a). The reference to Annex 3 shall be to
Annex 1 of this Amendment;
(b SECTION 2.5.
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(i) The reference in subsection (a)(ii) to
"fiscal years 1990 through 1992" is replaced
with "fiscal years 1993 through 1995";
(ii) The references to Annex 3 in subsections
(b)(i) and (ii) shall be to Annex 1 of this
Amendment;
(c) SECTION 2.8(d). The reference to Annex 3 shall be to
Annex 3 of this Amendment;
(d) SECTION 2.9. The reference to absence of defaults
and violations of the terms of agreements or instruments is subject to
receiving the waivers to be given in connection with Closing
hereunder; and
(e) SECTION 2.10(b). The reference to Annex 3 shall be
to Annex 2 of this Amendment.
7.2 FINANCIAL STATEMENTS; INDEBTEDNESS; MATERIAL ADVERSE CHANGE.
(a) FINANCIAL STATEMENTS. The Company has provided the
Noteholders with its financial statements described in Annex 1 hereto.
Such financial statements have been prepared in accordance with
generally accepted accounting principles consistently applied, and
present fairly, in all material respects, the consolidated financial
position of the Company and its consolidated subsidiaries as of such
dates and the results of its operations and cash flows for such
periods.
(b) INDEBTEDNESS. Annex 2 hereto lists all indebtedness
of the Company and the Restricted Subsidiaries as of the Closing Date,
and provides the following information with respect to each item of
such indebtedness: the holder thereof and type thereof; the
outstanding amount; the current portion; and the collateral securing
such indebtedness, if any.
(c) MATERIAL ADVERSE CHANGE. Since June 30, 1996, there
has been no change in the business, prospects, profits, Properties or
condition (financial or
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otherwise) of the Company and its Restricted Subsidiaries taken as a
whole except (i) changes in the ordinary course of business that, in
the aggregate for all such changes, could not reasonably be expected
to have a Material Adverse Effect, and (ii) changes that have been
disclosed in writing to the Noteholders.
7.3 SUBSIDIARIES AND AFFILIATES.
Annex 3 hereto sets forth the information for Subsidiaries and
Affiliates called for in Section 2.3(a) of the Original Note Purchase
Agreement, amended to be accurate as of the Closing Date hereunder.
7.4 FULL DISCLOSURE.
None of the financial statements referred to in Section 7.2 above,
this Amendment, and any written statement furnished by or on behalf of the
Company to the Noteholders in connection with the negotiation or closing of the
sale of the Restated Senior Notes, taken as a whole, contains any untrue
statement of material fact or omits a material fact necessary to make the
statements contained therein and herein not misleading. There is no fact that
the Company has not disclosed to the Noteholders in writing that has had or, so
far as the Company can now reasonably foresee, could reasonably be expected to
have a Material Adverse Effect.
7.5 SALE OF RESTATED SENIOR NOTES IS LEGAL AND AUTHORIZED;
OBLIGATIONS ARE ENFORCEABLE.
The Company hereby represents and warrants to the Noteholders, with
respect to this Amendment and the Restated Senior Notes, each of those matters
set forth in Section 2.14 of the Original Note Purchase Agreement except to the
extent said Section relates to creation of liens against property of the
Company or Subsidiaries.
12
<PAGE> 16
7.6 GOVERNMENTAL CONSENT TO SALE OF RESTATED SENIOR NOTES.
The Company hereby represents and warrants to the Noteholders, with
respect to the Restated Senior Notes, each of those matters set forth in
Section 2.15 of the Original Note Purchase Agreement except as required by the
Collateral Documentation.
7.7 NO DEFAULT AT CLOSING.
Upon receipt of the waivers referred to in Section 5.2 above and
waivers from the Banks and ABN to be delivered at Closing, no event has
occurred and no condition exists that upon the execution and delivery of this
Amendment and the exchange of the Restated Senior Notes for the Original Senior
Notes, would constitute a Default or an Event of Default.
8. REGISTRATION; EXCHANGE; SUBSTITUTION OF RESTATED SENIOR NOTES.
The Company hereby makes and restates with respect to the Restated
Senior Notes each of the agreements and undertakings contained in Article 5 of
the Original Note Purchase Agreement with respect to the Original Senior Notes.
9. COVENANTS.
9.1 PRIOR COVENANTS.
The Company reaffirms as of the Closing Date hereunder each of the
covenants, except as specifically amended below, contained in Article 6 of the
Original Note Purchase Agreement and, in connection with entry into this
Amendment and issuance of the Restated Senior Notes makes the following
additional and supplemental covenants.
9.2 CONSOLIDATED NET WORTH.
The Company's covenant concerning consolidated net worth contained in
Section 6.4 of the Original Note Purchase Agreement is replaced in its entirety
with the following:
6.4 CONSOLIDATED NET WORTH.
Through the fiscal quarter ending December 31, 1997,
the Company will not permit Consolidated Net Worth, determined
as of the end of each fiscal quarter of the Company, to be
less than the following amounts:
13
<PAGE> 17
<TABLE>
================================================================================
<S> <C> <C> <C> <C> <C>
Quarter
Ended 12-31-96 3-31-97 6-30-97 9-30-97 12-31-97
- --------------------------------------------------------------------------------
Amount $38.5 $39.0 $39.5 $40.0 $40.5
(in millions)
================================================================================
</TABLE>
Following the fiscal quarter ending December 31, 1997, the
Company will not at any time permit Consolidated Net Worth,
determined as of the end of the fiscal quarter of the Company
then most recently ended, to be less than the sum of
(a) Forty Million Five Hundred Thousand
Dollars ($40,500,000), plus
(b) the sum of the Fiscal Quarter Net
Worth Increase Amounts for all fiscal quarters of the
Company ended during the period beginning January 1,
1998 and ending at such time.
"Consolidated Net Worth" means total assets minus total
liabilities of the Company and the Restricted Subsidiaries,
determined on a consolidated basis for such Persons in
accordance with GAAP.
"Fiscal Quarter Net Worth Increase Amount" means, for any
fiscal quarter of the Company, the greater of
(i) fifty percent (50%) of
Consolidated GAAP Net Income for such fiscal quarter,
and
(ii) Zero Dollars ($0).
9.3 FIXED CHARGE COVERAGE.
The Company's covenant with respect to fixed charge coverage contained
in Section 6.5 of the Original Note Purchase Agreement is hereby replaced in
its entirety with the following:
6.5 FIXED CHARGE COVERAGE.
Determined as of the end of each fiscal quarter of
the Company beginning December 31, 1996, the Company will not
permit the ratio of
(a) EBITDA for the period of four (4)
consecutive fiscal quarters of the Company then most
recently ended
to
14
<PAGE> 18
(b) The sum of required principal
payments on all Debt (excluding obligations in
respect of Capital Leases), plus required interest
payments, all calculated for the preceding four (4)
fiscal quarters
to be less than the following ratios:
<TABLE>
================================================================================
<S> <C> <C> <C> <C> <C>
4 Quarters
Ended 12-31-96 3-31-97 6-30-97 9-30-97 12-31-97
- --------------------------------------------------------------------------------
Ratio 1.34:1 1.46:1 2.32:1 1.82:1 2.50:1
================================================================================
</TABLE>
provided however, the non-cash charge related to the R.W.
Krajicek Note shall not be included in making these
calculations.
For each four consecutive fiscal quarters ending each quarter
after December 31, 1997, the Company will not permit such
ratio to be less than 2.25 to 1.
9.4 LEVERAGE RATIO.
The Company's covenant with respect to leverage ratio contained in
Section 6.6 of the Original Note Purchase Agreement is hereby replaced in its
entirety with the following:
6.6 LEVERAGE RATIO.
The Company will not at any time permit the ratio of
(a) Consolidated Debt, determined as of
the end of the fiscal quarter of the Company then
most recently ended,
to
(b) Consolidated Capitalization,
determined as of the end of such fiscal quarter to
exceed the following ratios:
<TABLE>
================================================================================
<S> <C> <C> <C> <C> <C>
Quarter
Ended 12-31-96 3-31-97 6-30-97 9-30-97 12-31-97
- --------------------------------------------------------------------------------
Ratio 0.50:1 0.50:1 0.50:1 0.45:1 0.45:1
================================================================================
</TABLE>
For each fiscal quarter ending after December 31, 1997, the
Company shall not permit such ratio to exceed 0.45 to 1.0.
15
<PAGE> 19
9.5 FUNDED DEBT.
The Company's covenant with respect to Funded Debt contained in
Section 6.7 of the Original Note Purchase Agreement is hereby replaced in its
entirety with the following:
6.7 FUNDED DEBT.
The Company will not, and will not permit any
Restricted Subsidiary to, at any time after issuance of the
Restated Senior Notes incur or in any other manner become
liable in respect of any Funded Debt (other than Funded Debt
of a Restricted Subsidiary to the Company) except,
(a) guaranties of any Indebtedness of any
Person not to exceed in the aggregate $250,000.00,
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
or Indebtedness to the Banks;
(b) Indebtedness secured by Purchase
Money Liens incurred in connection with acquisition
of tangible assets from any third party not to exceed
$250,000.00 in the aggregate during the term hereof;
and
(c) renewals and extensions (in the same
or lesser principal amount on similar terms and
conditions) of any Indebtedness listed in
subparagraphs (a) and (b) of this Section 6.7.
9.6 RESTRICTED SUBSIDIARY INDEBTEDNESS.
The Company's covenant with respect to Restricted Subsidiary
Indebtedness in Section 6.8 of the Original Note Purchase Agreement is hereby
replaced in its entirety with the following:
6.8 RESTRICTED SUBSIDIARY INDEBTEDNESS.
The Company will not at any time permit the sum of
(a) Total Restricted Subsidiary
Indebtedness at such time, plus, without duplication,
(b) the aggregate amount of all (i)
Indebtedness and (ii) other obligations, in each case
outstanding at such time and secured by Liens
permitted by Section 6.9(a),
to exceed ten percent (10%) of Consolidated Capitalization at
such time.
16
<PAGE> 20
9.7 LIENS.
The Company's covenant with respect to restriction of Liens contained
in subparagraph 6.9(a) of the Original Note Purchase Agreement is hereby
replaced in its entirety with the following:
(a) 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, except
(i) Liens existing on the date of Closing
and listed on Annex 2 and Liens granted in connection
with Closing in favor of the Noteholders, the Banks
and ABN;
(ii) Liens for taxes, assessments, levies
or other governmental charges not yet due or which
are being contested in good faith by appropriate
proceedings and for which adequate reserves are
maintained in accordance with GAAP;
(iii) Liens in connection with worker's
compensation, unemployment insurance or other social
security, old age pension or public liability
obligations not yet due or which are being contested
in good faith by appropriate proceedings and for
which adequate reserves are maintained in accordance
with GAAP;
(iv) Operators', vendors', carriers',
warehousemen's, repairmen's, mechanics', workers',
materialmen's or other like Liens arising by
operation of law in the ordinary course of business
(or deposits to obtain the release of any such Lien)
and securing amounts not yet due or which are being
contested in good faith by appropriate proceedings
and for which adequate reserves are maintained in
accordance with GAAP;
(v) deposits to secure insurance in the
ordinary course of business;
(vi) deposits to secure the performance of
bids, tenders, contracts (other than contracts for
the payment of money or the deferred purchase price
of goods or services), leases, licenses, franchises,
trade contracts, statutory obligations, surety and
appeal bonds and performance bonds and other
obligations of a like nature incurred in the ordinary
course of business;
(vii) easements, rights of way, covenants,
restrictions, reservations, exceptions,
encroachments, zoning and similar restrictions and
other similar encumbrances (other than to secure the
payment of borrowed money or the deferred purchase
price of goods or services) or title defects, in each
case incurred in the
17
<PAGE> 21
ordinary course of business which, in the aggregate,
are not substantial in amount, and which do not in
any case singly or in the aggregate materially
detract from the value or usefulness of the property
subject thereto for the business conducted by the
Company and its Subsidiaries or materially interfere
with the ordinary conduct of the business of the
Company and its Subsidiaries;
(viii) bankers' liens arising by operation
of law;
(ix) inchoate Liens arising under ERISA to
secure contingent liabilities of the Company and its
Subsidiaries;
(x) liens on assets of Subsidiaries to
secure indebtedness to the Company, provided same are
collaterally assigned to the Collateral Agent,
provided further, such liens may be incurred only to
the extent the underlying Indebtedness is otherwise
permitted under the terms of this Amendment; and
(xi) any renewal, extension or replacement
of any Lien referred to in subparagraph (a)(i)
through (x) 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 Indebtedness secured thereby
shall not exceed the principal amount of the
Indebtedness so secured at the time of such
extension, renewal or replacement.
9.8 RESTRICTED PAYMENTS AND RESTRICTED INVESTMENTS.
The Company's covenant with respect to Restricted Payments and
Restricted Investments contained in Section 6.10 of the Original Note Purchase
Agreement is hereby replaced in its entirety with the following:
6.10 RESTRICTED PAYMENTS AND RESTRICTED
INVESTMENTS.
The Company will not, and will not permit any
Restricted Subsidiary to, declare or make any Restricted
Payment or make any Restricted Investment, except dividends
with respect to ST Piping, Inc. in accordance with contractual
obligations existing on the date hereof.
18
<PAGE> 22
9.9 MERGER, CONSOLIDATION, ETC.
The Company's covenant with respect to merger and related matters
contained in Section 6.11 of the Original Note Purchase Agreement is hereby
amended by deletion of subparagraph (b) in its entirety.
9.10 TRANSFER OF PROPERTY, ETC.
The Company's covenant with respect to transfers of property, etc.
contained in Section 6.12 of the Original Note Purchase Agreement is hereby
replaced in its entirety with the following:
6.12 TRANSFERS OF PROPERTY, RESTRICTED SUBSIDIARY
STOCK.
(a) TRANSFERS OF PROPERTY. The Company
will not, and will not permit any Restricted
Subsidiary to, sell (including, without limitation,
any sale and subsequent leasing as lessee of such
Property), lease as lessor, transfer or otherwise
dispose of any Property (collectively referred to as
"Transfers"), except:
(i) Transfers of inventory and of
obsolete or worn out Property, in each case in the
ordinary course of business of the Company or such
Restricted Subsidiary;
(ii) Transfers from the Company to a
Wholly-Owned Restricted Subsidiary;
(iii) Transfers from a Restricted
Subsidiary to the Company or to a Wholly-Owned
Restricted Subsidiary;
(iv) any other Transfer of Property at any
time to a Person, other than an Affiliate, for an
Acceptable Consideration if:
(A) the sum of
(1) the greater of (x) the Fair
Market Value of such Property and (y)
the current book value of such
Property, plus
(2) the aggregate of the amounts
representing, in each case, the
greater of the Fair Market Value or
the book value of each other item of
Property of the Company and the
Restricted Subsidiaries Transferred
(other than in Excluded Transfers)
after the Closing Date, would not
exceed ten percent (10%) of
Consolidated Net
19
<PAGE> 23
Tangible Assets determined as of the
date of such Transfer;
(B) the sum of
(1) the Operating Income
Contribution Percentage of such
Property plus
(2) the Operating Income
Contribution Percentage of all other
Property of the Company and the
Restricted Subsidiaries Transferred
(other than in Excluded Transfers)
after the Closing Date, would not
exceed ten percent (10%); and
(C) immediately before and after the
consummation of such Transfer, and after
giving effect thereto, no Default or Event of
Default would exist;
provided, that any Transfer of Property shall be excluded for
purposes of the foregoing clauses (iv)(A) and (iv)(B), if,
within two hundred forty (240) days after such Transfer, the
entire proceeds of such Transfer, net of reasonable and
ordinary transaction costs and expenses incurred in connection
with such Transfer, are applied by the Company or such
Restricted Subsidiary to:
(y) invest in new operating assets of a
similar nature of the Company or any Restricted
Subsidiary; or
(z) pay, prior to its scheduled maturity,
ratably to all holders thereof based on the then
outstanding aggregate principal amount thereof,
Qualified Senior Funded Debt, together with any
Make-Whole Amount or premium required to be paid in
connection therewith pursuant to Section 4.2 hereof
or pursuant to any applicable provisions of any other
agreement with respect to Qualified Senior Funded
Debt;
further provided, that any Material Subsidiary organized under
the laws of Germany may sell, transfer or convey any of its
properties and assets for Fair Market Value (whether in one
transaction or in a series of transactions) to any Person if
the proceeds of any such sale, transfer or conveyance are
immediately distributed by such Material Subsidiary to the
Company or a Guarantor and held by the Collateral Agent in an
account at the Collateral Agent which is subject to a lien or
security interest in favor of the Collateral Agent.
(b) TRANSFERS OF RESTRICTED SUBSIDIARY STOCK.
The Company will not, and will not permit any Restricted
Subsidiary to, Transfer any shares of the stock (or any
warrants, rights or options to purchase stock or other
Securities exchangeable for or convertible into stock) of a
Restricted Subsidiary (such stock, warrants, rights, options
and other
20
<PAGE> 24
Securities herein called "Restricted Subsidiary Stock"), nor
will any Restricted Subsidiary issue, sell or otherwise
dispose of any shares of its own Restricted Subsidiary Stock,
provided that the foregoing restrictions do not apply to:
(i) the issuance by a Restricted
Subsidiary of shares of its own Restricted Subsidiary
Stock to the Company or a Wholly-Owned Restricted
Subsidiary;
(ii) Transfers (other than leases) by
the Company or a Restricted Subsidiary of shares of
Restricted Subsidiary Stock to the Company or to a
Wholly- Owned Restricted Subsidiary;
(iii) the issuance by a Restricted
Subsidiary of directors' qualifying shares; and
(iv) the Transfer of all of the
Restricted Subsidiary Stock of a Restricted
Subsidiary owned by the Company and the other
Restricted Subsidiaries if:
(A) such Transfer satisfies the
requirements of Section 6.12(a) hereof;
(B) in connection with such Transfer
the entire Investment (whether represented by
stock, Indebtedness, claims or otherwise) of
the Company and the other Restricted
Subsidiaries in such Restricted Subsidiary is
Transferred to a Person other than the
Company or a Restricted Subsidiary not being
simultaneously disposed of;
(C) the Restricted Subsidiary being
disposed of has no continuing Investment in
any other Restricted Subsidiary not being
simultaneously disposed of or in the Company;
and
(D) immediately before and after the
consummation of such Transfer, and after
giving effect thereto, no Default or Event of
Default would exist.
For purposes of determining the book value of Property
constituting Restricted Subsidiary Stock being Transferred as
provided in clause (iv) immediately above, such book value
shall be deemed to be the aggregate book value of the Property
of the Restricted Subsidiary that shall have issued such
Restricted Subsidiary Stock.
21
<PAGE> 25
9.11 TRANSACTIONS WITH AFFILIATES.
The Company's covenant with respect to Transactions with Affiliates
contained in Section 6.15 of the Original Note Purchase Agreement is hereby
replaced in its entirety with the following:
6.15 TRANSACTIONS WITH AFFILIATES.
The Company will not, and will not permit any
Restricted Subsidiary to, enter into any transaction,
including, without limitation, the purchase, sale or exchange
of Property or the rendering of any service, with any
Affiliate, except in the ordinary course of and pursuant to
the reasonable requirements of the Company's or such
Restricted Subsidiary's business and upon fair and reasonable
terms no less favorable to the Company or such Restricted
Subsidiary than would obtain in a comparable arm's-length
transaction with a Person not an Affiliate.
9.12 CONSOLIDATED EBITDA.
The following covenant shall be added as Section 6.19 of the Original
Note Purchase Agreement concerning achieving earnings:
6.19 CONSOLIDATED EBITDA.
Through the fiscal quarter ending December 31, 1997,
the Company will not at any time permit Consolidated EBITDA
for the period of four (4) consecutive fiscal quarters of the
Company, determined as of the end of each fiscal quarter of
the Company, to be less than the following amounts:
<TABLE>
================================================================================
<S> <C> <C> <C> <C> <C>
Quarter
Ended 12-31-96 3-31-97 6-30-97 9-30-97 12-31-97
- --------------------------------------------------------------------------------
Amount $4.0 $5.0 $7.1 $9.0 $11.0
(in millions)
================================================================================
</TABLE>
provided however, the non-cash charge related to the R.W.
Krajicek Note shall not be included in making these
calculations.
Following the fiscal quarter ending December 31, 1997, the
Company shall not permit Consolidated EBITDA for any period of
four (4) consecutive fiscal quarters of the Company to be less
than $11.0 million.
9.13 CONSOLIDATED CAPITAL EXPENDITURES.
The following covenant shall be added as Section 6.20 of the Original
Note Purchase Agreement concerning capital expenditures:
22
<PAGE> 26
6.20 CONSOLIDATED CAPITAL EXPENDITURES.
Through the fiscal quarter ending December 31, 1997,
the Company will not permit Consolidated Capital Expenditures
for each fiscal quarter to exceed the following amounts:
<TABLE>
================================================================================
<S> <C> <C> <C> <C> <C>
Quarter
Ended 12-31-96 3-31-97 6-30-97 9-30-97 12-31-97
- --------------------------------------------------------------------------------
Amount $250 $250 $250 $500 $500
(in
thousands)
================================================================================
</TABLE>
Following the fiscal quarter ending December 31, 1997, the
Company shall not permit Consolidated Capital Expenditures for
any fiscal quarter to exceed $500 thousand.
10. INFORMATION AND CERTIFICATES
The Company agrees that it shall continue to provide to the holders of
the Restated Senior Notes the information, certificates and access for
inspection that was to be provided to holders of the Original Senior Notes
pursuant to Article 7 of the Original Note Purchase Agreement, in addition to
the following.
10.1 ADDITIONAL FINANCIAL AND BUSINESS INFORMATION.
Subparagraphs (l) and (m) are added to Section 7.1 "Financial and
Business Information" as follows:
(l) MONTHLY STATEMENTS -- as soon as
practicable after the end of each monthly fiscal
period in each fiscal year of the Company (other than
the last monthly fiscal period of each fiscal quarter
of the Company) and in any event within forty (40)
days with respect to cash flows and with respect to
other reports within thirty (30) days, duplicate
copies of
(i) a consolidated balance sheet of the
Company and its subsidiaries and of the
Company and the Restricted Subsidiaries as at
the end of such month, and
(ii) consolidated statements of income,
changes in stockholders' equity and cash
flows of the Company and its subsidiaries and
of the Company and the Restricted
Subsidiaries for such month and for the
portion of the fiscal year ending with such
month,
23
<PAGE> 27
setting forth in each case in reasonable
detail, prepared in accordance with GAAP,
subject to changes resulting from year-end
adjustments.
(m) DUPLICATE REPORTS --
contemporaneously with transmitting required
financial and/or business reports to the Banks or
ABN, copies of the same.
11. EVENTS OF DEFAULT
Except as waived in Section 5.2 above and as specifically modified
below, all Events of Default and remedies shall apply to the Restated Senior
Notes as provided for the Original Senior Notes in Article 8 of the Original
Note Purchase Agreement.
11.1 NATURE OF EVENTS.
Section 8.1 of the Original Note Purchase Agreements is deleted in its
entirety and replaced with the following:
8.1 NATURE OF EVENTS.
An "Event of Default" shall exist if any of the
following occurs and is continuing:
(a) PRINCIPAL OR MAKE-WHOLE AMOUNT
PAYMENTS -- the Company shall fail to make any
payment of principal or Make-Whole Amount on any
Restated Senior Note on or before the date such
payment is due;
(b) INTEREST PAYMENTS -- the Company
shall fail to make any payment of interest on any
Restated Senior Note on or before the date such
payment is due;
(c) NON PAYMENT DEFAULTS -- the Company
or any Subsidiary shall fail to perform or observe
any covenant or the Company or any Subsidiary shall
fail to comply with any other provision hereof;
(d) DRAFTS ON ABN LETTERS OF CREDIT --
any draft or other demand for payment is made under
any ABN Letter of Credit;
(e) WARRANTIES OR REPRESENTATIONS -- any
warranty, representation or other statement by or on
behalf of the Company contained herein or in any
certificate or instrument furnished in compliance
with or in reference hereto shall have been false or
misleading in any material respect when made;
24
<PAGE> 28
(f) DEFAULT ON INDEBTEDNESS OR SECURITY
- --
(i) the Company or any Restricted
Subsidiary shall fail to make any payment on any
Indebtedness or any Security when due; or
(ii) any event shall occur or any
condition shall exist in respect of any Indebtedness
or any Security of the Company or any Restricted
Subsidiary, or under any agreement securing or
relating to any such Indebtedness or Security, that
immediately or with any one or more of the passage of
time or the giving of notice:
(A) causes (or permits any one or more
of the holders thereof or a trustee therefor
to cause) such Indebtedness or Security, or a
portion thereof, to become due prior to its
stated maturity or prior to its regularly
scheduled date or dates of payment; or
(B) permits any one or more of the
holders thereof or a trustee therefor to
require the Company or any Restricted
Subsidiary to repurchase such Indebtedness or
Security from such holder and any such holder
or trustee exercises (or attempts to
exercise) such right;
in all respects without giving effect to any
amendment or waiver thereof after the date hereof,
and provided that the aggregate amount of all
obligations in respect of all such Indebtedness and
Securities referred to in this clause (f) exceeds at
any time Five Hundred Thousand Dollars ($500,000);
(g) INVOLUNTARY BANKRUPTCY PROCEEDINGS --
(i) a receiver, liquidator, custodian or
trustee of the Company or any Restricted Subsidiary,
or of all or any part of the Property of either,
shall be appointed by court order and such order
shall remain in effect for more than sixty (60) days,
or an order for relief shall be entered with respect
to the Company or any Restricted Subsidiary, or the
Company or any Restricted Subsidiary shall be
adjudicated a bankrupt or insolvent;
(ii) any of the Property of the Company or
any Restricted Subsidiary shall be sequestered by
court order and such order shall remain in effect for
more than sixty (60) days; or
(iii) a petition shall be filed against the
Company or any Restricted Subsidiaries under any
bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law
of any jurisdiction, whether now or hereafter in
25
<PAGE> 29
effect, and shall not be dismissed within sixty (60)
days after such filing;
(h) VOLUNTARY PETITIONS -- the Company
or any Restricted Subsidiary shall file a petition in
voluntary bankruptcy or seeking relief under any
provision of any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction,
whether now or hereafter in effect, or shall consent
to the filing of any petition against it under any
such law;
(i) ASSIGNMENTS FOR BENEFIT OF
CREDITORS, ETC. -- the Company or any Restricted
Subsidiary shall make an assignment for the benefit
of its creditors, or admits in writing its inability,
or fails, to pay its debts generally as they become
due, or shall consent to the appointment of a
receiver, liquidator or trustee of the Company or any
Restricted Subsidiary or of all or any part of the
Property of either; or
(j) UNDISCHARGED FINAL JUDGMENTS -- a
final judgment or final judgments for the payment of
money aggregating in excess of Five Hundred Thousand
Dollars ($500,000) is or are outstanding against any
one or more of the Company and the Restricted
Subsidiaries and any one of such judgments shall have
been outstanding for more than thirty (30) days from
the date of its entry and shall not have been
discharged in full or stayed.
If any action, condition, event or other matter would, at any
time, constitute an Event of Default under any provision of
this Section 8.1, then an Event of Default shall exist,
regardless of whether the same or a similar action, condition,
event or other matter is addressed in a different provision of
this Section 8.1 and would not constitute an Event of Default
at such time under such different provision.
12. TERMS DEFINED
The following terms shall have the added or amended meanings to those
specified in Section 9.1 of the Original Note Purchase Agreement.
12.1 RESTRICTED INVESTMENTS.
The definition of "Restricted Investments" appearing at pages 56 and
57 of the Original Note Purchase Agreement is hereby amended by deleting
subparagraph (h) thereof appearing at page 57.
26
<PAGE> 30
12.2 CONSOLIDATED EBITDA.
Consolidated EBITDA - means, for any period, the consolidated pre-tax
income for such period, plus the aggregate amount which was deducted for such
period in determining consolidated pre-tax income in respect of interest
expense (including amortization of debt discount, imputed interest and
capitalized interest), plus depreciation and amortization, plus income
attributable to any minority interest in any Person, for so long as said Person
remains a Guarantor, provided, the calculations of EBITDA for the period up to
and including September 30, 1996, but not thereafter, shall be based on
consolidated, pre-tax income from continuing operations only and shall exclude
all special charges and non-recurring write downs; for periods after September
30, 1996 such calculations shall include all special charges and all
non-continuing operations.
12.3 CONSOLIDATED CAPITAL EXPENDITURES.
Consolidated Capital Expenditures - means all payments for or Debt
incurred in connection with fixed assets or improvements or for replacements,
substitutions or additions thereto, that have a useful life of more than one
year and which are required to be capitalized under GAAP.
12.4 R.W. KRAJICEK NOTE.
The R.W. Krajicek Note - means that certain promissory note to Richard
W. Krajicek payable by the Company, due November, 1999, bearing 8 percent
interest, given to satisfy the Company's obligation to pay the "short-fall" as
that term is used in paragraph 17 of that certain consulting agreement between
the Company and R. W. Krajicek dated August 9, 1995.
27
<PAGE> 31
Executed by the Company and the holders of all of the Original Senior
Notes as of the date above first written.
<TABLE>
<S> <C>
PRINCIPAL MUTUAL LIFE SERV-TECH, INC.
INSURANCE COMPANY
By: /s/ JOHN D. CLEAVENGER By: /s/ DAVID P. TUSA
-------------------------------------------- --------------------------------------------
Name: John D. Cleavenger, Counsel Name: David P. Tusa
------------------------------------------- ------------------------------------------
Title: Title: Senior Vice President
------------------------------------------ -----------------------------------------
By: /s/ STEPHEN G. SKRIVANEK
--------------------------------------------
Name: Stephen G. Skrivanek, Counsel
-------------------------------------------
Title:
------------------------------------------
TMG LIFE INSURANCE COMPANY
By: /s/ ROBERT R. LAPOINTE
--------------------------------------------
Name: Robert R. Lapointe
-------------------------------------------
Title: Vice President
------------------------------------------
By: /s/ MICHAEL J. CAREW
--------------------------------------------
Name: Michael J. Carew
-------------------------------------------
Title: Assistant Vice President
------------------------------------------
BERKSHIRE LIFE INSURANCE COMPANY
By: /s/ ELLEN I. WHITTAKER
--------------------------------------------
Name: Ellen I. Whittaker
-------------------------------------------
Title: Investment Officer
------------------------------------------
THE SECURITY MUTUAL LIFE INSURANCE COMPANY
By: /s/ KEVIN W. HAMMOND
--------------------------------------------
Name: Kevin W. Hammond
-------------------------------------------
Title: Vice President
------------------------------------------
Chief Investment Officer
------------------------------------------
</TABLE>
<PAGE> 32
EXHIBIT A
(FORM OF RESTATED SENIOR NOTE)
SERV-TECH, INC.
Restated Senior Note due June 15, 2003
No. R- (Place of Execution)
$ November 1, 1996
SERV-TECH, INC., a Texas corporation (the "Company"), for value
received, hereby promises to pay to or
registered assigns the principal sum of DOLLARS
($ ) on June 15, 2003 and to pay interest (computed on the basis of
a 360-day year of twelve 30-day months) on the unpaid principal balance thereof
on the first Business Day of each month beginning December 1, 1996 at the rate
of ten and one-half percent (10.50%) from November 1, 1996, through December
31, 1997, at the rate of ten and three quarters percent (10.75%) from January
1, 1998 through March 31, 1998, and at a rate that is one-quarter percent
(0.25%) greater than the rate for the preceding fiscal quarter, but not to
exceed eleven and one-half percent (11.50%) per annum, for each successive
fiscal quarter beginning after March 31, 1998 until the principal amount hereof
shall become due and payable or is fully repaid; and to pay on demand interest
on any overdue principal (including any overdue prepayment of principal) and
Make-Whole Amount, if any, and (to the extent permitted by applicable law) on
any overdue installment of interest, at a rate equal to the lesser of (a) the
highest rate allowed by applicable law and (b) thirteen and one-half percent
(13.50%) per annum.
Payments of principal, Make-Whole Amount, if any, and interest shall be
made in such coin or currency of the United States of America as at the time of
payment is legal tender for the payment of public and private debts to the
registered holder hereof at the address shown in the register maintained by the
Company for such purpose, in the manner provided in the Amended Note Purchase
Agreement (defined below).
This Note is one of an issue of Notes of the Company issued in an
aggregate principal amount limited to Fifteen Million Dollars ($15,000,000)
pursuant to the Company's Note Restructuring Amendment to Note Purchase
Agreements, dated as of November , 1996 (the "Note Restructuring Amendment"),
which amends the Company's separate Note Purchase Agreements, each dated as of
June 1, 1993 (collectively, and as amended by the Note Restructuring Amendment,
the "Amended Note Purchase Agreement"). This Note is entitled to the benefits
of the Amended Note Purchase
<PAGE> 33
Agreement and the terms thereof are incorporated herein by reference.
Capitalized terms used herein and not otherwise defined herein have the
meanings specified in the Amended Note Purchase Agreement. As provided in the
Amended Note Purchase Agreement, this Note is subject to prepayment in whole or
in part, in certain cases without a Make-Whole Amount and in other cases with a
Make-Whole Amount. The Company agrees to make required prepayments on account
of such Notes in accordance with the provisions of the Amended Note Purchase
Agreement.
This Note is a registered Note and is transferable only by surrender
thereof at the principal office of the Company as specified in the Amended Note
Purchase Agreement, duly endorsed or accompanied by a written instrument of
transfer duly executed by the registered holder of this Note or its attorney
duly authorized in writing.
Under certain circumstances, as specified in the Amended Note Purchase
Agreement, the principal of this Note (in certain cases together with any
applicable Make-Whole Amount) may be declared due and payable in the manner and
with the effect provided in the Amended Note Purchase Agreement.
THIS NOTE AND THE AMENDED NOTE PURCHASE AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, INTERNAL NEW YORK LAW.
SERV-TECH, INC.
By: _______________________________
Name: _______________________________
Title: _______________________________
-2-
<PAGE> 34
EXHIBIT B
PROPERTY TO BE ENCUMBERED
I. PERSONAL PROPERTY. The personal property of Serv-Tech, Inc. and certain
of its subsidiaries (collectively, the "Debtors" and individually, a "Debtor"),
including accounts, inventory, general intangibles, equipment, titled vehicles,
contracts, patents, trademarks, instruments, documents and capital stock, now
owned or hereafter acquired, and the products and proceeds of such collateral.
II. REAL PROPERTY. The real property of certain Debtors, and improvements
thereon, which property is located at:
A. 5200 Cedar Crest, City of Houston, Harris County, Texas
B. 6845 Dixie Drive, City of Houston, Harris County, Texas
C. 5722 Waltrip, City of Houston, Harris County, Texas
D. 5730 Waltrip, City of Houston, Harris County, Texas
E. 506 Nebraska, City of Houston, Harris County, Texas
F. 2104 Engineer's Road, City of Belle Chase, Parish of Plaquemines,
Louisiana
G. 456 Highlandia Drive, City of Baton Rouge, Parish of East Baton
Rouge, Louisiana
H. 330 Walcot Road, City of Westlake, Louisiana
<PAGE> 35
SAVE AND EXCEPT THE FOLLOWING:
Chemisolv Holdings, Inc.
Chemisolv, Inc.
Chemisolv, Ltd.
All assets of above companies.
Delta Maintenance, Inc.
Restrictive cash for securing insurance claims.
Seco Industries, Inc.
Restrictive cash for securing insurance claims.
Serv-Tech, Inc.
L.100,000 restrictive cash held for the account of Chemisolv Ltd. by
Royal Bank of Scotland (security for working capital loan).
Restrictive cash for securing insurance claims.
Serv-Tech EPC, Inc.
All assets of a certain division, Constructors and Fabricators.
All rights, contracts, agreements, documents and instruments related directly
or indirectly to the FINCHAA Project.
<PAGE> 36
EXHIBIT C
COLLATERAL DOCUMENTATION LIST
I. SECURITY AGREEMENT. A Security Agreement dated as of November 12, 1996,
executed by Serv-Tech, Inc. and certain subsidiaries of Serv-Tech, Inc.
(collectively, the "Debtors" or individually, a "Debtor") for the benefit of
Texas Commerce Bank National Association
II. CERTIFICATES OF TITLE. Certificates of title covering titled vehicles
registered to certain Debtors under the Texas Certificate of Title act or
similar law other jurisdictions
III. UCC FINANCING STATEMENTS. Individual UCC Financing statements in the
name of each Debtor, to be filed centrally in all of the jurisdictions in which
such Debtor has ongoing operations
IV. DEEDS OF TRUST AND MORTGAGES. Deed of trust and mortgages encumbering
the real property of certain Debtors, and improvements thereon, which property
is located at:
A. 5200 Cedar Crest, City of Houston, Harris County, Texas
B. 6845 Dixie Drive, City of Houston, Harris County, Texas
C. 5722 Waltrip, City of Houston, Harris County, Texas
D. 5730 Waltrip, City of Houston, Harris County, Texas
E. 506 Nebraska, City of Houston, Harris County, Texas
F. 2104 Engineer's Road, City of Belle Chase, Parish of Plaquemines,
Louisiana
G. 456 Highlandia Drive, City of Baton Rouge, Parish of East Baton
Rouge, Louisiana
H. 330 Walcot Road, City of Westlake, Louisiana
<PAGE> 37
EXHIBIT D
SCHEDULE OF RESTATED SENIOR NOTES WITH PAYEES
<TABLE>
<CAPTION>
Note Principal
Payee Registration No. Amount
----- ---------------- -----------
<S> <C> <C>
Principal Mutual Life Insurance Company R-_ $12,000,000
Principal Mutual Life Insurance Company R-_ $ 1,000,000
TMG Life Insurance Company R-_ $ 750,000
Berkshire Life Insurance Company R-_ $ 750,000
The Security Mutual Life Insurance Company R-_ $ 500,000
</TABLE>
D-1
<PAGE> 38
EXHIBIT E
FORM OF CLOSING OPINION FROM
COMPANY'S COUNSEL
<PAGE> 39
EXHIBIT F
SECRETARY'S CERTIFICATE
SERV-TECH, INC.
I, _______________________, hereby certify that I am the duly elected,
qualified and acting Secretary of SERV-TECH, INC., a Texas corporation (the
"Company"), and that, as such, I have access to its corporate records and am
familiar with the matters certified herein, and I am authorized to execute and
deliver this certificate in the name and on behalf of the Company, and that:
1. This certificate is being delivered pursuant to SECTION
6.2(g) of the Company's Note Restructuring Amendment to Note Purchase
Agreements, dated as of November __, 1996 (the "Note Restructuring
Amendment"), with the Noteholders listed therein (the "Noteholders").
The terms used in this certificate and not defined herein have the
respective meanings specified in the separate Note Purchase Agreements,
each dated as of June 1, 1993 (collectively, the "Original Note
Purchase Agreement," and, as amended by the Note Restructuring
Agreement, the "Amended Note Purchase Agreement"), with the
Noteholders.
2. Attached hereto as Attachment A is a true and correct
copy of resolutions, and the preamble thereto, adopted by the Board of
Directors on November 7, 1996, and such resolutions and preamble set
forth in Attachment A hereto were duly adopted by the Board of
Directors and are in full force and effect on and as of the date
hereof, not having been amended, altered or repealed, and such
resolutions are filed with the records of the Board of Directors.
3. The documents listed below were executed and delivered
by the Company pursuant to and in accordance with the resolutions set
forth in Attachment A hereto and such documents as executed are
substantially in the form submitted to and approved by the board of
directors of the Company as aforementioned:
(a) The Note Restructuring Amendment, providing for
the amendment of the Original Note Purchase Agreement and the
issuance by the Company of its Restated Senior Notes due June
15, 2003 (the "Restated Senior Notes"); and
(b) the Restated Senior Notes; and
(c) The Security Agreement, Deeds of Trust and
Mortgages, pursuant to which the Company and certain affiliates
of the Company pledge collateral as security for the company's
obligations under the Amended Note Purchase Agreement.
<PAGE> 40
4. Except as provided in the documents attached hereto as
Attachment B, the bylaws of the Company have been in full effect in
their present form at all times from June 22, 1993 to the date hereof,
inclusive, without modification or amendment in any respect.
5. Each of the following named persons is and has been a
duly elected, qualified and acting officer of the Company holding the
office or offices set forth below opposite such person's name and has
been duly authorized to execute the Note Restructuring Amendment and
each other document to be executed and delivered in connection with the
execution and delivery of the Note Restructuring Amendment:
<TABLE>
<CAPTION>
Name Office Signature
- ---- ------ ---------
<S> <C> <C>
- ------------------------------ ------------------------- --------------------
- ------------------------------ ------------------------- --------------------
</TABLE>
6. The signature appearing opposite the name of each such
person set forth above is such person's genuine signature.
7. Attached hereto as Attachment [C] is a good standing
certificate with respect to the Company from the State of Texas dated
October 16, 1996.
8. Except as provided in the documents attached hereto as
Attachment D, there have been no amendments or supplements to or
restatements of the articles of incorporation of the Company from June
22, 1993 to the date hereof, inclusive.
IN WITNESS WHEREOF, I have executed this certificate in the name and on
behalf of the Company on November __, 1996.
SERV-TECH, INC.
By:
---------------------------------
Name:
-------------------------------
Secretary
-2-
<PAGE> 41
OFFICER'S CERTIFICATE
SERV-TECH, INC. AFFILIATES
I, David Tusa, hereby certify that I am the duly elected, qualified and
acting executive officer of each of the undersigned companies (collectively,
the "Companies," or individually, a "Company"), and that, as such, I have
access to their corporate records and am familiar with the matters certified
herein, and I am authorized to execute and deliver this certificate in the name
and on behalf of the Companies, and that:
1. This certificate is being delivered in connection with the
Companies' execution of four separate Guaranty Agreements (the "Guaranty
Agreements"), in favor of Principal Mutual Life Insurance Company, TMG
Life Insurance Company, Berkshire Life Insurance Company and The
Security Mutual Life Insurance Company (collectively, the
"Noteholders"), respectively, pursuant to which the Companies jointly
and severally guarantee the performance of certain obligations of
Serv-Tech, Inc. (the "Borrower") to the Noteholders.
2. Attached hereto as Attachment E are true and correct copies
of resolutions, and the preambles thereto, separately adopted by the
Board of Directors of each Company, and such resolutions and preambles
were duly adopted by each Company's Board of Directors and are in full
force and effect on and as of the date hereof, not having been amended,
altered or repealed, and such resolutions are filed with the records of
each Company's Board of Directors.
3. The Guaranty Agreements were executed and delivered by the
Companies pursuant to and in accordance with the resolutions attached
hereto and, as executed, are substantially in the form submitted to and
approved by the Board of Directors of each Company as aforementioned.
4. The signature appearing above the name of each person named
in the resolutions set forth in Attachment E is such person's genuine
signature.
<PAGE> 42
IN WITNESS WHEREOF, I have executed this certificate in the name and on
behalf of the Companies on November __, 1996.
COMPANIES:
ADVANCED REFRACTORY SERVICES, INC.
AMERICAN MECHANICAL SERVICES, INC.
CASTING CONCEPTS, INC.
CON-SEAL, 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.
ST PIPING, INC.
TOTAL REFRACTORY SYSTEMS, INC.
TURNAROUND MAINTENANCE, INC.
UNITED INDUSTRIAL MATERIALS, INC.
By:
---------------------------------------
Name: David Tusa
Title: Vice President
SECO INDUSTRIES, INC.
SERV-TECH ENGINEERS, INC.
SERV-TECH EPC, INC.
By:
---------------------------------------
Name: David Tusa
Title: Senior Vice President of
Finance and Administration
PRS HOLDING, INC.
By:
---------------------------------------
Name: David Tusa
Title: Senior Vice President
-2-
<PAGE> 43
DELTA MAINTENANCE, INC.
PETRO RECOVERY SYSTEMS, INC.
SERV-TECH CONSTRUCTION AND MAINTENANCE, INC.
(FORMERLY SERV TECH EPC - HOUSTON, INC.)
SERV-TECH OF NEW MEXICO, INC.
SERV-TECH SERVICES, INC.
TERMINAL TECHNOLOGIES, INC.
TIPCO ACQUISITION CORP.
By:
---------------------------------------
Name: David Tusa
Title: President
-3-
<PAGE> 44
EXHIBIT G
OFFICERS' CLOSING CERTIFICATE
SERV-TECH, INC.
We, __________________________ and _______________________, each hereby
certify that we are, respectively, the _______________________________ and the
________________________________ of SERV-TECH, INC., a Texas corporation (the
"Company"), and that, as such, we have access to its corporate records and are
familiar with the matters certified herein, and we are authorized to execute
and deliver this certificate in the name and on behalf of the Company, and that:
1. This certificate is being delivered pursuant to SECTION
6.2(h) of the Company's Note Restructuring Amendment to Note Purchase
Agreements, dated as of November __, 1996 (the "Note Restructuring
Agreement"), with the Noteholders listed therein (the "Noteholders").
The terms used in this certificate and not defined herein have the
respective meanings specified in the separate Note Purchase Agreements,
each dated as of June 1, 1993 (collectively, the "Note Purchase
Agreement"), with each of the purchasers listed in Annex 1 thereto, as
amended by the Note Restructuring Amendment.
2. Except as disclosed and waived pursuant to SECTION 5.2 of
the Note Restructuring Amendment, the warranties and representations
contained in SECTION 2 of the Note Purchase Agreement and in SECTION 7
of the Note Restructuring Amendment are true in all material respects on
the date hereof with the same effect as though made on and as of the
date hereof.
3. The Company has performed and complied with all agreements
and conditions contained in the Note Purchasing Agreement and the Note
Restructuring Amendment that are required to be performed or complied
with by the Company before or at the date hereof, except as disclosed
and waived.
4. _________________________, from June 22, 1993 to the date
hereof, inclusive, has been and is the duly elected, qualified and
acting Secretary of the Company, and the signature appearing on the
Certificate of Secretary dated the date hereof and delivered to the
Noteholders contemporaneously herewith is such person's genuine
signature.
<PAGE> 45
IN WITNESS WHEREOF, we have executed this certificate in the name and
on behalf of the Company on November __, 1996.
SERV-TECH, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
-2-
<PAGE> 46
EXHIBIT H
LIST OF AFFILIATES FOR WHICH
GOOD STANDING CERTIFICATES
HAVE BEEN DELIVERED
<PAGE> 47
FINANCIAL STATEMENTS
SERV-TECH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- ------------
(unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS;
Cash and cash equivalents........................................................ $ - $ 287,356
Accounts receivable, net......................................................... 31,417,263 31,941,127
Costs and estimated earnings in excess of billings on uncompleted contracts...... 1,958,757 2,111,396
Inventory........................................................................ 2,255,765 1,700,462
Prepaid expenses................................................................. 1,105,657 768,161
Deferred income taxes............................................................ 4,241,425 4,345,398
Net current assets from discontinued operations.................................. 9,289,150 16,865,749
----------- ------------
Total current assets........................................................... 50,268,017 58,019,649
PROPERTY, PLANT AND EQUIPMENT, NET................................................. 27,009,012 29,325,986
INTANGIBLE ASSETS, NET............................................................. 14,552,276 14,748,088
OTHER ASSETS....................................................................... 2,844,592 1,884,763
DEFERRED INCOME TAXES.............................................................. 433,040 -
NET NON-CURRENT ASSETS, DISCONTINUED OPERATIONS.................................... 1,968,702 3,623,219
----------- ------------
Total assets................................................................... $97,875,639 $107,601,705
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................................. $13,712,242 $ 13,295,347
Accrued liabilities.............................................................. 14,103,082 13,545,808
Billings in excess of costs and estimated earnings on uncompleted contracts...... 387,084 359,415
Revolving line of credit......................................................... 14,500,000 6,500,000
Income taxes payable............................................................... - 295,865
Other.............................................................................. 545,507 207,732
----------- ------------
Total current liabilities...................................................... 43,247,915 34,204,167
LONG-TERM DEBT, LESS CURRENT MATURITIES............................................ 15,170,000 15,170,000
DEFERRED INCOME TAXES.............................................................. - 4,812,740
MINORITY INTEREST.................................................................. 534,456 484,952
CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY:
Preferred stock, $1 par value; 2,000,000 shares authorized; no shares issued
and outstanding................................................................ - -
Common stock, par value $.50, authorized 20,000,000 shares; issued and
outstanding shares of 6,806,849 and 6,752,671, respectively.................... 3,403,425 3,376,336
Additional paid-in capital....................................................... 43,817,584 43,489,763
Retained earnings (deficit)...................................................... (7,185,958) 7,675,586
Treasury stock, at cost, 120,606 and 193,358 shares, respectively................ (961,816) (1,546,857)
Cumulative translation adjustment................................................ (149,967) (64,982)
----------- ------------
Total stockholders' equity..................................................... 38,923,268 52,929,846
----------- ------------
Total liabilities and stockholders' equity..................................... $97,875,639 $107,601,705
=========== ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-3-
<PAGE> 48
SERV-TECH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------------- ----------------------------
1996 1995 1996 1995
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues ............................................ $ 38,471,348 $45,876,770 $ 71,581,267 $106,201,050
Costs of services ................................... 30,752,085 37,569,722 56,362,019 87,076,932
------------ ----------- ------------- ------------
Gross profit ...................................... 7,719,263 8,307,048 15,219,248 19,124,118
Selling, general and administrative expenses ........ 11,684,617 7,888,115 18,829,266 16,185,301
------------ ----------- ------------ ------------
Operating income (loss) ........................... (3,965,354) 418,933 (3,070,018) 2,938,817
Other income (expense):
Interest expense .................................. (527,704) (501,833) (1,070,268) (914,395)
Interest income .................................. 39,926 12,375 50,730 40,059
Other, net ........................................ (34,825) 44,025 (24,727) 113,342
------------ ----------- ------------- ------------
(522,603) (445,433) (1,044,265) (760,994)
------------ ----------- ------------- -----------
Minority interest ................................... (14,532) (55,891) (49,504) (369,279)
Equity in earnings of affiliates .................... - - - (24,331)
------------ ----------- ------------- ------------
Pre-tax earnings (loss) from continuing operations .. (4,502,489) (82,391) (4,163,887) 1,784,213
Income tax benefit (expense) ........................ 1,175,000 (4,000) 1,036,000 (911,000)
Net income (loss) from continuing operations ........ (3,327,489) (86,391) (3,127,787) 873,213
Income (loss) from discontinued operations,
net of income taxes ............................... (6,178,334) 752,679 (7,407,208) 1,310,397
Estimated loss on disposal of discontinued
operations, net of tax benefit .................... (4,326,546) - (4,326,546) -
------------ ----------- ------------ ------------
Net income (loss) ................................... (13,832,369) 666,288 (14,861,541) 2,183,610
============ =========== ============ ============
Earnings (loss) per share from continuing
operations ........................................ (0.50) (0.01) (0.47) 0.13
Earnings (loss) per share from discontinued
operations ........................................ (1.57) 0.11 (1.76) 0.19
------------ ----------- ------------ ------------
Net income (loss) per share ......................... (2.07) 0.10 (2.23) 0.32
============ =========== ============ ============
Weighted average common shares outstanding .......... 6,672,561 6,734,343 6,650,039 6,726,574
============ =========== ============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
-4-
<PAGE> 49
SERVE-TECH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
for the six months ended June 30, 1996 and 1995
(unaudited)
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) from continuing operations...... $(3,127,787) $ 873,213
Adjustments:
Depreciation and amortization..................... 3,030,054 3,133,559
Provision for losses on accounts and notes
receivable...................................... 48,775 382,648
Deferred income taxes............................. (1,036,000) (532,542)
Non-cash charges.................................. 1,387,207 -
Equity in losses of affiliates.................... - 24,331
Minority interest................................. 49,504 369,279
Other............................................. 94,609 96,781
----------- -----------
446,362 4,347,269
Change in assets and liabilities, not of effect
from acquisitions of businesses:
Accounts receivable............................ 475,089 (6,838,688)
Net change in costs, estimated earnings and
billings on uncompleted contracts............ 180,308 176,677
Inventory...................................... (555,303) (758,065)
Prepaid expenses and other current assets...... (337,495) 268,227
Other assets................................... (959,829) (707,052)
Accounts payable............................... 416,895 3,969,572
Accrued liabilities............................ 355,710 (265,775)
----------- -----------
Net cash provided by operating activities.... 21,737 192,165
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................ (1,085,853) (1,423,125)
Payments to discontinued operations............. (7,100,000) (4,400,000)
Investments in and advances to affiliates....... - (290,263)
Acquisition of businesses, net of cash
acquired...................................... - (625,514)
Intangible assets............................... (328,957) (67,530)
Proceeds from disposition of property, plant
and equipment................................. - 140,000
----------- -----------
Net cash used in investing activities........ (8,514,810) (6,666,432)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt.................. 13,756,450 13,000,000
Principal payments of debt...................... (5,550,733) (7,827,472)
----------- -----------
Net cash provided by financing activities.... 8,205,717 5,172,528
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS...................................... (287,356) (1,301,739)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD... 287,356 1,301,739
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD......... $ - $ -
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
-5-
<PAGE> 50
ANNEX 2
INDEBTEDNESS OF COMPANY AND RESTRICTED SUBSIDIARIES**
PAGE 1 OF 6
<TABLE>
<CAPTION>
Continued Operations Balance at Current
Notes Payable: Description 9/30/96 Portion Collateral
- -------------------- ----------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Associate Leasing Promissory Note $ 8,744 $ 8,744 Secured - Equipment
Associate Leasing Promissory Note 8,744 8,744 Secured - Equipment
Control and Inspection
Services, Inc. Promissory Note 212,500 42,500 Unsecured
Security Mutual Life
Insurance Co. Promissory Note 500,000 0 Secured
Berkshire Life Insurance
Co. Promissory Note 750,000 0 Secured
TMG Life Insurance Co. Promissory Note 750,000 0 Secured
Principal Mutual Life
Insurance Co. Promissory Note 1,000,000 0 Secured
Principal Mutual Life
Insurance Co. Promissory Note 12,000,000 0 Secured
Texas Commerce Bank Advances Under
Loan Agreement 14,500,000 14,500,000 Secured
----------- -----------
SUBTOTAL $29,729,988 $14,559,988
=========== ===========
</TABLE>
** Includes Annex 2 Supplement
<PAGE> 51
PAGE 2 OF 6
<TABLE>
<CAPTION>
Discontinued Operations Balance at Current
Notes Payable: Description 9/30/96 Portion Collateral
- ----------------------- ----------- ---------- ------- ----------
<S> <C> <C> <C> <C>
F.C. Schaffer Arkel Bonus Promissory Note $ 34,199 $ 34,199 Unsecured
F.C. Schaffer Children Promissory Note 24,500 24,500 Unsecured
F.C. Schaffer (LAFLACA) Promissory Note 102,135 102,135 Unsecured
F.C. Schaffer Promissory Note 20,500 20,500 Unsecured
Safeline Leasing Promissory Note 11,927 8,943 Secured - Equipment
Constructors &
Fabricators, Inc. Promissory Note 1,425,000 237,500 Secured - Accounts
----------- ----------- Receivable, Equipment
SUBTOTAL $ 1,618,261 $ 427,777
=========== ===========
</TABLE>
<PAGE> 52
PAGE 3 OF 6
<TABLE>
<CAPTION>
Continued Operations Balance at Current
Guaranties: Description 9/30/96 Portion Collateral
- -------------------- ----------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Royal Bank of Scotland Overdraft Facility for 285,366* 285,366* Restricted Cash from
Chemisolv, Ltd. Serv-Tech, Inc.,
secured by A/R
and equipment
----------- -----------
SUBTOTAL $ 285,366* $ 286,366*
*Exchange rate of 1.563L. to
U.S. $ at 9/30/96
TOTAL $31,633,615 $15,273,131
=========== ===========
</TABLE>
<PAGE> 53
PAGE 4 OF 6
LETTERS OF CREDIT:
ABN-AMRO Bank
F. C. Schaffer & Associates, Inc.
Finchaa Project
Letters of Credit @ 9/30/96
<TABLE>
<CAPTION>
U.S $
Beneficiary Description of L/C Commitment L/C No. Issue Date Term Date Commitment
- ----------- ------------------ ---------- ------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Finchaa Sugar Factory Performance-Birr ETB 7,540,406 S601225 11/01/94 40 months $1,391,218.82
Finchaa Sugar Factory Performance-USD $ 7,001,681 S601224 11/01/94 40 months 7,001,681.00
Finchaa Sugar Factory Advance Payment-USD $ 4,845,435 S601241 11/17/94 28 months 4,845,435.00
Finchaa Sugar Factory Advance Payment-Birr ETB10,607,124 S601242 11/17/94 28 months 1,975,033.95
--------------
Total $15,195,368.77
==============
(Exchange Rate of ETB 5.42/$1 approx. @8/31/96)
</TABLE>
<PAGE> 54
Page 5 of 6
LETTERS OF CREDIT:
Texas Commerce Bank
Revolving Credit Line $35,000,000
September 30, 1996
<TABLE>
<CAPTION>
EXPIRATION DESCRIPTION U.S. $ EXPIRATION
BENEFICIARY APPLICANT DATE OF L/C L/C NO. COMMITMENT COMMITMENT DATE
- ----------- --------- ---------- ----------- ------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
National Union Fire Workers' Comp 11/01/97 w/
Insurance Co. STI Standby Insurance I-412953 $ 382,000.00 $ 382,000.00 renewals
National Union Fire Workers' Comp 06/30/97 w/
Insurance Co. STI Standby Insurance I-420972 224,000.00 224,000.00 renewals
National Union Fire Workers' Comp 11/26/96 w/
Insurance Co. STI Standby Insurance I-429895 790,000.00 790,000.00 renewals
Liberty Mutual Workers' Comp 05/26/97 w/
Insurance Co. STI Standby Insurance I-438893 500,000.00 500,000.00 renewals
National Union Fire Workers' Comp 01/01/97 w/
Insurance Co. STI Standby Insurance I-451142 613,266.00 613,266.00 renewals
Westdeutsche Indus- WIV Guarantee 03/31/97 w/
trienstandhaltungs STI- Standby L. Bauch I-444335 FF 2,230,000.00 429,300.21 renewals
Eur.
National Union Fire Workers' Comp 06/01/97 w/
Insurance Co. STI Standby Insurance I-447624 1,601,016.00 1,601,016.00 renewals
National Union Fire Workers' Comp 06/01/97 w/
Insurance Co. SECO Standby Insurance I-448690 113,000.00 113,000.00 renewals
Coastal Aruba Performance
Refining Co. NC ST EPC Standby Guarantee I-458218 301,485.00 301,485.00 12/18/96
-------------
$4,954,067.21
</TABLE>
<PAGE> 55
PAGE 6 OF 6
COMMERCIAL LETTERS OF CREDIT FOR
FINCHAA PROJECT:
Whitney National Bank
September 30, 1996
<TABLE>
<CAPTION>
TYPE ISSUANCE TOTAL EXPIRY AMOUNT
BENEFICIARY APPLICANT L/C DESCRIPTION DATE L/C NO. COMMITMENT DATE REMAINING
- ----------- --------- ---- ----------- -------- ------- ---------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Allis Mineral Sys. F.C. Schaffer Comml PO# FA000209 07/13/95 C33280 $ 250,000.00 01/20/96 $ 0.00
Hindustan Dorr-
Oliver F.C. Schaffer Comml PO# FA000216 07/13/95 C33281 546,442.50 04/21/96 0.00
Varco Pruden Bldg. F.C. Schaffer Comml PO# FA000206 07/13/95 C33282 133,120.70 02/22/96 0.00
Western States
Machine F.C. Schaffer Comml PO# FA000213 07/13/95 C33283 761,696.90 01/31/96 0.00
Zurn Indus., Inc. F.C. Schaffer Comml PO# FA000207 07/13/95 C33284 2,413,610.50 11/15/96 241,361.05
Codistil S/A Dedini F.C. Schaffer Comml PO# FA000241 09/13/95 C33375 2,523,542.00 06/30/96 0.00
Dresser Rand F.C. Schaffer Comml PO# FA000247 10/25/95 C33455 565,122.00 09/06/96 282,561.00
Dearborn Mid-West
Conveyor F.C. Schaffer Comml PO# FA000612 05/17/96 C33808 628,349.75 11/30/96 628,349.75
Paharpur Cooling
Towers Ltd. F.C. Schaffer Comml PO# FA000635 05/17/96 C33807 15,095.00 10/16/96 15,095.00
Surrendra Engr. F.C. Schaffer Comml PO# FA000238,205 05/22/96 C33815 1,284,600.00 10/06/96 1,180,740.00
Standard Serv. &
Consultant F.C. Schaffer Comml PO# FA000657,658,
666 08/23/96 C34017 255,288.75 11/10/96 255,288.75
------------- -------------
TOTAL $9,376,868.10 $2,603,395.55
============= =============
</TABLE>
<PAGE> 56
ANNEX II SUPPLEMENT
Indebtedness
All indebtedness and obligations of every kind directly or indirectly
arising pursuant to or evidenced by any and all of the following agreements and
instruments, including all attachments, exhibits and schedules to any of them,
as the same may be amended from time to time:
1. Note Restructure Amendment to Note Purchase Agreements dated as of
November 12, 1996 among Serv-Tech, Inc., Principal Mutual Life Insurance
Company, TMG Life Insurance Company, The Security Mutual Life Insurance
Company, and Berkshire Life Insurance Company.
2. Restated Senior Note due June 15, 2003, No. R- , issued as of
November 12, 1996 in the original principal amount of $12,000,000 in favor of
Principal Mutual Life Insurance Company.
3. Restated Senior Note due June 15, 2003, No. R- , issued as of
November 12, 1996 in the original principal amount of $1,000,000 in favor of
Principal Mutual Life Insurance Company.
4. Restated Senior Note due June 15, 2003, No. R- , issued as of
November 12, 1996 in the original principal amount of $750,000 in favor of
Berkshire Life Insurance Company.
5. Restated Senior Note due June 15, 2003, No. R- , issued as of
November 12, 1996 in the original principal amount of $500,000 in favor of
The Security Mutual Life Insurance Company.
6. Restated Senior Note due June 15, 2003, No. R- , issued as of
November 12, 1996 in the original principal amount of $750,000 in favor of
TMG Life Insurance Company.
7. Guaranty dated as of November 12, 1996 by Serv-Tech, Inc. and certain
subsidiaries thereof in favor of Principal Mutual Life Insurance Company.
8. Guaranty dated as of November 12, 1996 by Serv-Tech, Inc. and certain
subsidiaries thereof in favor of TMG Life Insurance Company.
<PAGE> 57
9. Guaranty dated as of November 12, 1996 by Serv-Tech, Inc. and certain
subsidiaries thereof in favor of The Security Mutual Life Insurance Company.
10. Guaranty dated as of November 12, 1996 by Serv-Tech, Inc. and certain
subsidiaries thereof of Berkshire Life Insurance Company.
11. First Amended and Restated Credit Agreement $23,500,000 Reducing
Revolving Credit Loan dated as of November 12, 1996 among Serv-Tech, Inc.,
certain subsidiaries thereof, and Texas Commerce Bank National Association.
12. Revolving Credit Note dated November 12, 1996 by Serv-Tech, Inc. issued
to Texas Commerce Bank National Association in the original principal amount of
$12,786,050.
13. Revolving Credit Note dated November 12, 1996 by Serv-Tech, Inc. issued
to Bank One, Texas, NA in the original principal amount of $6,713,950.
14. Security Agreement dated November 12, 1996 by Serv-Tech, Inc. and
certain subsidiaries thereof for the benefit of Texas Commerce Bank National
Association.
15. Deed of Trust, Security Agreement, Fixtures Financing Statement and
Assignment of Rents and Leases dated as of November 12, 1996 from Serv-Tech,
Inc. and certain subsidiaries thereof to David L. Mendez as trustee for the
benefit of Texas Commerce Bank National Association.
16. Deed of Trust, Security Agreement, Fixtures Financing Statement and
Assignment of Rents and Leases dated as of November 12, 1996 from Hartney
Industrial Services Corporation thereof to David L. Mendez as trustee for the
benefit of Texas Commerce Bank National Association.
17. Deed of Trust, Security Agreement, Fixtures Financing Statement and
Assignment of Rents and Leases dated as of November 12, 1996 from Total
Refractory Systems, Inc. thereof to David L. Mendez as trustee for the
benefit of Texas Commerce Bank National Association.
18. Mortgage, Security Agreement & Fixtures Financing Statement dated as of
November 12, 1996 from Serv-Tech, Inc. to Texas Commerce Bank National
Association.
2
<PAGE> 58
19. Mortgage, Security Agreement & Fixtures Financing Statement dated as of
November 12, 1996 from SECO Industries, Inc. to Texas Commerce Bank National
Association.
20. Intercredit Agreement dated as of November 12, 1996 among Principal
Mutual Life Insurance Company, TMG Life Insurance Company, The Security Mutual
Life Insurance Company, and Berkshire Life Insurance Company.
21. Amended and Restated Continuing Reimbursement Agreement dated as of
November 12, 1996 between ABN AMRO Bank N.V. and F.C. Schaffer & Associates,
Inc.
22. Amended and Restated Guaranty dated as of November 12, 1996 by
Serv-Tech, Inc. and certain subsidiaries thereof.
<PAGE> 59
LIENS
Attached are the known UCC filings for the Company and subsidiaries. The
following exceptions to these filings are listed below.
1. The UCC filing by Litwin Engineers and Constructors, Inc. is to be
terminated. The project was completed last year and all parties paid. We
have requested Litwin to issue the termination.
2. The UCC filings by Serv-Tech, Inc. (STI) as the Secured Party were placed at
the time STI acquired the Hartney Companies for an existing debt owed to
STI.
3. All of the UCC filings for F. C. Schaffer and Associates represents the
activities of the non-core business which was purchased by the Schaffer
principals as indicated by the enclosed Assignment, Bill of Sale, Conveyance
and Assumption, and Stock Purchase Agreement. This represents assets and
liabilities which were not assumed by Serv-Tech in the Schaffer acquisition.
Exhibit A to the assignment represents the Assets and Liabilities that were
acquired in the Agreement.
4. All other UCC filings are for various equipment purchases, to include phone
and computer equipment in the ordinary course of business.
<PAGE> 60
EXISTING LIENS
<TABLE>
<CAPTION>
Debtor Secured Party Filing UCC
or Lessee or Lessor Jurisdiction Recordation
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
United Industrial Best Material Handling, Inc. Texas/ No. 93-043792
Materials, Inc. 5450 Navigation Secretary of March 5, 1993
6845 Dixie Drive Houston, TX 77011 the State
Houston, TX 77087
- --------------------------------------------------------------------------------------------------
Serv-Tech, Inc. MetLife Capital, Limited Texas/ No. 92-200577
5200 Cedar Crest Blvd. Partnership Secretary of October 14, 1992;
Houston, TX 77087 C-97550 the State Amended by
Bellevue, WA 98009 No. 92-75812
December 10, 1992
- --------------------------------------------------------------------------------------------------
Serv-Tech, Inc. Commercial Equipment Texas/ No. 93-259927
5200 Cedar Crest Blvd. Leasing Co., Inc. Secretary of February 8, 1993
Houston, TX 77087 745 E. Mulberry, Suite 210 the State
San Antonio, TX 78212
- --------------------------------------------------------------------------------------------------
Serv-Tech, Inc. Toshiba America Texas/ No. 95-058119
5200 Cedar Crest Blvd. Information Systems, Inc. Secretary of March 24, 1995
Houston, TX 77087 6333 Edgewood Road NE the State
Cedar Rapids, IA 52411
- --------------------------------------------------------------------------------------------------
Serv-Tech, Inc. Comdisco, Inc. Texas/ No. 95-0069556
5200 Cedar Crest Blvd. 6111 E. River Road Secretary of April 12, 1995
Houston, TX 77087 Rosemont, IL 60018; the State Amended by;
and Assigned to No. 95-670281
The CIT Group/Equipment June 8, 1995;
Financing, Inc. Assigned to CIT by
1620 Fountainhead No. 95-670280
Parkway, Suite 600 June 8, 1995
Tempe, Arizona 85282
- --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 61
<TABLE>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Delta Maintenance, Inc. ORIX Credit Alliance, Inc. Louisiana/ No. 09-91303
9191 Veterans 9400 SW Barner Rd. #200 Caddo Parish April 26, 1993
Memorial Blvd. Portland, OR 97225-6655
Baton Rouge, LA 70821 Tax ID No. 13-2507476
Tax ID No. 72-0719253
- ---------------------------------------------------------------------------------------------------
F.C. Schaeffer & Valley Sugar Properties, Inc. Texas/ No. 91-230202
Associates, d.b.a. Belle P.O. Box 120 Secretary of December 2, 1991
Ricker Farms, Inc. White Castle, LA 70788 the State
1020 Florida Blvd.
Baton Rouge, LA 70802
- ---------------------------------------------------------------------------------------------------
F.C. Schaeffer & Valley Sugar Properties, Inc. Texas/ No. 91-230203
Associates, d.b.a. P.O. Box 120 Secretary of December 2, 1991
LaFlaca Cane Farms, Inc. White Castle, LA 70788 the State
1020 Florida Blvd.
Baton Rouge, LA 70802
- ---------------------------------------------------------------------------------------------------
F.C. Schaeffer & Valley Sugar Properties, Inc. Texas/ No. 91-230204
Associates, d.b.a. GHD P.O. Box 120 Secretary of December 2, 1991
Corporation . White Castle, LA 70788 the State
1020 Florida Blvd.
Baton Rouge, LA 70802
- ---------------------------------------------------------------------------------------------------
Laflaca Cane Farms, Inc. Valley Sugar Properties, Inc. Texas/ No. 92-146246
1020 Florida Blvd. P.O. Box 120 Secretary of July 23, 1992
Baton Rouge, LA 70802 White Castle, LA 70788 the State
- ---------------------------------------------------------------------------------------------------
GHD Corporation Valley Sugar Properties, Inc. Texas/ No. 92-146247
1020 Florida Blvd. P.O. Box 120 Secretary of July 23, 1992
Baton Rouge, LA 70802 White Castle, LA 70788 the State
- ---------------------------------------------------------------------------------------------------
Belle Ricker Farms, Inc. Valley Sugar Properties, Inc. Texas/ No. 92-146248
1020 Florida Blvd. P.O. Box 120 Secretary of July 23, 1992
Baton Rouge, LA 70802 White Castle, LA 70788 the State
- ---------------------------------------------------------------------------------------------------
F.C. Schaeffer & Valley Sugar Properties, Inc. Texas/ No. 92-146249
Associates, Inc. P.O. Box 120 Secretary of July 23, 1992
1020 Florida Blvd. White Castle, LA 70788 the State
Baton Rouge, LA 70802
- ---------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 62
<TABLE>
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
F.C. Schaeffer & Valley Sugar Properties, Inc. Texas/ No. 92-146250
Associates, Inc. P.O. Box 120 Secretary of July 23, 1992
1020 Florida Blvd. White Castle, LA 70788 the State
Baton Rouge, LA 70802 and Francis C. Schaffer, et al.
- ---------------------------------------------------------------------------------------------------
GHD Corporation, et al. Valley Sugar Properties, Inc. Texas/ No. 93-124581
1020 Florida Blvd. P.O. Box 120 Secretary of June 25, 1992
Baton Rouge, LA 70802 White Castle, LA 70788 the State
and Marie Campesi, et al.
- ---------------------------------------------------------------------------------------------------
GHD Corporation, et al. Valley Sugar Properties, Inc. Texas/ No. 94-230382
1020 Florida Blvd. P.O. Box 120 Secretary of November 28, 1994
Baton Rouge, LA 70802 White Castle, LA 70788 the State
and Marie Campesi, et al.
- ---------------------------------------------------------------------------------------------------
F.C. Schaeffer & Valley Sugar Properties, Inc. Louisiana/ No. 17-1078198
Associates, Inc. et al. 1048 Florida Blvd. East Baton June 5, 1992
1020 Florida Blvd. Baton Rouge, LA 70788 Rouge Parish/
Baton Rouge, LA 70802 Clerk of Court
- ---------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 63
ANNEX 3
Subsidiaries and Affiliates
<TABLE>
<CAPTION>
Percentage State/Country Date of Date Acquired, Federal ID Nature of
Subsidiaries and Affiliates of Ownership of Incorporation Incorporation if applicable Number Business
- --------------------------- ------------ ---------------- ------------- -------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Advanced Refractory
Services, Inc. 100% Nevada 12/26/91 06/14/94 76-0283174 Refractory services
American Mechanical
Services, Inc. 100% Louisiana 03/08/85 09/06/96 72-1067641 Industrial maintenance
and constructing and
fabricating industrial
equipment
Casting Concepts, Inc. 100% Texas 12/17/93 06/14/94 76-0433974 Fabrication
Chemi-Solv, Inc. 50% Texas 10/05/87 03/14/91 76-0230090 Performance chemical
development and sales -
U.S.
50% - 10/05/87 11/07/94 -
Chemisolv Holdings, Inc. 50% Delaware 03/14/91 03/14/91 76-0380074 Holding company
50% - 03/14/91 11/07/94 -
Chemisolv Limited 50% United Kingdom 06/21/85 03/14/91 N/A Performance chemical
development and sales -
U.K.
50% - 06/21/85 11/07/94 -
Con-Seal, Inc. 100% Nevada 11/07/89 06/14/94 76-0292240 Refractory services
Delta Maintenance, Inc. 100% Louisiana 09/15/72 09/15/92 72-0719253 Turnaround maintenance
services
DM Acquisition Corporation 100% Nevada 09/14/92 N/A 88-0291611 Holding company
Enterprise Service Corporation 100% North Carolina 10/01/91 N/A 56-1752650 Aviation
F. C. Schaffer & Associates,
Inc. 100% Louisiana 06/25/68 10/25/94 72-0650854 Sugar mill design,
engineering and
construction management
Hartney Corporation 100% Nevada 06/19/84 06/19/94 76-0109676 Holding company
Hartney Industrial Services
Corporation 100% Nevada 10/21/91 06/14/94 76-0350313 Holding company
Hill Technical Services, Inc. 30% Texas 02/16/94 05/20/94 76-0427657 Heat treating
70% - 02/16/94 04/01/95 -
Mac-Tech, Inc. 100% Texas 12/09/83 N/A 74-1398758 Inactive company
Petro Recovery Systems, Inc. 100% Texas 11/03/88 03/14/91 76-0362573 Inactive company
Petrochem Field Services
de Venezuela, S.A. 100% Venezuela 12/21/92 12/21/92 N/A Turnaround maintenance
services
PRS Holding, Inc. 100% Texas 03/13/91 N/A 76-0500096 Holding company
Refinery Maintenance
International Limited 100% United Kingdom 09/20/89 N/A Turnaround maintenance
services - U.K.
SECO Industries, Inc. 100% Louisiana 12/23/65 09/20/91 72-0627047 Electrical and
instrumentation
installation
Serv-Tech Construction
and Maintenance, Inc.
(formerly Serv-Tech
EPC - Houston, Inc.) 100% Texas 04/05/90 07/12/94 76-0396065 Construction services
Serv-Tech de Mexico,
S. de R.L. 100% Mexico 03/24/95 N/A STM9503264GA Limited liability
company - for
operations
Serv-Tech Engineers, Inc. 100% Louisiana 09/28/95 N/A 72-1212309 Engineering and design
services
Serv-Tech EPC, Inc. 100% Nevada 12/12/94 N/A 72-1285495 Engineering,
procurement and
construction services
Serv-Tech Europe GmbH 100% Germany 02/04/92 N/A N/A Turnaround maintenance
services - Europe
Serv-Tech International
Sales, Inc. 100% Virgin Islands 10/03/94 N/A 66-0515688 Foreign sales
corporation -
Virgin Islands
Serv-Tech Mexicana,
S. de R.L. 100% Mexico 03/24/95 N/A STM950375URB Limited liability company-
to hold employees
Serv-Tech of New Mexico, Inc. 100% New Mexico 12/28/87 09/24/91 Applied for Turnaround maintenance
services - New Mexico
Serv-Tech Services, Inc. 100% Texas 11/14/83 N/A 76-0092646 Administrative company
Serv-Tech Sudamericana, S.A. 98% Venezuela 07/01/94 N/A N/A Turnaround maintenance
services - Venezuela
Serv-Tech, Inc. Parent Texas 01/30/62 N/A 74-1398757 Parent company
ST Piping, Inc. 90% Texas 09/13/90 N/A 76-0317640 Specialty welding
services
02/28/92
Talbert & Associates, Inc. with Merger
merged into Serv-Tech effective
Engineers, Inc. 100% Nevada 09/28/95 05/11/92 72-1212309 Engineering and
design services
Terminal Technologies, Inc. 100% Texas 12/12/91 N/A 76-0362572 Tank cleaning for
product storage tanks
TIPCO Acquisition Corp. 100% Texas 04/16/93 N/A Applied for Holding company
Total Refractory Systems, Inc. 100% Nevada 06/19/84 06/14/94 76-0109675 Refractory services
Turnaround Maintenance, Inc. 100% Nevada 12/26/91 06/14/94 76-0338967 Inactive company
United Industrial
Materials, Inc. 100% Nevada 12/26/91 06/14/94 76-0317881 Distribution materials
and supplies
</TABLE>
<PAGE> 1
EXHIBIT 10.38
AMENDED AND RESTATED CONTINUING REIMBURSEMENT AGREEMENT
THIS AMENDED AND RESTATED CONTINUING REIMBURSEMENT AGREEMENT (this
"AGREEMENT"), dated as of November 12, 1996, is by and between F. C. Schaffer &
Associates Inc., a Louisiana corporation (the "CUSTOMER"), and ABN AMRO Bank,
N.V., a Netherlands chartered bank, acting through its Houston Agency (the
"BANK").
WITNESSETH
A. The Customer and the Bank have entered into that certain
Continuing Reimbursement Agreement dated as of November 1, 1994 (the "PRIOR
AGREEMENT").
B. This Agreement amends, restates and supersedes the Prior
Agreement in its entirety.
C. The Bank and Principal Mutual Life Insurance Company, TMG Life
Insurance Company, Berkshire Life Insurance Company and The Security Mutual
Life Insurance Company (collectively, together with any successors or assigns
thereto, the "NOTEHOLDERS"), and Texas Commerce Bank National Association and
Bank One Texas, N.A. (collectively, together with any successors or assigns
thereto, the "BANK GROUP") have entered into an Intercreditor Agreement of even
date herewith (the "INTERCREDITOR AGREEMENT").
WHEREAS, the Customer and the Bank hereby agree as follows:
1. SCOPE OF THIS AGREEMENT. The Customer has previously requested
that the Bank issue, and the Bank has so issued, four letters of credit for the
Customer's account and for the benefit of The General Manager, Finchaa Sugar
Factory of the Transitional Government of Ethiopia in connection with that
certain Contract No. FP-03 for the Design, Supply, Construction and
Commissioning of Finchaa Sugar Factory and Ethanol Plant (the "CONTRACT") dated
as of October 4, 1994, by and between the Customer and Finchaa Sugar Factory of
the Transitional Government of Ethiopia (now known as the Finchaa Sugar Factory
Project of the Federal Democratic Republic of Ethiopia) (the "FINCHAA SUGAR
FACTORY"), two performance security letters of credit in the original face
amounts of $7,001,681 USD and 7,540,406 Birr (collectively, as heretofore
amended, the "PERFORMANCE SECURITY LETTER OF CREDIT") and two advance payment
letters of credit in the original face amounts of $14,003,364 USD and
15,080,813 Birr (collectively, as heretofore amended, the "ADVANCE PAYMENT
LETTER OF CREDIT"). The Bank has also issued, at the request of the Finchaa
Sugar Factory, a letter of credit for the benefit of the Customer as a method
of disbursement of certain sums due to it from the Finchaa Sugar Factory under
the Contract in connection with Finchaa Sugar Factory and Ethanol Plant (the
"FINCHAA PROJECT"), the draws under which are reimbursed and guaranteed by the
African Development Bank ("ADB") (as heretofore amended, the "REVOLVING LETTER
OF CREDIT") (the Performance Security Letter of Credit, the Advance Payment
Letter of Credit and the Revolving Letter of Credit are sometimes hereinafter
referred to as a "LETTER OF CREDIT" or collectively as the "LETTERS
<PAGE> 2
OF CREDIT"). The issuance of, and the agreement to issue, the Letters of
Credit in response to such requests shall be deemed to incorporate by reference
and to have been made automatically subject to the terms and conditions of this
Agreement. Each of the terms, conditions, and obligations in the applications
with respect to the Performance Security Letter of Credit and the Advance
Payment Letter of Credit shall be incorporated herein with respect to such
Letter of Credit issued and shall constitute obligations of the Customer
hereunder. To the extent of any inconsistency between any of such applications
and this Agreement, the terms and provisions of this Agreement shall prevail.
The Customer hereby acknowledges and agrees that the Finchaa Sugar Factory has
requested that the expiry date of the Revolving Letter of Credit be extended to
April 23, 1998, and the Revolving Letter of Credit has been so extended, and it
hereby agrees to such amendment.
2. REIMBURSEMENT. The Customer agrees to reimburse the Bank,
immediately upon written demand, for any payment the Bank makes under the
Performance Security Letter of Credit or the Advance Payment Letter of Credit.
The Customer also agrees to reimburse the Bank, immediately upon written
demand, for any reasonable expense the Bank incurs in connection with making
payment under either such Letter of Credit. All payment obligations of the
Customer hereunder shall be in United States Dollars, converted, if necessary,
from Birr to United States Dollars on the date of payment of any draw under the
Performance Security Letter of Credit or the Advance Payment Letter of Credit,
as the case may be, at the exchange rate paid by the Bank to purchase the Birr
necessary to cover any such draw.
3. ISSUANCE FEES AND RESTRUCTURE FEE. The Customer agrees to pay to
the Bank with respect to each of the Advance Payment Letter of Credit and the
Performance Security Letter of Credit a nonrefundable fee, quarterly in advance
commencing as of October 1, 1996, and quarterly thereafter, equal to the higher
of 2.0% per annum or the rate per annum for the issuance of letters of credit
provided for in the First Amended and Restated Credit Agreement among Serv-
Tech, Inc. ("SERV-TECH"), the Guarantors named therein, Texas Commerce Bank
National Association ("TCB"), as Agent, and the Bank Group dated as of November
12, 1996 (the "BANK AGREEMENT") of the face amount of each such Letter of
Credit at the beginning of each calendar quarter calculated on the basis of a
365-day year and the actual days in such calendar quarter and based on the
scheduled expiration of such Letter of Credit. The Customer also agrees to pay
to the Bank with respect to the Revolving Letter of Credit a nonrefundable fee,
quarterly in advance commencing as of October 1, 1996, and quarterly
thereafter, equal to 1/2% per annum of the $12,500,000 face amount thereof or
such reduced face amount thereof pursuant to the terms of the Revolving Letter
of Credit, at the beginning of each calendar quarter calculated on the basis of
a 365-day year and the actual days in such calendar quarter and based on the
scheduled expiration of such Letter of Credit. The Customer agrees to pay to
the Bank a nonrefundable restructure fee of $113,965.27 as a condition
precedent to the effectiveness of this Agreement.
4. POST-ISSUANCE COSTS. The Customer agrees to pay to the Bank,
immediately upon written demand, any and all reasonable costs arising after
issuance of any Letter of Credit that the Bank may reasonably pay or incur
under or in connection with a Letter of Credit or this
-2-
<PAGE> 3
Agreement, including, without limitation, reasonable legal fees arising from
the enforcement of this Agreement. If the Bank determines that the effect of
any change from the date hereof in any applicable law, governmental regulation,
guideline or order or in the interpretation thereof by any governmental
authority charged with the administration thereof (including the imposition of
or change in any reserve, capital, special deposit, insurance, or similar
requirement) is to increase the cost of issuing or maintaining any Letter of
Credit, to reduce the Bank's return on its capital as a result of so issuing or
maintaining any Letter of Credit, or to reduce the amount of any payment to be
made to the Bank in respect of any obligation hereunder, then the Customer will
pay to the Bank, on demand, such additional amounts as the Bank may determine
to be required to compensate the Bank on an after-tax basis for such additional
cost or reduction of amounts receivable hereunder. Any additional payments
under this clause will be computed in accordance with generally accepted
accounting principles ("GAAP") from the effective date at which such additional
costs or reduction in amounts receivable have to be borne by the Bank.
5. INTEREST. (a) The Customer agrees to pay to the Bank, without
demand unless otherwise specified below, interest on all amounts due from it
but unpaid hereunder as set forth below:
(i) All amounts drawn under the Revolving Letter of Credit
from the date of such draw until the date such amount is reimbursed by
the ADB shall bear interest, payable upon written demand on the last
business day of each calendar month after any such draw, at a daily
fluctuating interest rate per annum equal to the higher of (a) the
fluctuating overnight money market rate of interest announced by the
Bank from time to time at its Chicago, Illinois office in effect on such
day, or (b) the sum of (x) the rate per annum (rounded upwards, if
necessary, to the nearest 1/100th of 1%) equal to the weighted average
of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the next business
day on which the Bank is open, provided, that (A) if such day is not
such a business day, the rate on such transactions on the immediately
preceding business day as so published on the next business day shall
apply, and (B) if no such rate is published on such next business day,
the rate for such day shall be the average rate quoted to the Bank by
three (3) members of the Federal Reserve System on such day for such
transactions as determined by the Bank, plus (y) 0.50% per annum (the
"FEDERAL FUNDS RATE");
(ii) All amounts drawn under the Performance Security Letter of
Credit from the date of such draw until the date such amount is
reimbursed by the Customer shall bear interest at a daily fluctuating
interest rate per annum equal to the higher of the fluctuating
commercial loan rate of interest announced by the Bank from time to time
at its Chicago, Illinois office as its base rate for U.S. Dollar loans
in the United States of America in effect on such day (which rate is not
necessarily its lowest rate charged by the Bank on loans to any of its
customers) or the Federal Funds Rate (the "BASE RATE") plus 3% per
annum; and
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<PAGE> 4
(iii) All amounts drawn under the Advance Payment Letter of
Credit shall bear interest from the date of such draw until the date
such amount is reimbursed by the Customer at a daily fluctuating
interest rate per annum equal to the Base Rate plus 3% per annum.
6. USURY SAVINGS CLAUSE. If at any time the interest rate
applicable to any amount outstanding hereunder exceeds the maximum rate or the
amount of interest which the Bank is allowed by law to contract for, charge,
take, reserve or receive (the "HIGHEST LAWFUL RATE"), the rate of interest on
such outstanding amount shall be limited to the Highest Lawful Rate, but any
subsequent reductions in the interest rate shall not reduce the rate of
interest thereon below the Highest Lawful Rate until the total amount of
interest accrued thereon equals the amount of interest which would have accrued
thereon if the interest rate had at all times been in effect. In the event
that at maturity (stated or by acceleration), or at final payment of all
obligations hereunder, the total amount of interest paid or accrued thereon is
less than the amount of interest which would have accrued thereon if the
interest rate applicable thereto had at all times been in effect, then, at such
time and to the extent permitted by law, the Customer shall pay an amount equal
to the difference between (a) the lesser of the amount of interest which would
have accrued thereon if the interest rate applicable thereto had at all times
been in effect and the amount of interest which would have accrued thereon if
the Highest Lawful Rate had at all times been in effect, and (b) the amount of
interest actually paid or accrued on all obligations hereunder. To the extent
that Article 5069-1.04 of the Texas Revised Civil Statutes is relevant to the
Bank for the purpose of determining the Highest Lawful Rate, the Bank hereby
elects to determine the applicable rate ceiling under such Article by the
indicated (Weekly) rate ceiling from time to time in effect, subject to its
right subsequently to change such method in accordance with applicable law. To
the extent the interest received hereunder exceeds the Highest Lawful Rate, the
Bank shall refund to the Customer the amount of the excess or shall credit the
amount of the excess against amounts owing hereunder and the Bank shall not be
subject to any of the penalties provided by law for contracting for, taking,
reserving, charging or receiving interest in excess of the Highest Lawful Rate.
7. PAYMENTS. All payments by the Customer to the Bank hereunder
shall be made in immediately available U.S. Dollars at the Bank's office as set
forth on the signature page hereto or at such other place within the
continental United States of America as the Bank may designate in writing,
without any withholding, deduction, or set off. The Bank may open and debit
(under written advice to the Customer) a new account in the name of the
Customer to effect such payments in respect of the Customer's obligations
hereunder.
8. WAIVER OF EXISTING KNOWN DEFAULTS. The Customer has disclosed in
writing to the Bank all defaults and Events of Default that may exist under the
Prior Agreement and the Guaranty dated as of November 1, 1994, executed in
connection therewith (the "PRIOR GUARANTY") immediately prior to closing under
this Agreement. The Bank, in consideration of the agreements of the Customer
hereunder, hereby waives each such default or Event of Default.
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<PAGE> 5
The Bank hereby represents and warrants to the Customer that, as of closing
hereunder, it knows of no other default or Event of Default under the Prior
Agreement or the Prior Guaranty, and no default or Event of Default resulting
from the execution and delivery of this Agreement or any of the other
documentation executed and delivered at closing or transactions effected. It
is agreed and understood that such waivers of defaults or Events of Default by
the Bank shall not constitute a waiver of any other default or Event of Default
under the Prior Agreement or the Prior Guaranty or any similar or future
default or Event of Default hereunder or under the Amended and Restated
Guaranty of even date herewith.
9. RELEASE AND INDEMNITY. (a) The Customer for itself and its
directors, officers, employees, shareholders, agents, successors, assigns,
other representatives, affiliates and attorneys do hereby release and forever
discharge the Bank and its directors, officers, employees, shareholders,
agents, successors, assigns, other representatives, affiliates and attorneys
(each a "RELEASED PARTY") from any and all losses, claims, demands, damages,
causes of actions, actions, cross-actions, judgments, liabilities, penalties,
costs and expenses (including attorneys' fees and other legal expenses) of any
kind or nature whatsoever ("CLAIMS"), which any of such persons has owned or
held, or may now or in the future own or hold, whether known or unknown,
contingent or liquidated, for or because of any action, inaction, omission,
statement or publication on or before the date hereof by any Released Party
arising directly or indirectly out of any of the Letters of Credit or the Prior
Agreement, or any other documents or instruments executed in connection
therewith or any other transactions relating directly or indirectly thereto,
including, without limitation, any claims of usury which may or could be
asserted by any such persons.
(b) The Customer agrees to indemnify and hold harmless each of
the Released Parties, on demand and to the fullest extent permitted by law,
against all Claims which any of the Released Parties may pay or incur arising
directly or indirectly out of any of the Letters of Credit, the Prior
Agreement, this Agreement, any other documents or instruments executed in
connection therewith or any other transactions relating directly or indirectly
thereto, including, without limitation, actions commenced by Finchaa Sugar
Factory for wrongful dishonor or non-payment and actions commenced by Schaffer
to enjoin honor or payment to attach the proceeds of honor or payment or for
wrongful dishonor or non-payment, regardless of whether any of such Claims are
founded in whole or in part upon the alleged negligence of any of the Released
Parties other than those which arise from the gross negligence or willful
misconduct of the party claiming indemnification. WITHOUT LIMITING ANY
PROVISION OF THIS AGREEMENT, IT IS EXPRESSLY INTENDED BY THE PARTIES THAT EACH
OF SUCH RELEASED PARTIES TO BE INDEMNIFIED HEREUNDER SHALL BE INDEMNIFIED AND
HELD HARMLESS AGAINST ANY AND ALL CLAIMS ARISING OUT OF OR RESULTING FROM THE
ORDINARY SOLE OR CONTRIBUTORY NEGLIGENCE OF SUCH RELEASED PARTY OR IMPOSED UPON
SUCH RELEASED PARTY UNDER ANY THEORY OF STRICT LIABILITY. The Customer, upon
written demand by the Bank, shall reimburse the Bank for any legal or other
expenses incurred in connection with investigating or defending against any of
the foregoing except if the same is directly due to the gross negligence or
willful misconduct of the Released Party.
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<PAGE> 6
10. REPRESENTATIONS AND WARRANTIES OF THE CUSTOMER. The Customer
represents and warrants to the Bank as follows:
(a) CORPORATE EXISTENCE. The Customer is a corporation duly
formed and validly existing and in good standing under the laws of the
State of Louisiana. The Customer has all requisite corporate power and
authority to conduct its business, to own its properties, and to execute
and deliver and perform all of its obligations under this Agreement and
the Contract. To the best of the Customer's knowledge, the Customer has
all licenses, certificates, permits, franchises and other governmental
authorizations necessary to own and operate its business and properties
and is duly qualified or licensed and is authorized to do business and
is in good standing as a foreign corporation in each state as necessary
to own and operate its business and properties.
(b) DUE AUTHORIZATION. The execution, delivery and
performance by the Customer of this Agreement and the Contract are
within the Customer's corporate powers, have been duly authorized by all
necessary corporate action, and do not, and will not, contravene (i) any
provision of its articles of incorporation or bylaws, (ii) any
applicable law or (iii) any contractual restriction binding on or
affecting the Customer, and except as provided herein, do not result in
or require the creation of any lien, security interest or other charge
or encumbrance upon or with respect to any of its properties.
(c) APPROVALS. No authorization or approval or other action
by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution, delivery and
performance by the Customer of this Agreement except as have been duly
obtained or made and as are in full force and effect. No authorization
or approval or other action by, and no notice to or filing with, any
federal or state governmental authority or regulatory body with the
United States is required for the due execution, delivery and
performance by the Customer of the Contract, except as have been duly
obtained or made and as are in full force and effect.
(d) BINDING NATURE OF OBLIGATIONS. This Agreement is the
legal, valid and binding obligation of the Customer enforceable against
the Customer in accordance with its terms.
(e) PENDING LITIGATION. Except as listed in the attached
Schedule 1, there is no pending or threatened action, investigation or
proceeding before any court, governmental agency or arbitrator against
or affecting the Customer which could reasonably be expected to have a
material adverse effect on the financial condition, operations,
properties or prospects of the Customer or the ability of the Customer
to perform its obligations hereunder or under the Contract or which
purports to affect the legality, validity or enforceability of this
Agreement or the Contract.
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<PAGE> 7
(f) FINANCIAL STATEMENTS. The financial statements for the
calendar quarter dated June 30, 1996, present fairly in all material
respects the financial position of the Customer as of such date and the
results of its operations and cash flows for such period. Since such
date there has been no change in its business, operations, properties,
condition (financial or otherwise) or prospects except changes which
could not reasonably be expected to have a material adverse effect on
any thereof or on the ability of the Customer to perform its obligations
hereunder or under the Contract.
(g) INDEBTEDNESS. The financial statements described in
Section 8(f) reflect all indebtedness for borrowed money, bonds, notes
and similar instruments and all outstanding bonds, notes and similar
instruments and letters of credit issued for the Customer's account, all
obligations of the Customer pursuant to a guaranty, all leases which
would be capitalized lease obligations under GAAP, all obligations of
other persons secured by any properties of the Customer and all
obligations under any interest rate protection agreements and agreements
to protect against fluctuations in commodity prices or currency exchange
rates of the Customer as of the date hereof (collectively,
"INDEBTEDNESS").
(h) TITLE TO PROPERTIES. The Customer has good and
indefeasible title to all of its properties reflected on the financial
statements referred to in Section 8(f), except for such failures as are
immaterial to such financial statement, and all such property is free
from liens, charges and encumbrances not permitted hereunder.
(i) COMPLIANCE WITH LAW. The Customer is not in violation of
any law, ordinance, governmental rule or regulation to which it is
subject which could reasonably be expected to have a material adverse
effect on the Customer. The Customer is in compliance with the Employee
Retirement Income Security Act of 1974, as amended from time to time
("ERISA") and in compliance in all material respects with all federal,
state, county, regional or local law, statutes or regulations enacted in
connection with or relating to the protection of the environment,
including, but not limited to, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended from time to time,
the Resource Conservation and Recovery Act of 1976, as amended from time
to time, and the Superfund Amendments and Reauthorization Act of 1986,
as amended from time to time, and any orders, decrees or judgments
issued by any court of competent jurisdiction in connection with any of
the foregoing ("ENVIRONMENTAL PROTECTION LAWS"). The Customer is not
subject to any liability under any Environmental Protection Laws and the
Customer has not received any notice or communication from any
governmental authority asserting any such liability, notice of any lien
on any property owned or previously owned of the Customer or any notice
designating any property of the Customer as a hazardous substance
disposal or removal site, a "Super Fund" clean-up site or as candidate
for removal or closure.
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<PAGE> 8
(j) TAXES. The Customer has filed all United States and
foreign federal income tax returns and all other material tax returns or
appropriate extensions for filing, which are required to be filed by it
and has paid all taxes due pursuant to such returns or pursuant to any
assessments received by the Customer. The charges, accruals and
reserves on the books of the Customer in respect of taxes or other
governmental charges are adequate under GAAP as in effect on the date
thereof.
(k) SUBSIDIARIES. The Customer has no corporate subsidiaries
and it is not the partner of any general partnership, joint venture or
limited partnership or the member of any limited liability company. The
Customer is a wholly owned subsidiary of Serv-Tech, subject only to that
certain Grant of Option dated as of October 17, 1994, granted to F. C.
Schaffer and that certain Grant of Repurchase Option dated as of October
14, 1994 granted to F. C. Schaffer and others. Ninety-six shares of
Class C Voting Common Stock were issued to F. C. Schaffer on May 16,
1995 pursuant to the Grant of Option dated as of October 17, 1994.
These 96 shares issued to F. C. Schaffer represent 20% of the aggregate
voting power of the Customer's outstanding shares and 100% of the issued
and outstanding Class C Voting Common Stock.
(l) FULL DISCLOSURE. No information furnished by the Customer
in writing in connection with the establishment of any Letter of Credit
or with this Agreement contains or will contain any untrue statement of
a material fact or omits or will omit to state a material fact necessary
to make the statements contained therein or herein not misleading except
to the extent a written waiver with respect thereto has been given by
the Bank.
(m) PUBLIC UTILITY HOLDING COMPANY. The Customer is not a
"holding company," a "subsidiary company" of a "holding company" or an
"affiliate" of a "holding company" or a "subsidiary company" of a
"holding company," within the meaning of the Public Utility Company Act
of 1935, as amended.
(n) INVESTMENT COMPANY. The Customer is not an "investment
company" or a company "controlled" by an "investment company," within
the meaning of the Investment Company Act of 1940, as amended.
11. AFFIRMATIVE COVENANTS. So long as a drawing is available under
any Letter of Credit, or the Bank shall have any commitment hereunder, or the
Customer shall have any obligation to pay any amount to the Bank hereunder, the
Customer will, unless the Bank shall otherwise consent in writing:
(a) PRESERVATION OF EXISTENCE. Preserve and maintain its
corporate existence and all rights, privileges, licenses and franchises
necessary and desirable in the normal conduct of its business and in the
performance of its obligations under the Contract and not dissolve or
otherwise discontinue its existence or operations.
(b) COMPLIANCE WITH LAWS. Comply in all material respects
with the requirements of all applicable laws, ordinances, governmental
rules or regulations and orders of any governmental or regulatory
authority or arbitration, including ERISA and all Environmental
Protection Laws, and obtain all necessary licenses, permits,
certificates,
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<PAGE> 9
franchises or other governmental authorizations necessary to the
ownership of its properties, the operation of its business or its
performance under the Contract.
(c) PAYMENT OF TAXES. Pay and discharge, before the same
shall become delinquent, (i) all taxes, assessments and governmental
charges or levies imposed upon it or upon its properties, and (ii) all
lawful claims which, if unpaid, might by law become a lien upon its
properties; provided, however, that the Customer shall not be required
to pay or discharge any such tax, assessment, charge or claim that is
being contested in good faith and by proper proceedings, so long as the
charges, accruals and reserves on the books of the Customer with respect
thereto are adequate under GAAP and so long as no tax sale may occur
during such proceedings.
(d) EXAMINATION RIGHTS. At any reasonable time and from time
to time, permit the Bank or any agents or representatives thereof,
during normal business hours to examine and make copies of and abstracts
from the records and books of and accounts of, and visit the properties
of, the Customer and to discuss the affairs, finances and accounts of
the Customer and the Contract with any of its officers and independent
public accountants.
(e) KEEPING OF BOOKS. Keep proper books and records and
accounts, in which full and correct entries shall be made of all
financial transactions and the assets and business of the Customer and
the Customer's performance under the Contract in accordance with GAAP
consistently applied.
(f) MAINTENANCE OF PROPERTIES. Maintain and preserve all of
its properties which are used or useful in the conduct of its business
in good working order and condition, ordinary wear and tear excepted.
(g) MAINTENANCE OF INSURANCE. Maintain insurance with
responsible and reputable insurance companies in such amounts and
covering such risks as is customarily carried by companies of
established reputations engaged in the same or similar businesses and
similarly situated, and upon request of the Bank (i) deliver to the Bank
certificates of insurance or copies of policies of insurance required to
be carried by or on behalf of the Customer pursuant hereto and (ii)
cause each such policy of insurance to contain a notice of cancellation
provision satisfactory to the Bank and in accordance with insurance
industry practice. Maintain all insurance as required under the
Contract.
(h) REPORTING REQUIREMENTS. Furnish (or cause to be
furnished) to the Bank the following:
(i) as soon as possible and in any event within three
(3) days after the occurrence of each Event of Default or each
event which, with the giving of notice or time elapse, or both,
would constitute an Event of Default ("DEFAULT")
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<PAGE> 10
continuing on the date of such statement, a statement of the
Chief Executive Officer or the Chief Financial Officer of the
Customer setting forth details of such Default or Event of
Default or event and the action which the Customer proposes to
take with respect thereto;
(ii) (x) within ten (10) days after the end of each
month, (A) copies of all change orders, variations or amendments
requested and/or approved by any party to the Contract with
respect to the Finchaa Project, (B) a monthly site report, (C) a
listing of draws on the Revolving Letter of Credit by invoice
number, (D) a variation summary with supporting details on all
variations since the previous summary and (E) copies of all
material correspondence between Tate & Lyle Technical Services or
any other Finchaa Project engineer, the Finchaa Project owner or
the ADB with the Customer or Serv-Tech; and (y) within thirty
(30) days after the end of each month, (A) the monthly Finchaa
Project status report, (B) a report (aged) of all accounts of the
Customer, segregating accounts of the Customer with respect to
the Finchaa Project, (C) a statement of income and a balance
sheet for the Customer, (D) a schedule of cash flows and monthly
project budget for the Finchaa Project, including the Customer's
then projected net income (loss) with respect thereto, (E) a
"Billing Through" report (Certificate of Payment from Tate & Lyle
Technical Services), (F) a time and materials schedule, (G) a
monthly progress report, (H) a construction progress report and
forecast, and (I) a master invoice log;
(iii) duplicate financial and/or business reports
furnished to the Noteholders, TCB or the Bank Group
contemporaneously with transmitting thereto; and
(iv) such other information respecting the business,
properties, operations, condition or (financial or otherwise) or
prospects of the Customer, the Contract or the Finchaa Project as
the Bank may from time to time reasonably request.
(i) FINCHAA PROJECT ACCOUNT. The Customer shall maintain with
ABN AMRO Bank N.V., or such other financial institution as agreed to in
writing by the Bank, the Noteholders and the Bank Group, a segregated
account into which all proceeds of any draw upon the Revolving Letter of
Credit, together with all proceeds of, or sums paid to Customer pursuant
to, the Contract or the Finchaa Project (including any insurance
proceeds with respect thereto) shall be immediately deposited by the
Customer. The Customer shall not commingle the funds in connection with
the Contract or the Finchaa Project with funds from any other source.
The Customer shall use the funds in such account only for performing its
obligations under the Contract and for reimbursements to Serv-Tech and
its affiliates of costs incurred on the Customer's behalf directly in
connection with the Contract, and shall not use such funds for any other
purpose,
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<PAGE> 11
including, without limitation, for any general corporate purposes or for
any other projects of the Customer. Such account shall be so maintained
until the Contract has been completed, the Finchaa Project has been
accepted by the owner pursuant to the terms of the Contract and the Bank
has no further liability whatsoever under any of the Letters of Credit,
subject to the terms of the Intercreditor Agreement.
(j) CUSTOMER ACCOUNT. The Customer, upon written request from
the Bank, shall maintain a segregated account or accounts into which all
of the Customer's funds from sources other than those described in
Section 11(i) shall be deposited and shall not commingle such funds with
funds of Serv-Tech, any affiliate or any other person. Any such account
shall be subject to the terms of the Intercreditor Agreement.
(k) TRAVEL EXPENSES. The Customer shall be responsible for
any reasonable travel expenses incurred by any consultants and
professionals, the Bank, and any of its consultants and professionals
pursuant to site inspections or evaluations of the Finchaa Project.
12. NEGATIVE COVENANTS. So long as a drawing is available under any
Credit, or the Bank shall have any commitment hereunder, or the Customer shall
have any obligation to pay any amount to the Bank hereunder, the Customer will
not, without the prior written consent of the Bank:
(a) AMENDMENT OF CORPORATE DOCUMENTS. Enter into or consent
to any amendment or modification of its articles of incorporation or
bylaws in any way which would adversely affect the Bank.
(b) LIENS, ETC. Create, assume or suffer to exist any lien,
security interest or other charge or encumbrance upon ("LIEN") or with
respect to any of its properties, whether now owned or hereafter
acquired, or assign any right to receive income, except
(i) Liens existing on the Execution Date and listed on
Schedule _______;
(ii) Liens securing Indebtedness permitted under Section
______ above;
(iii) Permitted Liens;
(iv) any renewal, extension or replacement of any Lien
referred to in subparagraphs (i) and (ii) 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
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<PAGE> 12
and provided further that the principal amount of the
Indebtedness secured thereby shall not exceed the principal
amount of the Indebtedness so secured at the time of such
extension, renewal or replacement; and
(v) Liens granted to TCB as Collateral Agent for the
Bank, the Bank Group and the Noteholders on even date herewith,
and any renewals, extensions and modifications thereof or
additions thereto.
(c) INDEBTEDNESS. Create, assume or suffer to exist any
Indebtedness except:
(i) under this Agreement;
(ii) purchase money Indebtedness in connection with the
purchase of assets so long as such Indebtedness does not exceed
eighty percent (80%) of the purchase price of such assets and
does not exceed $100,000 in the aggregate;
(iii) other unsecured Indebtedness not to exceed
$100,000;
(iv) unsecured Indebtedness in connection with trade
letters of credit issued as of the date hereof on behalf of the
Customer in the ordinary course of business, provided that no
such letters of credit are increased in amount; and
(v) unsecured Indebtedness owed to Serv-Tech which is
subordinated to the obligations of the Customer to the Bank
pursuant to the terms of the Guaranty (as hereinafter defined) in
an amount not to exceed $2,000,000 in connection with the Finchaa
Project and in an amount not to exceed $1,000,000 in connection
with the operation of the Customer's business other than the
Finchaa Project; and
(vi) the Guaranty to the Noteholders of even date
herewith.
(d) SALES, ETC. OF ASSETS. Sell, lease, transfer or otherwise
dispose of any of its assets, except in the ordinary course of business.
(e) MERGER, CONSOLIDATION, ETC.
(i) MERGER AND CONSOLIDATION. The Customer will not
merge with or into or consolidate with any other person or permit
any other person to merge or consolidate with or into it.
(ii) ACQUISITION OF STOCK, ETC. The Customer will not
acquire any stock of any corporation or materially all the assets
of any entity.
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<PAGE> 13
(f) CHANGE IN BUSINESS OR THE CONTRACT. Enter into any
business which is different from or is not connected with the business
in which the Customer is engaged on the date hereof or amend the
Contract without the consent of the Bank, where such amendment would
extend the term of the Contract, change the price of the Contract,
reduce the amounts owing to the Customer under the Contract, or
otherwise adversely affect the Customer's ability to perform the
Contract or the Customer's anticipated profit from the Contract as of
the date hereof.
(g) DIVIDENDS. The Customer shall not redeem, purchase or
otherwise acquire any shares of its capital stock, make any loans or
advances to stockholders or any other persons or entities, declare or
pay any dividends on its capital stock, make any distribution or payment
to stockholders, or set aside any funds for such purpose other than the
repayment of any Indebtedness permitted in Section 11(c)(v) so long as
no Significant Event (as defined in the Intercreditor Agreement) shall
have occurred and be continuing.
(h) TRANSACTIONS WITH AFFILIATES. The Customer will not enter
into any transaction, including, without limitation, the purchase, sale
or exchange of property or the rendering of any service, with any
affiliate, except in the ordinary course of and pursuant to the
reasonable requirements of the Customer's business and upon fair and
reasonable terms no less favorable to the Customer than would obtain in
a comparable arm's-length transaction with a person not an affiliate.
(i) REPAYMENT OF INTERCOMPANY DEBT. The Customer shall not
repay any Indebtedness to Serv-Tech permitted hereunder if a Significant
Event (as defined in the Intercreditor Agreement) shall have occurred
and be continuing.
13. CONDITIONS. The effectiveness of this Agreement is conditioned
upon receipt by the Bank of the following in form and substance acceptable to
the Bank: (a) a duplicate of this Agreement duly signed on behalf of the
Customer and its remaining in full force and effect with respect to the
obligations of the Customer; (b) a certified copy of the resolutions of the
Board of Directors of the Customer authorizing the execution and delivery of
this Agreement; (c) a Certificate of Incumbency specifying the names and titles
of the authorized individuals under such board resolution; (d) authenticated
signatures of the persons specified in such board resolution; (e) an amended
and restated guaranty of Serv-Tech and its subsidiaries listed therein and any
other domestic subsidiaries from time to time required to execute a Guaranty
pursuant to the terms thereof (the "SUBSIDIARIES") (the "GUARANTY") with
respect to the obligations of the Customer hereunder duly executed and
accompanied by (i) certified copies of a resolution of each of the Boards of
Directors of Serv-Tech and the Subsidiaries authorizing the execution and
delivery of the Guaranty together with a certificate of incumbency specifying
the names and titles of the applicable authorized individuals under such board
resolutions and the authenticated
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<PAGE> 14
signatures of such persons; (f) a written opinion by the Customer's, Serv-
Tech's and the Subsidiaries' legal counsel in a form satisfactory to the Bank;
(g) payment of all costs (including reasonable attorneys' fees) of the Bank in
connection with documenting the restructure described in this Agreement; (h)
the Intercreditor Agreement in form and substance satisfactory to the Bank
executed by the Bank, the Bank Group and the Noteholders under that certain
Note Purchase Agreement dated as of June 1, 1993, as amended prior to and on
the date hereof (the "NOTE PURCHASE AGREEMENT"); (i) a written opinion provided
by Jones, Walker, Waechter Poitevent, Carrere & Denegre, L.L.P. on or before
November 18, 1996; and (j) documentation in form and substance satisfactory to
the Bank that Serv-Tech has restructured all indebtedness owed to the Bank
Group and the Noteholders, that Serv-Tech and it subsidiaries have granted
liens on all their material assets to the Bank Group, the Noteholders and the
Bank and that Serv-Tech and its subsidiaries are in compliance with all such
restructured loan documentation. Serv-Tech, the Subsidiaries and any other
subsidiaries as are hereafter required to execute a Guaranty pursuant to the
terms hereof, are collectively referred to as the "GUARANTORS."
14. EVENTS OF DEFAULT. The occurrence of any of the following events
shall be an "EVENT OF DEFAULT" hereunder:
(a) NON-PAYMENT OF MONETARY OBLIGATIONS HEREUNDER. The
Customer shall fail to pay any amount payable hereunder when due;
(b) BREACH OF WARRANTIES. Any representation or warranty of
the Customer made in writing herein or in connection with this Agreement
or any of the Letters of Credits shall prove to have been incorrect in
any material respect when made;
(c) OTHER DEFAULTS. The Customer shall fail to perform or
observe any other term, covenant or agreement contained in this
Agreement on its part to be performed or observed;
(d) NON-PAYMENT OF OTHER MONETARY OBLIGATIONS. The Customer
shall fail to pay any indebtedness (excluding indebtedness under this
Agreement) in excess of $50,000 individually or in the aggregate, or any
interest or premium thereon, when due (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise) and such failure
shall continue after the applicable grace period, if any, specified in
the agreement or instrument relating to such indebtedness; or any other
default under any agreement or instrument relating to any such
indebtedness, or any other event, shall occur and shall continue after
the applicable grace period, if any, specified in such agreement or
instrument, if the effect of such default or event is to accelerate, or
to permit the acceleration of, the maturity of such indebtedness; or any
such indebtedness shall be declared to be due and payable, or required
to be prepaid (other than by a regularly scheduled required prepayment),
prior to the stated maturity thereof;
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<PAGE> 15
(e) BANKRUPTCY, INSOLVENCY, ETC. The Customer or any of the
Guarantors shall fail to pay its debts generally, or shall make a
general assignment for the benefit of creditors; or any proceeding shall
be instituted by or against the Customer or any of the Guarantors
seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment
of a receiver, trustee, or other similar official for it or any
substantial part of its property and, if instituted against the Customer
or any of the Guarantors, shall remain undismissed for a period of sixty
(60) days, or an order for relief as defined in the United States
Bankruptcy Reform Act of 1978, as amended, shall be rendered prior to
the expiration of that sixty (60) day period; or any judgment, writ,
warrant of attachment or execution or similar process shall be issued or
levied against any substantial part of the property of the Customer or
any of the Guarantors, and shall not be released, vacated or fully
bonded within sixty (60) days after its issue or levy, or the Customer
or any of the Guarantors shall take any action to authorize any of the
actions set forth above in this subsection (e);
(f) INVALIDITY, ETC. Any provision of this Agreement or the
Guaranty shall at any time for any reason cease to be valid and binding
on the Customer or any of the Guarantors, as the case may be, or shall
be declared by any court, arbitrator or governmental authority or agency
to be null and void, or the validity or enforceability thereof shall be
contested by the Customer or any of the Guarantors, as the case may be,
or a proceeding shall be commenced by any governmental agency or
authority having jurisdiction over the Customer or any of the
Guarantors, as the case may be, seeking to establish the invalidity or
unenforceability thereof, or the Customer or any of the Guarantors, as
the case may be, shall deny in writing that it has any or further
liability or obligation under this Agreement or the Guaranty, as the
case may be;
(g) JUDGMENTS. The Customer shall fail to pay, bond or
otherwise discharge, or stay on appeal or otherwise appropriately
contest in good faith in a manner that stays execution, any money
judgment or order in excess of $50,000 against it or its assets at least
five (5) days prior to the date on which any steps may be taken to
execute on such judgment;
(h) GUARANTY DEFAULT. Any "Event of Default" under and as
defined in the Guaranty shall have occurred and be continuing;
(i) CONTRACT DEFAULT. A Default (as defined in the Contract)
shall occur under the Contract pursuant to Section 27 thereof or
otherwise, the Contract shall terminate or be declared terminated, be
declared null and void or be contested by the Finchaa Sugar Factory, any
other governmental authority, or the ADB;
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<PAGE> 16
(j) NOTE PURCHASE AGREEMENT AND BANK AGREEMENT. A default or
an event of default shall occur under the Note Purchase Agreement or the
Bank Agreement, in all respects without giving effect to any amendment
or waiver thereof after the date hereof; provided that (i) it shall also
be an Event of Default hereunder if a default or an event of default
shall occur in any of such agreements as same may be amended after the
date hereof, (ii) if either the Note Purchase Agreement or the Bank
Agreement, shall cease to be in full force and effect, it shall also be
an Event of Default hereunder if any default or event of default would
have occurred if such agreement, in all respects without giving effect
to any amendment or waiver thereof after the date hereof, was then in
full force and effect; and (iii) if the Note Purchase Agreement is
replaced, it shall also be an Event of Default hereunder in any default
or event of default occurs under any such replacement agreement;
(k) TERMINATION OF BANK AGREEMENT. The Bank Agreement shall
cease to be in full force and effect;
(l) OWNERSHIP OF CUSTOMER. Serv-Tech shall fail to own,
directly or indirectly, 100% of the capital stock of the Customer or to
control the Board of Directors thereof while the Letters of Credit are
outstanding; or
(m) WHITNEY NATIONAL BANK LETTERS OF CREDIT. A default or an
event of default shall occur under any documents or instruments
evidencing (i) any credit facility with Whitney National Bank pursuant
to which letters of credit are issued for the account of the Customer or
(ii) any guaranty of Serv-Tech or any other affiliate of Serv-Tech
thereof.
15. RIGHT OF SET-OFF. Upon the occurrence and during the continuance
of any Default or any Event of Default, the 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 (general or special, time or demand, provisional
or final) at any time held and other indebtedness at any time owing by the Bank
to or for the credit or the account of the Customer against any and all of the
obligations of the Customer now or hereafter existing under this Agreement,
irrespective of whether or not the Bank shall have made any demand hereunder
and although such obligations may be contingent or unmatured; provided,
however, the amount so set off shall be held as collateral pursuant to the
terms and conditions of the Intercreditor Agreement.
16. LIMITED LIABILITY. So long as the Bank has exercised reasonable
care and has acted in good faith, the Bank shall not be responsible to the
Customer for, and the Bank's right to reimbursement, indemnification, and other
payments hereunder shall not be impaired by (i) any act or omission for which
banks are relieved of responsibility under the Uniform Customs and Practice for
Documentary Credits, 1993 revision, ICC Publication No. 500 (1993), (ii) any
-16-
<PAGE> 17
recommendation or failure to recommend the inclusion or exclusion of any
particular term or wording in a Letter of Credit, (iii) honor or dishonor or
refusal of any demand under a Letter of Credit following the Customer's refusal
to confirm that such demand is entitled to be honored or that the Bank is
entitled to be reimbursed, (iv) any lack of validity or enforceability of this
Agreement or document or instrument executed in connection therewith, (v) any
amendment or waiver of or any consent to depart from all or any of the
provisions of this Agreement or any document or instrument executed in
connection therewith; (vi) the existence of any claim, set-off, defense or
other right the Customer may have at any time against a beneficiary of a Letter
of Credit (or any person for whom a beneficiary may be acting), the Bank or any
other person, whether in connection with this Agreement, another document or
instrument executed in connection therewith or any unrelated transaction; (vii)
any statement or any other document presented under a 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; (viii) payment by
the Bank under a Letter of Credit against presentation to the Bank of a draft
or certificate that does not comply with the terms of the Letter of Credit,
provided that the Bank's determination that documents presented under the
Letter of Credit comply with the terms thereof did not constitute gross
negligence or willful misconduct of the Bank; or (ix) any other act or omission
to act or delay of any kind by the Bank or any other person or any other event
or circumstance whatsoever that might, but for the provisions of this Section,
constitute a legal or equitable discharge of the Customer's obligations
hereunder. The Bank shall not be liable for any special, indirect, or
consequential damages unless there is a judicial finding by a court of
competent jurisdiction that such damages resulted solely from the Bank's bad
faith or willful misconduct.
17. MISCELLANEOUS.
(a) NO WAIVER; AMENDMENT. No amendment or waiver of any
provision hereof shall be enforceable against the Bank unless in writing
and signed by the Bank, and then only in the specific instance and for
the specific purposes for which given. Nothing herein shall affect the
Bank's duties or a beneficiary's rights under a Letter of Credit unless
such Letter of Credit is so amended.
(b) APPLICABLE LAW AND VENUE. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. The
Customer (i) agrees that any suit, action or other legal proceeding
arising out of or relating to this Agreement may be brought in a court
of competent jurisdiction in the State of Texas or in the Courts of the
United States of America located in such State, and that any suit,
action or other legal proceeding arising out of or relating to any
Letter of Credit issued hereunder may be brought, at the option of the
Bank, either in such a court or any other appropriate court of competent
jurisdiction, (ii) consents to the jurisdiction of any such court in any
such suit, action or proceeding, and (iii) waives any objection or
immunity which it may have to the laying of
-17-
<PAGE> 18
venue of any suit, action or proceeding in any of such courts and any
claim that any such suit, action or proceeding has been brought in an
inconvenient forum.
(c) COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same document.
(d) SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this
Agreement, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision
in any other jurisdiction.
(e) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made in this Agreement or in any
certificate delivered pursuant hereto shall survive the execution and
delivery of this Agreement, and no investigation by the Bank shall
affect the representations and warranties or the right of the Bank to
rely upon them.
(f) HEADINGS. Section headings used in this Agreement are for
reference only and shall not affect the construction of this Agreement.
(g) NOTICES. All notices hereunder shall be in writing, shall
be hand delivered, deposited into the United States mail (registered or
certified mail), postage prepaid, sent by overnight courier or sent by
confirmed facsimile transmission and shall be addressed to the parties
hereto at the respective addresses set forth opposite their signatures
below or such other address as such party shall designate in writing and
furnish to the other party. Any notice shall be deemed to be received
when actually received unless so addressed and deposited in the United
States mail as so designated in which event it shall be deemed received
on the third succeeding business day after the date of such deposit.
(h) WAIVER OF JURY TRIAL. THE CUSTOMER HEREBY EXPRESSLY
WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY LETTER OF CREDIT OR
THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
(i) NOTICE OF ENTIRE AGREEMENT. This Agreement constitutes
the entire understanding between the Customer and the Bank and
supersedes all earlier or contemporaneous agreements, whether written or
oral, concerning the subject matter thereof. THIS WRITTEN AGREEMENT
REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED
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<PAGE> 19
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
duly executed and delivered by their respective authorized officers as of the
date first above written.
F. C. SCHAFFER & ASSOCIATES, INC.
Address:
1020 Florida Boulevard
Baton Rouge, Louisiana 70802 By: /s/ DAVID TUSA
---------------------------------------
Name: David Tusa
-------------------------------------
Title: Director, Vice President & CFO
------------------------------------
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<PAGE> 20
ABN AMRO BANK N.V., HOUSTON AGENCY
Three Riverway, Suite 1700
Houston, Texas 77056 BY: ABN AMRO NORTH AMERICA, INC.
By: /s/ MICHAEL N. OAKES
---------------------------------------
Name: Michael N. Oakes
Title: Vice President & Director
By: /s/ H. GENE SHIELS
---------------------------------------
Name: H. Gene Shiels
-------------------------------------
Title: Vice President & Director
------------------------------------
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<PAGE> 21
SCHEDULE I - PENDING LITIGATION
NONE
<PAGE> 1
EXHIBIT 10.39
INTERCREDITOR AGREEMENT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I - DEFINITIONS AND CONSTRUCTION . . . . . . . . . . . . . . . 2
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II - PAYMENTS OF LIABILITIES . . . . . . . . . . . . . . . . . 8
2.1 Payments Prior to Significant Event . . . . . . . . . 8
2.2 "True Up" Participation Purchase Between Banks
and Noteholders to Maintain Original Principal
Ratio Following Significant Event . . . . . . . . . . 9
2.3 Payment on or After Significant Event . . . . . . . . 9
2.4 Relative Rights . . . . . . . . . . . . . . . . . . . 9
2.5 Avoided Payments . . . . . . . . . . . . . . . . . . . 9
2.6 Obligations Several . . . . . . . . . . . . . . . . . 10
2.7 Participation Terms . . . . . . . . . . . . . . . . . 10
ARTICLE III - AMENDMENT AND ACCELERATION OF LENDING
AGREEMENTS . . . . . . . . . . . . . . . . . . . . 11
3.1 Lending Agreements . . . . . . . . . . . . . . . . . . 11
3.2 Credit Agreement . . . . . . . . . . . . . . . . . . . 11
3.3 Note Agreements . . . . . . . . . . . . . . . . . . . 11
3.4 ABN Amendment and ABN Guaranty . . . . . . . . . . . . 12
3.5 Acceleration . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE IV - REPRESENTATIONS, COVENANTS AND RIGHTS OF LENDERS . . . . . 13
4.1 Non-Reliance . . . . . . . . . . . . . . . . . . . . . 13
4.2 Representations and Warranties . . . . . . . . . . . . 13
4.3 Covenants of Creditors . . . . . . . . . . . . . . . . 13
4.4 Headings . . . . . . . . . . . . . . . . . . . . . . . 15
4.5 Plural Terms . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE V - CONDITIONS TO EFFECTIVENESS;
DELIVERY OF DOCUMENTS . . . . . . . . . . . . . . . 15
</TABLE>
Table of Contents
Page 1
<PAGE> 3
<TABLE>
<S> <C> <C>
5.1 Conditions to Effectiveness . . . . . . . . . . . . . 15
ARTICLE VI - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . 16
6.1 Notices . . . . . . . . . . . . . . . . . . . . . . . 16
6.2 Waivers; Amendments . . . . . . . . . . . . . . . . . 16
6.3 Successors and Assigns . . . . . . . . . . . . . . . . 16
6.4 No Third Party Rights . . . . . . . . . . . . . . . . 17
6.5 Partial Invalidity . . . . . . . . . . . . . . . . . . 18
6.6 Equitable Remedies . . . . . . . . . . . . . . . . . . 18
6.7 Jury Trial . . . . . . . . . . . . . . . . . . . . . . 18
6.8 Counterparts . . . . . . . . . . . . . . . . . . . . . 18
6.9 Governing Law . . . . . . . . . . . . . . . . . . . . 18
6.10 Construction . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VII - COLLATERAL AGENT . . . . . . . . . . . . . . . . . . . . 18
7.1 Designation of Agent . . . . . . . . . . . . . . . . . 18
7.2 Duties of Collateral Agent . . . . . . . . . . . . . . 19
7.3 Delegation Duties, Etc . . . . . . . . . . . . . . . . 21
7.4 Indemnification . . . . . . . . . . . . . . . . . . . 22
7.5 Exculpatory Provisions . . . . . . . . . . . . . . . . 22
7.6 Knowledge of Default . . . . . . . . . . . . . . . . . 23
7.7 Collateral Agent in its Individual Capacity . . . . . 23
7.8 Resignation or Removal of Collateral Agent . . . . . . 24
7.9 Creditors as Owners . . . . . . . . . . . . . . . . . 24
7.10 Compensation . . . . . . . . . . . . . . . . . . . . . 24
EXHIBITS/SCHEDULES:
Exhibit A - Security Agreement
Exhibit B - Deeds of Trust/Mortgages
Exhibit C - Participation Certificate
Exhibit D - Notice of Assignment
Schedule 1 - Address for Notices
CONSENTS:
Consent and Agreement of the Company and its Affiliates
</TABLE>
Table of Contents
Page 2
<PAGE> 4
INTERCREDITOR AGREEMENT
THIS INTERCREDITOR AGREEMENT (this "Agreement") dated as of
November 12, 1996 is entered into by and among:
(1) Principal Mutual Life Insurance Company, TMG Life
Insurance Company, Berkshire Life Insurance Company and The Security
Mutual Life Insurance Company (individually, a "Noteholder" and
collectively, the "Noteholders") ;
(2) Texas Commerce Bank National Association ("TCB") and
Bank One, Texas, N.A. (individually, a "Bank" and collectively, the
"Banks"); and
(3) ABN AMRO Bank, N.V., a Netherlands chartered Bank
acting through its Houston agency ("ABN").
RECITALS
A. Pursuant to a Credit Agreement ($35,000,000 Revolving Credit
Loan) dated as of May 15, 1995, as amended by Amendments to Credit Agreement
effective as of July 19, 1995, and as of August 14, 1996 (as amended, the
"Prior Credit Agreement") the Banks have advanced funds to and issued certain
letters of credit (the "Banks' L/C's") on behalf of Serv-Tech, Inc. (the
"Company"). The face amount of the Banks' L/C's plus principal currently
advanced under the Credit Agreement is $19,454,067. The Company's obligations
under the Credit Agreement are guaranteed by Affiliates of the Company
identified in the Credit Agreement. The Company also is obligated to reimburse
TCB for certain liabilities incurred by the Company from time to time through
its use of cash management services provided by TCB, including overdrafts by
the Company and amounts of automated clearing house funds that may erroneously
be credited to the Company's account with TCB (to the maximum extent of
$2,000,000.00, the "Cash Management Liabilities").
B. Pursuant to a Note Purchase Agreement dated as of June 1, 1993,
as amended by the First through Sixth Amendment to Note Purchase Agreement
effective as of October 1, 1994, April 1, 1995, October 1, 1994, January 1,
1996, April 1, 1996 and July 1, 1996, respectively (as amended, the "Note
Purchase Agreement"), the Noteholders have purchased obligations (evidenced by
notes issued pursuant to the Note Purchase Agreement, "Senior Notes") of the
Company in an aggregate principal amount equal to $15,000,000.
C. ABN has issued four (4) Letters of Credit which are unexpired as
of the date hereof in the aggregate face amount of approximately $15,195,369 as
of September 30, 1996 (such Letters of Credit, as amended from time to time,
"ABN Letters of Credit"). The ABN Letters of Credit are issued for the account
of F. C.
<PAGE> 5
Schaffer & Associates, Inc. ("FCS"). FCS is obligated to repay sums that ABN
may advance under the Letters of Credit pursuant to the terms of a Continuing
Reimbursement Agreement dated as of November 1, 1994, as amended by First and
Second Amendments dated July 1, 1995 and April 30, 1996, respectively ("Prior
Reimbursement Agreement"). ABN has also issued a Letter of Credit, as amended
from time to time, for the benefit of FCS for the account of Finchaa Sugar
Factory ("Revolving L/C"). ABN is to be reimbursed for advances made on the
Revolving L/C by The African Development Bank. Pursuant to the terms of the
Prior Reimbursement Agreement, FCS is obligated to pay interest on the advances
made by ABN on the Revolving L/C until ABN is reimbursed by The African
Development Bank. The obligations of FCS under the Prior Reimbursement
Agreement are guaranteed by the Company and its Affiliates under its Guaranty
dated as of November 1, 1994 ("Prior ABN Guaranty").
D. The Company under each of the Prior Credit Agreement, the Note
Purchase Agreement and the Prior ABN Guaranty and FCS under the Prior
Reimbursement Agreement has requested that the respective documents be amended
as set forth in the First Amended and Restated Credit Agreement (the "Credit
Agreement"), the Note Restructuring Amendment, the ABN Amendment, and the ABN
Guaranty (all as defined below) (collectively, the "Amendments").
E. As a condition to execution and delivery of the Amendments, each
of the Banks, Noteholders and ABN are requiring the execution and delivery of
this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants hereinafter contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND CONSTRUCTION
1.1 Definitions. For purposes of this Agreement, the following
capitalized terms shall have the following meanings:
"ABN" shall have the meaning assigned to same in the first
paragraph of this Agreement.
"ABN Amendment" shall mean that certain Amended and Restated
Continuing Reimbursement Agreement of even date herewith, executed by ABN and
FCS, as it may be amended from time to time.
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<PAGE> 6
"ABN Guaranty" shall mean the Amended and Restated Guaranty of
the Company and the Affiliates named therein of even date herewith as it may be
amended from time to time.
"ABN Letters of Credit" shall have the meaning assigned to same
in Recital C above.
"ABN Liabilities" shall mean all sums advanced by ABN on the ABN
Letters of Credit and not yet repaid by FCS, the Company or any of their
Affiliates, to ABN under the ABN Amendment or the ABN Guaranty and all accrued
but unpaid interest, fees, charges, and rights to reimbursement for costs due
under the ABN Amendment or the ABN Guaranty.
"Affiliate" shall mean, with respect to any Person, another
Person which controls, is controlled by, or is under common control with, such
Person.
"Agent Bank" shall mean Texas Commerce Bank National Association
as agent under the Credit Agreement and its successors and assigns.
"Amendments" shall have the meaning assigned to same in Recital D
above.
"Assignee Creditor" shall have the meaning assigned to same in
Section 6.3(b).
"Assignment" shall have the meaning assigned to same in Section
6.3(b).
"Assignor Creditor" shall have the meaning assigned to same in
Section 6.3(b).
"Available Proceeds" shall mean all payments received by any
Creditor from and after the date of the occurrence of a Significant Event
including, without limitation, (i) any payment received from or on account of
any Obligor, (ii) any payment received as a result of the exercise of any right
of setoff or rights under any banker's or other lien or counterclaim, or any
exercise of rights under a theory of trust or constructive trust or other
equitable, common law, statutory, or other legal rights, or (iii) any payment
received as a result of the exercise of any right or remedy under any Lending
Agreement or any agreement, document or instrument delivered in connection with
any Lending Agreement, in each case, irrespective of whether such proceeds or
payments are received before or after the commencement of any bankruptcy or
other similar proceeding by or against the Company or any of its Affiliates.
"Avoided Payment" shall mean, any amounts received by any
Creditor in respect of any portion of the Liabilities, which, in each case, are
subsequently avoided or otherwise required to be returned to any Obligor or its
representative, trustee,
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<PAGE> 7
receiver, or successor in interest, whether by court order, settlement or
otherwise.
"Bank" or "Banks" shall have the meaning assigned to same in the
first paragraph of this Agreement.
"Banks' L/C's" shall have the meaning assigned to it in Recital A
above.
"Business Day" shall mean any day which is not a Saturday or
Sunday or a day on which commercial banks are authorized not to do business or
required to close in Houston, Texas.
"Cash Collateral Account(s)" shall mean interest-bearing accounts
established by the Collateral Agent for funds held to secure the Letter of
Credit Obligations. Funds in the Cash Collateral Account(s) shall be federally
insured or invested in United States Treasury obligations either directly or by
purchase of an interest in funds which invest in such Treasury obligations.
"Cash Management Liabilities" shall have the meaning assigned to
same in Recital A above.
"Closing Date" shall mean the date on which the last of the Note
Restructuring Amendment, Senior Note Guaranty, the Credit Agreement, the ABN
Amendment and the ABN Guaranty becomes effective.
"Collateral" shall mean all or substantially all of the assets of
the Company and its Affiliates which shall secure all of the Liabilities.
"Collateral Agent" shall mean Texas Commerce Bank, National
Association, as agent for the parties to this Agreement under the terms and
conditions set forth in Article VII below.
"Company" shall have the meaning assigned to same in Recital A
above.
"Credit Agreement" shall mean that certain First Amended and
Restated Credit Agreement of even date herewith executed by the Banks, the
Company and certain Affiliates of the Company as Guarantors as it may be
amended from time to time.
"Credit Agreement Liabilities" shall mean all obligations of the
Company and its Affiliates, as defined in the Credit Agreement or any document
executed in connection therewith, including obligations related to the Banks'
L/C's.
"Creditor" shall mean each Noteholder, each Bank, TCB with
respect to the Cash Management Liabilities and ABN, and "Creditors" shall mean
all Noteholders, TCB with respect to the Cash Management Liabilities, all Banks
and ABN, collectively.
-4-
<PAGE> 8
"Creditor Groups" shall mean the Banks considered as a group, the
Noteholders considered as a group, ABN, and TCB only with respect to the Cash
Management Liabilities.
"Deeds of Trust/Mortgages" shall have the meaning assigned to
same in Section 7.2 hereof.
"Event of Default" shall mean an Event of Default under the
Credit Agreement, Note Purchase Agreement, the Senior Note Guaranty, the ABN
Amendment or the ABN Guaranty occurring after the date hereof.
"Guarantors" shall mean the Persons which are guarantors under
the Credit Agreement, the ABN Guaranty and Senior Note Guaranty.
"L/C Reduction Notice" shall have the meaning assigned to it in
Section 4.3(f).
"Lending Agreements" shall mean the Credit Agreement, the Note
Purchase Agreement, the Senior Note Guaranty, the ABN Amendment, the ABN
Guaranty, and all promissory notes, security agreements, guaranties or other
documents executed in connection with any of the above or the Cash Management
Liabilities by any Obligor pursuant to each such agreement.
"Letter of Credit Obligations" shall mean at any specified time
the total contingent exposure of the issuer of the ABN Letters of Credit and
the Banks' L/C's.
"Liabilities" shall mean collectively, the Credit Agreement
Liabilities, the Cash Management Liabilities, the Note Liabilities and the ABN
Liabilities.
"Lien" shall mean, with respect to any property, any security
interest, mortgage, pledge, lien, claim, charge or other encumbrance in, of, or
on such property or the income therefrom, including, without limitation, the
interest of a vendor or lessor under a conditional sale agreement, capitalized
lease obligation or other title retention agreement.
"Make-Whole Amount" shall refer to the obligation of the Company
to reimburse the Banks and/or Noteholders for losses suffered due to prepayment
of principal as more fully described and defined in Section 2.15 of the Credit
Agreement and Section 4.2 and 9.1 of the Note Purchase Agreement.
"Note Liabilities" shall mean all obligations, of any Obligor to
any Noteholder arising under the Note Purchase Agreement or under any other
document executed in connection therewith and all obligations of all the
Guarantors under the Senior Note Guaranty.
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<PAGE> 9
"Note Purchase Agreement" shall have the meaning assigned to same
in Recital B above, as amended by the Note Restructuring Amendment.
"Note Restructuring Amendment" shall mean the Note Restructuring
Amendment to Note Purchase Agreement dated as of the date hereof between the
Company and the Noteholders.
"Noteholder" and "Noteholders" shall have the meaning assigned to
same in the first paragraph of this Agreement.
"Noteholder Basic Make-Whole Amount" shall mean the Make-Whole
Amount calculated as set forth in the Note Purchase Agreement using as a
discount rate the greater of the Make-Whole Discount Rate as set forth in the
Note Purchase Agreement, or 6.469%.
"Noteholder Excess Make-Whole Amount" shall mean the difference
between the Make-Whole Amount calculated as set forth in the Note Purchase
Agreement and the Noteholder Basic Make-Whole Amendment; provided however, the
Noteholder Excess Make-Whole Amount may never be less than $0.
"Notice of Assignment" shall have the meaning assigned to same in
Section 6.3.
"Obligor" shall mean the Company or any Affiliate of the Company.
"Original Principal Ratio" shall mean the ratio for sharing
between the Banks and Noteholders of 49.1525% of the Bank to 50.8475% for the
Noteholders [same being the ratio of the Outstanding Principal under the Credit
Agreement on August 14, 1996, to the Outstanding Principal under the Senior
Notes on August 14, 1996.]
"Outstanding Principal" shall mean, with respect to the
Noteholders, all principal outstanding as of a given date under the Note
Purchase Agreement. With respect to the Banks "Outstanding Principal" shall
mean all principal outstanding as of a given date as loans under the Credit
Agreement, and any sums advanced but not repaid under the Banks' L/C's. With
respect to ABN "Outstanding Principal" shall mean any sums advanced but not
reimbursed under any ABN Letters of Credit. With respect to TCB "Outstanding
Principal" shall mean sums advanced to or on behalf of the Company as part of
the Cash Management Liabilities for which TCB has in writing demanded
reimbursement and which ten (10) days thereafter remains outstanding.
"Payment Default" shall mean the failure of any Obligor to make
any payment when due or within any applicable grace period under any of the
Lending Agreements.
"Person" shall mean and include natural persons, corporations,
limited partnerships, general partnerships, joint
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stock companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other organizations, whether or not
legal entities, and governments and agencies and political subdivisions
thereof.
"Prior ABN Guaranty" shall have the meaning assigned to same in
Recital C above.
"Prior Credit Agreement" shall have the meaning assigned to same
in Recital A above.
"Prior Reimbursement Agreement" shall have the meaning assigned
to same in Recital C above.
"Proportionate Share" shall mean as of a specified date (i) with
respect to the Banks, a percentage equal to the ratio of the Banks' Total
Exposure to all Creditor Groups' Total Exposure; (ii) with respect to the
Noteholders, a percentage equal to the ratio of the Noteholders' Total Exposure
to all Creditor Groups' Total Exposure; (iii) with respect to ABN, a percentage
equal to the ratio of the ABN Total Exposure to all Creditor Groups' Total
Exposure; and (iv) with respect to TCB, a percentage equal to the ratio of the
TCB Total Exposure to all Creditor Groups' Total Exposure.
"Required Banks" shall mean, as of any date, Banks which have
fifty-one percent (51%) of the Credit Agreement Liabilities.
"Required Creditors" shall mean, as of any date, both (i) any two
of Required Banks, Required Noteholders, or ABN, and (ii) any combination of
Creditor Groups which hold three-quarters of the aggregate Outstanding
Principal for all Creditors.
"Required Noteholders" shall mean, as of any date, Noteholders
holding 51% or more of the principal amount of the Note Liabilities.
"Revolving L/C" shall have the meaning assigned to same in
Recital C above.
"Security Agreement" shall have the meaning assigned to same in
Section 7.2(a) below.
"Senior Note Guaranty" shall mean the Guaranty Agreement executed
by Affiliates of the Company contemporaneously with the execution of, and as a
prerequisite to, the effectiveness of the Note Restructuring Amendment.
"Senior Notes" shall have the meaning assigned to same in Recital
B above.
"Significant Event" shall mean (i) the occurrence of a Payment
Default; (ii) the acceleration of the maturity of or the other exercise of
remedies for a default or an event of default
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under the Credit Agreement, ABN Amendment, ABN Guaranty, Note Purchase
Agreement, or Senior Note Guaranty; (iii) any draft or other demand for payment
made under any ABN Letter of Credit; (iv) Banks fail or cease for any reason to
make Advances (as defined in the Credit Agreement including, without
limitation, advances under the Supplemental Commitment prior to January 31,
1997, when Borrowing Base capacity (as defined in the Credit Agreement) exists
therefore; (v) any Creditor shall exercise any setoff or banker's lien right or
any rights under a theory of trust or constructive trust or other equitable,
common law, statutory, or other legal rights, or (vi) Company or any Guarantor
shall file or have filed against it any petition seeking relief against the
Company or any Guarantor as a debtor or bankrupt or seeking other relief under
the bankruptcy, reorganization, debtor's relief, or insolvency or other similar
laws of the United States, any state or any other jurisdiction either domestic
or foreign.
"Supplemental Commitment" shall mean the agreement of the Banks
contained in the Credit Agreement, under which the Banks agree to provide a
supplemental revolving line of credit to the Company in the maximum principal
amount of $4,000,000 subject to the terms set forth therein.
"Supplemental Commitment Liabilities" shall mean all obligations
including all principal, interest and fees due from the Company and its
Affiliates under the Supplemental Commitment.
"TCB" shall have the meaning assigned to same in the first
paragraph of this Agreement.
"Total Exposure" shall mean, for any Creditor, the sum of
Outstanding Principal plus the amount, if any, of such Creditors Letter of
Credit Obligations; provided, however, that Total Exposure for TCB under the
Cash Management Liabilities shall mean sums advanced to or on behalf of the
Company for which TCB has in writing demanded reimbursement and which ten (10)
days thereafter remain outstanding.
ARTICLE II
PAYMENTS OF LIABILITIES
2.1 Payments Prior to Significant Event. Prior to the date on which
a Significant Event shall have occurred, each Bank or Noteholder may receive
and accept from the Company or any of its Affiliates repayments of Cash
Management Liabilities, payments under the Credit Agreement and the Note
Purchase Agreement, and ABN may receive and accept fees due it with respect to
the ABN Letters of Credit and fees and interest with respect to the Revolving
L/C.
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2.2 "True Up" Participation Purchase Between Banks and Noteholders to
Maintain Original Principal Ratio Following Significant Event. Promptly
following the occurrence of the first Significant Event to occur after the date
hereof, and prior to application of Available Proceeds in accordance with
Section 2.3 below, either the Banks or the Noteholders shall purchase from the
other, a participation interest in the Note Liabilities or the Credit Agreement
Liabilities held by the other in an amount sufficient to ensure that, as
between the Banks and Noteholders, each holds an amount of Outstanding
Principal as of such date so as to maintain the Original Principal Ratio.
2.3 Payment on or After Significant Event.
(a) Upon or simultaneously with the occurrence of a
Significant Event, all Available Proceeds shall be first used to pay all
Supplemental Commitment Liabilities. Upon payment in full thereof, all
remaining Available Proceeds shall be shared by Creditors in accordance
with their respective Creditor Group's Proportionate Shares determined
as of the date such payment is received; provided, however, that the
portion of sums due any Creditor with respect to Letter of Credit
Obligations shall be paid to the Collateral Agent to be held by the
Collateral Agent in such Creditor's Cash Collateral Account.
(b) If, on or after the date on which a Significant Event
shall have occurred, any Creditor receives and applies any Available
Proceeds to its own debt (other than payments made in accordance with
this Section 2.3), then such Creditor shall purchase from each other
Creditor a participation interest in such other Creditor's Total
Exposure equal to such other Creditor's Proportionate Share of such
Available Proceeds, determined as of the date such payment is received;
provided, however, that the amount payable with respect to the Letter of
Credit Obligations shall be paid to the Collateral Agent for deposit
into the appropriate Cash Collateral Account.
2.4 Relative Rights. This Agreement defines certain rights of
Noteholders, ABN, and Banks as among themselves. Nothing in this Agreement is
intended to affect or impair (i) as between Noteholders and the Company and
Guarantors, the Note Liabilities, Note Purchase Agreement, the Senior Note
Guaranty or any document, instrument or agreement delivered in connection with
the Note Purchase Agreement, (ii) as between Banks and the Company and the
Guarantors of the obligations of the Company and such Guarantors under the
Credit Agreement or any document, instrument or agreement delivered in
connection with the Credit Agreement, or (iii) as between ABN and FCS and the
Guarantors of the obligations of FCS under the ABN Amendment, the ABN Guaranty
or any documents, instruments or agreements delivered in connection therewith.
2.5 Avoided Payments. If at any time any Creditor is determined to
have received a payment which later becomes an
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Avoided Payment and the amount of such Avoided Payment is not equal to such
Creditor's Proportionate Share of all Avoided Payments determined to have been
returned by all Creditors (such Proportionate Share to be determined as of the
date each such Avoided Payment was made by the Obligor) then each Creditor
having returned an Avoided Payment which is less than such Creditor's
Proportionate Share of all Avoided Payments shall purchase from each Creditor
having returned an Avoided Payment which is greater than such Creditor's
Proportionate Share of all Avoided Payments a participation interest in the
Liabilities owing to such other Creditors, such that all Creditors share all
Avoided Payments pro rata based on their Proportionate Shares (determined as of
the date each such Avoided Payment was made by the applicable Obligor).
2.6 Obligations Several. The obligations of Creditors under this
Agreement are several and not joint. No Creditor shall be responsible for any
failure by any other Creditor to make any payment or to perform its obligation
to purchase any participation, and no failure by any Creditor to make any
payment or to perform its obligation to purchase any participation shall excuse
any other Creditor from its obligations to make any payment or to purchase any
participation.
2.7 Participation Terms. In the event any participation is purchased
and sold pursuant to Sections 2.2, 2.3, or 2.5: (i) it shall be purchased and
sold based on a price equal to the purchasing Creditor's Proportionate Share of
the undiscounted principal held by the selling Creditor; (ii) it shall include
in such purchase, in addition to the principal purchased all interest and other
entitlements associated therewith; (iii) such participation shall not affect
the selling Creditor's obligations under the applicable Lending Agreement; (iv)
such selling Creditor shall remain solely responsible to the other parties to
such Lending Agreement for the performance of such obligations; and (v) the
Company, Guarantors, and all Obligors, if applicable, and the other Creditor
parties to such Lending Agreement shall continue to deal solely and directly
with such selling Creditor in connection with such selling Creditor's rights
and obligations under such Lending Agreement; provided, however, the purchasing
participant shall be entitled to vote its proportionate interest under the
appropriate Lending Agreement with respect to requiring the relevant Creditor
Group to take or omit to take any action under such Lending Agreement and shall
be bound by all decisions made under or in connection with the applicable
Lending Agreement. The owner of the facility in which a participation is
purchased shall issue a Participation Certificate in the form of Exhibit C
attached hereto to the party purchasing the participation.
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ARTICLE III
AMENDMENT AND ACCELERATION OF LENDING AGREEMENTS
3.1 Lending Agreements. Except as set forth in Section 3.2, 3.3 or
3.4, any Creditor may, in accordance with the terms of its Lending Agreement,
amend, restate, supplement or otherwise modify any provisions of its Lending
Agreement or any of the documents, agreements or instruments delivered in
connection with its Lending Agreement. In addition, Creditors may charge the
Obligors incidental service fees charged to the Creditors' customers generally
as they may charge from time to time without regard to the restrictions in
Section 3.2, 3.3, or 3.4 below. Such incidental fees shall include service
charges related to deposit accounts, wire transfer fees, and the like. It
shall not include Letter of Credit Fees, non-usage fees or other fees
specifically identified in any of the Lending Agreement.
3.2 Credit Agreement. Without the consent of Required Noteholders
and ABN, Banks shall not amend, restate, supplement or otherwise modify the
Credit Agreement, the or any of the documents, agreements or instruments
delivered in connection with the Credit Agreement in any manner which (i)
changes the Credit Agreement Aggregate Commitment, (ii) increases the interest
rates, fees or indemnities payable to the Banks thereunder, (iii) changes the
scheduled date for any principal or interest payment due thereunder, (iv)
changes the date as set forth in Section 3.1 of the Credit Agreement by which
any letter of credit issued pursuant to the Credit Agreement must expire, (v)
releases the Company or any Guarantor from any obligations due thereunder, or
(vi) otherwise amends, restates, supplements or modifies any of the payment
terms or provisions or any definition (to the extent such definitions relate
thereto) in the Credit Agreement, or any of the documents, agreements or
instruments delivered in connection with the Credit Agreement. Without the
consent of Required Noteholders and ABN, Banks shall not amend, restate,
supplement or otherwise modify any of the covenants contained in Sections 8.03,
8.04, 8.05, 8.09, 8.11, 8.12, 8.13, 8.14 or 8.15 of the Credit Agreement, or
any definition applicable to such covenants to the extent relating thereto, or
amend, restate, supplement or otherwise modify the Events of Default specified
in the Credit Agreement.
3.3 Note Agreements. Without the consent of Required Banks and ABN,
Noteholders shall not amend, restate, supplement or otherwise modify the Note
Purchase Agreement or any of the documents, agreements or instruments delivered
in connection with the Note Purchase Agreement in any manner which (i) changes
the loans, advances or other financial accommodations to Borrower thereunder,
(ii) increases the interest rates, fees, Make-Whole Amount or indemnities
payable to the Noteholders thereunder, (iii) changes the scheduled date for any
principal or interest payment due thereunder, (iv) releases the Company or any
Guarantor from any obligations due thereunder, or (v) otherwise amends,
restates, supplements or modifies any of the payment terms or
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provisions or any definition (to the extent such definitions relate thereto) in
the Note Purchase Agreement or any of the documents, agreements or instruments
delivered in connection with the Note Purchase Agreement. Without the consent
of Required Banks and ABN, Noteholders shall not amend, restate, supplement or
otherwise modify any of the covenants contained in Sections 6.4, 6.5, 6.6, 6.7,
6.8, 6.12, 6.19 and 6.20 of the Note Purchase Agreement or Sections 9.2, 9.3,
9.5, 9.6, 9.10, 9.12 and 9.13 of the Note Restructuring Amendment or any
definition applicable to such covenants to the extent relating thereto, or
amend, restate, supplement or otherwise modify the Events of Default specified
in the Note Purchase Agreement.
3.4 ABN Amendment and ABN Guaranty. Without the consent of Required
Banks and Required Noteholders, ABN shall not amend, restate, supplement or
otherwise modify the ABN Amendment, ABN Guaranty or other agreements related to
issuance of the ABN Letters of Credit in any manner which (i) changes the
financial accommodations to FCS or any Obligor thereunder, (ii) increases the
interest rates or fees thereunder, (iii) changes the scheduled date for any
principal or interest payment due thereunder, (iv) releases FCS or any
Guarantor from any obligations due thereunder, or (v) otherwise amends,
restates, supplements or modifies any of the payment terms or provisions or any
definition (to the extent such definitions relate thereto) in the ABN
Amendment, the ABN Guaranty or any of the documents, agreements or instruments
delivered in connection therewith. Without the consent of Required Banks and
the Required Noteholders, ABN shall not amend, restate, supplement or otherwise
modify any of the covenants of the Note Restructuring Amendment and Note
Purchase Agreement identified in Section 3.3 above and of the Credit Agreement
identified in Section 3.2 above which are incorporated by reference into
Section 3.1 of the ABN Guaranty or any definition applicable to such covenants
to the extent relating thereto, or amend, restate, supplement or otherwise
modify the Events of Default specified in the ABN Amendment or ABN Guaranty.
Notwithstanding the provisions of this Section 3.4, ABN shall be permitted to
increase the amount of the ABN Letters of Credit by a total of not more than
Three Million Dollars ($3,000,000.00), which shall include increases of not
more than Two Million Dollars ($2,000,000.00) in the amount of the Advance
Payment Letter of Credit (as defined in the ABN Amendment) and an increase of
not more than One Million Dollars ($1,000,000.00) in the amount of the
Performance Security Letter of Credit (as defined in the ABN Amendment).
3.5 Acceleration. Nothing contained in this Agreement shall prevent
any Creditor from taking any remedial action otherwise permitted under the
terms of its Lending Agreement, including, without limitation, declaring the
acceleration of the maturity of any of the Liabilities or obtaining a money
judgment against any Obligor or demanding payment under the ABN Amendment or
the ABN Guaranty so long as all receivership, repossession, attachment,
foreclosure, setoff, execution, post-judgment collection procedures or any
other action affecting the Collateral
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are conducted pursuant to Article VII hereof, in accordance with the terms of
this Agreement.
ARTICLE IV
REPRESENTATIONS, COVENANTS AND RIGHTS OF LENDERS
4.1 Non-Reliance. Each Creditor represents that it has,
independently and without reliance on any other Creditor, and based on such
documents and information as it has deemed appropriate, made its own appraisal
of the financial condition and affairs of Obligors and its own decision to
enter into this Agreement, and agrees that it will, independently and without
reliance upon any other Creditor, and based on such documents and information
as it shall deem appropriate at the time, continue to make its own appraisals
and decisions in taking or not taking action under this Agreement or any
Lending Agreement. Except for notices, reports and other documents and
information expressly required to be furnished to the other Creditors by any
Creditor hereunder, no Creditor shall have any duty or responsibility to
provide any other Creditor with any credit or other information concerning any
Obligor which may come into the possession of Creditor or any of its or their
Affiliates.
4.2 Representations and Warranties. Each Creditor represents and
warrants to each other Creditor that (a) such Creditor is a corporation or
association duly organized, validly, existing and in good standing under the
laws of its jurisdiction of incorporation or organization; (b) the execution,
delivery and performance by such Creditor of this Agreement are within the
power of such Creditor and have been duly authorized by all necessary actions
on the part of such Creditor; and (c) this Agreement has been duly executed and
delivered by such Creditor and constitutes the legal, valid and binding
obligation of such Creditor, enforceable against it in accordance with its
terms, except as limited by bankruptcy, insolvency or other laws of general
application relating to or affecting the enforcement of creditors' rights
generally.
4.3 Covenants of Creditors. Each Creditor covenants and agrees with
each other Creditor as follows:
(a) Security. Except as specifically provided for herein with
respect to the Supplemental Commitment Liabilities, unless all Creditors
receive the same benefit on a pari passu basis, (i) no Creditor shall
take or hold as security for the Liabilities any property of any Obligor
or any other Person, and (ii) no Creditor shall accept any guaranty of
the Liabilities other than the Guaranties in effect as of the date
hereof (including the Senior Note Guaranty) or guaranties from entities
which become Subsidiaries of the Company subsequent to the date hereof;
provided, however, that it shall not be a violation of the
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terms hereof for ABN or any of the Banks to open and maintain accounts
of any Obligor with respect to which such institution by operation of
law may have a banker's lien or right of setoff.
(b) Notice of Amendment, Default or Set-Off. Promptly after
entering into any amendment or modification of a any agreement with the
Company or its Affiliates, Agent Bank, ABN, Banks or Noteholders, as
applicable, shall provide notice of such amendment or modification to
the other Creditors, provided that failure to give such notice shall not
affect the validity of such amendment or modification. Promptly after
delivering to or receiving from any Obligor notice of the occurrence of
any Event of Default, Agent Bank, ABN, or each Bank or each Noteholder,
as applicable, shall deliver a copy of such notice to the other
Creditors, provided that failure to deliver such notice shall not affect
the validity of any such notice delivered to any Obligor. Promptly
after exercising any set-off or banker's lien right or any exercise of
rights under a theory of constructive trust or other equitable, common
law, statutory or legal rights provided by law or by any agreement with
the Company or any Affiliate, the Creditor exercising such right shall
provide notice to the Collateral Agent and each other Creditor of such
exercise and of the Available Proceeds received as a result of such
exercise.
(c) Bankruptcy. In any bankruptcy proceeding of any Obligor
unless Required Banks, Required Noteholders, ABN, and TCB agree, (i) no
Creditor shall, with respect to its claim regarding the Liabilities,
vote in favor of any plan of reorganization which is inconsistent with
this Agreement, and (ii) each Creditor shall, with respect to its claim
regarding the Liabilities, actively oppose or shall join in opposing any
plan of reorganization proposed in any such bankruptcy which is
inconsistent with this Agreement.
(d) Application of Set-Off Payments to Liabilities. Each
Creditor agrees that it shall apply all amounts received by exercise of
any right of set-off or banker's lien to the Liabilities in accordance
with the provisions of this Agreement prior to the application of any
such amount to any liability or obligation which is not a Liability.
(e) Cooperation; Further Assurances. Each Creditor shall
cooperate fully with each other Creditor to the end that the terms of
this Agreement may be carried out promptly and fully. Without limiting
the generality of the foregoing, each Creditor shall respond promptly to
any request by any other Creditor regarding the amount of any
Liabilities owed to such Creditor. Each Creditor shall execute and
deliver such other agreements, documents and instruments and agrees to
take such other action as shall be reasonably necessary to carry out the
terms of this Agreement.
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(f) L/C Reduction Notice. The Banks and ABN covenant and
agree that after the first Significant Event to occur after the date
hereof, they will use their best efforts to promptly give notice to the
Collateral Agent when their respective Letter of Credit Obligations are
reduced for any reason, including by expiration of a Letter of Credit or
the permanent reduction of exposure under an unexpired Letter of Credit.
Such notice shall be in writing, certified as true, correct and complete
by the party serving such notice and stating the date and of the amount
of such reduction. The Company, its Affiliates, the beneficiary of any
Letter of Credit and all other persons not a party to this Agreement
shall have no rights under this subsection 4.3(f), and the failure of
ABN or any of the Banks to give the notice herein required shall have no
effect on any action taken by ABN or the Banks with respect to the
Company or any of its Affiliates or any other party.
4.4 Headings. Headings in this Agreement are for convenience of
reference only and are not part of the substance hereof.
4.5 Plural Terms. All terms defined in this Agreement in the
singular form shall have comparable meanings when used in the plural form and
vice versa.
ARTICLE V
CONDITIONS TO EFFECTIVENESS;
DELIVERY OF DOCUMENTS
5.1 Conditions to Effectiveness. This Agreement shall become a
binding obligation of each Creditor from and after the Closing Date upon the
occurrence of the following events:
(a) The Prior Credit Agreement shall have been amended and
restated) by the Credit Agreement.
(b) The Note Restructuring Amendment and the Senior Note
Guaranty shall have become effective.
(c) The ABN Amendment and the ABN Guaranty shall have become
effective.
(d) Each Creditor shall have executed and delivered this
Agreement.
(e) The Security Agreements, Deeds of Trust/Mortgages, and
Financing Statements as defined in Section 7.2(a) shall have been executed.
(f) The Consent and Agreement hereto shall have been fully
executed.
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ARTICLE VI
MISCELLANEOUS
6.1 Notices. Except as otherwise specified herein, all notices,
requests, demands, consents, instructions or other communications under this
Agreement shall be in writing and delivered by hand or mailed, first class
postage prepaid, or sent by overnight courier, or by confirmed telefax
transmission (confirmed by hand-delivery or overnight courier copy sent the
same day such telefax is sent), in each case addressed to the party to which
such notice is requested or permitted to be given or made, at the address or
telecopy number specified beneath the heading "Address for Notices" under the
name of such Creditor in Schedule 1, or at such other address or telecopy
number of which such Person shall have notified in writing the party giving
such notice, provided that any notice given by any Noteholder or ABN to Banks
shall be given to Agent Bank.
6.2 Waivers; Amendments. Any term, covenant, agreement or condition
of this Agreement may be amended or waived if such amendment or waiver is in
writing and is signed by the Required Banks, TCB, ABN, and the Required
Noteholders.
No failure or delay by any Creditor in exercising any right
hereunder shall operate as a waiver thereof or of any other right nor shall any
single or partial exercise or of any other right preclude any other further
exercise thereof or of any other right. Unless otherwise specified in such
waiver or consent, a waiver or consent given hereunder shall be effective only
in the specific instance and for the specific purpose for which given.
6.3 Successors and Assigns.
(a) Binding Effect. This Agreement shall be binding upon and
inure to the benefit of Creditors and their respective successors and
assigns.
(b) Assignments. In connection with any assignment by any
Creditor (an "Assignor Creditor") to any other Person (an "Assignee
Creditor") of all or any portion of the Assignor Creditor's rights under
such Assignor Creditor's Lending Agreements (as permitted thereby), such
Assignor Creditor shall also assign to the Assignee Creditor and
Assignee Creditor shall assume all or an allocable portion of such
Assignor Creditor's rights and obligations under this Agreement (such an
assignment to be referred to herein as an "Assignment") subject to the
following:
(i) Each Assignor Creditor shall notify each other
Creditor of each Assignment by delivering to such other
Creditor a copy of a Notice of Assignment in the form of Exhibit
D, appropriately completed and duly executed by such Assignor
Creditor and Assignee Creditor
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(a "Notice of Assignment"), which specifies (x) the name,
notice address and wire instructions of such Assignee Creditor;
(y) the respective principal portion of the Liabilities of
Assignor Creditor and Assignee Creditor after the Assignment; and
(z) the date as of which Assignee Creditor is assuming
obligations under Section 2.5 (Avoided Payments) with respect to
payments made by any Obligor.
(ii) From and after the date of delivery of the Notice of
Assignment, (x) the new Assignee Creditor reflected therein shall
be a Creditor hereunder and shall have the rights, duties and
obligations of such a Creditor (with respect to the principal
portion of the Liabilities so assigned and assumed) under this
Agreement, and (y) Schedule 1 shall be deemed to be amended on
such date to reflect the information set forth in the Notice of
Assignment.
(iii) Any Assignment shall not release Assignor Creditor
from its obligations hereunder to any other Creditor unless (x)
Required Creditors agree, or (y) (A) such Assignee Creditor (in
its capacity as a principal and not as nominee or trustee for any
other Person) assumes in writing all of the obligations hereunder
and under the assigned Lending Agreement; and (B) Assignee
Creditor (in its capacity as a principal) shall be a Qualified
Institutional Buyer under Rule 144A of the Securities and
Exchange Commission. Upon delivery of a Notice of Assignment
with respect to an Assignment complying with this Section
6.3(b)(iii), Assignor Creditor shall be released from all further
obligations under this Agreement with respect to the Liabilities
thereby assigned.
(c) Participations and Other Transfers. Nothing contained in
this Agreement is intended to limit the right of any Creditor to sell
participations in or otherwise transfer its rights in its Liabilities
and its Lending Agreements; provided, however, that no participant or
other transferee who is not also an Assignee Creditor shall be entitled
to exercise any of the rights and remedies provided to Creditors
hereunder.
(d) Disclosure. Creditors may disclose the terms of this
Agreement and any financial or other information relating to any Obligor
to each other or to any potential Assignee Creditor, participant or
other transferee.
6.4 No Third Party Rights. Nothing expressed in or to be implied
from this Agreement is intended to give, or shall be construed to give, any
Person, other than Creditors and their permitted successors and assigns
hereunder, any benefit or legal or equitable right, remedy or claim under or by
virtue of this Agreement or under or by virtue of any provision herein.
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6.5 Partial Invalidity. If at any time any provision of this
Agreement is or becomes illegal, invalid or unenforceable in any respect under
the law of any jurisdiction, neither the legality, validity or enforceability
of the remaining provisions of this Agreement nor the legality, validity or
enforceability of such provision under the law of any other jurisdiction shall
in any way be affected or impaired thereby.
6.6 Equitable Remedies. Each party to this Agreement recognizes that
money damages may provide an insufficient remedy for breach of their respective
obligations under this Agreement and therefore agrees that specific performance
of its obligations, and such other equitable remedies as may be appropriate,
may be granted to each party hereunder. Remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
6.7 JURY TRIAL. EACH CREDITOR, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY AS TO ANY
ISSUE RELATING TO THIS AGREEMENT IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM
ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR ANY OF THE TRANSACTIONS OR
EVENTS REFERENCED HEREIN OR CONTEMPLATED HEREBY.
6.8 Counterparts. This Agreement may be executed in any number of
identical counterparts, any set of which signed by all the parties hereto shall
be deemed to constitute a complete, executed original for all purposes.
6.9 Governing Law. This Agreement shall be governed by and construed
in accordance with the substantive laws of the State of Texas without reference
to any choice of law rules.
6.10 Construction. This Agreement is the result of negotiations
among, and has been reviewed by, each Creditor and its respective counsel.
Accordingly, this Agreement shall be deemed to be the product of all parties
hereto and shall not be construed against any party hereto on the ground that
such party drafted this Agreement. To the extent there is any inconsistency
between the terms of this Agreement and the terms of any Lending Agreement, the
terms of this Agreement shall control.
ARTICLE VII
COLLATERAL AGENT
7.1 Designation of Agent. Texas Commerce Bank National
Association is hereby designated the Collateral Agent by each of the other
Creditors to perform such duties on behalf of the other Creditors and itself,
and to have such powers as are set forth herein. In performing its functions
and duties under this Agreement, the Collateral Agent shall act solely as agent
of the Creditors and does not assume and shall not be deemed to have
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<PAGE> 22
assumed any obligation toward or relationship of agency or trust hereunder with
or for any Obligor. The Collateral Agent shall not have, by reason of this
Agreement, a fiduciary relationship with any Creditor, and nothing in this
Agreement, expressed or implied, is intended or shall be so construed to impose
upon the Collateral Agent any obligations in respect of this Agreement or the
other instruments and agreements referred to herein except as expressly set
forth herein or therein.
7.2 Duties of Collateral Agent.
(a) The Collateral Agent shall have no duties or
responsibilities, other than those expressly set forth herein. It
shall be responsible for obtaining the signatures of the Company and
appropriate Affiliates on Security Agreements substantially in the
form attached hereto as Exhibit A ("Security Agreements") and Deeds of
Trust or Mortgages substantially in the form attached hereto as
Exhibit B ("Deeds of Trust/Mortgages") pursuant to which the Company
and appropriate Affiliates pledge the Collateral as security for all
of the Company's obligations to the Banks, the Noteholders and ABN.
The Collateral Agent shall also obtain executed financing statements
to be filed to perfect the security interests and liens created by
such Security Agreements and Deeds of Trust/Mortgages ("Financing
Statements").
(b) Collateral Agent shall be responsible for filing the
Deeds of Trust/Mortgages and Financing Statements in such offices as
directed by the Creditor Groups to pay such fees and expenses as are
required in connection therewith and to make such filings and pay such
fees as are required to continue such perfection.
(c) (i) Collateral Agent shall take such actions and
perform such duties as required of the Secured Party under the terms
of the Security Agreement or Mortgagee Beneficiary or Secured Party
under the Deeds of Trust/Mortgages; (ii) upon the written instructions
of the Required Creditors, but not before, Collateral Agent (and no
other party) shall take such acts as directed by the Required
Creditors that are necessary or desirable to exercise any right of the
Creditors or any of them with respect to any of the Collateral or
proceeds thereof, to foreclose upon such Collateral, conduct
foreclosure sales where appropriate, to collect proceeds of Collateral
and to distribute such proceeds to the Creditors as appropriate; (iii)
the Collateral Agent may release Collateral of a value of not more
than $50,000 so long as collateral of a similar nature and of equal or
greater value is simultaneously substituted therefor or the Creditor
Groups agree and consent and vehicles with a market value of less than
$15,000 sold in the ordinary course of business; and (iv) Collateral
Agent may at any time not take or refrain from taking any of the
actions authorized by Section 7.2(c)(i) or (iii), until it receives
instructions from the Required Creditors provided that doing so will
not endanger the Creditors' secured
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<PAGE> 23
interest in the Collateral and the Collateral Agent promptly seeks
such instructions.
(d) Each Creditor agrees that no other Creditor shall
have any right individually to realize upon the security interest
granted by any of the Security Agreements or Deeds of Trust or to
otherwise enforce or exercise any remedy in respect of the Collateral,
it being understood and agreed that such remedies may be exercised
only by the Collateral Agent for the ratable benefit of the Creditors
and each Creditor further agrees that it shall not individually
institute any judicial action pertaining to the Collateral or exercise
any other remedy pertaining to the Collateral, except with the consent
of the Required Creditors hereof; provided that nothing contained in
this Agreement shall be deemed or construed to limit in any fashion,
(w) the right of the Creditors to accelerate or demand payment
pursuant to documents evidencing the Company's or any Affiliate's
indebtedness to them, or (x) to limit the rights of TCB, in its
capacity as a Bank, to receive and collect proceeds in the Company's
lockbox account with TCB and hold and distribute same pursuant to the
terms hereof, (y) the right of ABN to receive and disburse funds from
the account it holds in the name of F. C. Schaffer into which
proceeds from the FINCHAA Sugar Refinery Project are paid and
thereafter disbursed, provided, further, following a Significant Event
all such receipts and disbursements of TCB and ABN shall be for the
benefit of all of the Creditors in accordance with Section 2.3 hereof,
or (z) to prohibit the filing of collection actions by individual
Creditors so long as no action is taken against any of the Collateral
except as specifically permitted herein. Notwithstanding the above
provisions of this Section 7.2(d), it shall not be a violation of the
terms of this Agreement if any institution exercises its rights under
Banker's Liens or right of setoff to take proceeds of accounts of any
Obligor held at their respective institutions so long as such taking
is done to preserve or protect the interests of Creditors in such
funds and if such amounts are distributed pursuant to Section 7.2(e)
as proceeds of Collateral.
(e) Distribution of the proceeds of such Collateral shall
be made in the following order: First, to the Collateral Agent to pay
the reasonable costs and expenses of performing its duties hereunder,
including those related to foreclosure, sale, and collection of
proceeds thereof; Second, to the Banks in payment of the Supplemental
Commitment Liabilities; Third, to the Creditors, pro rata, (i) in
payment of principal, interest, and fees (including Make-Whole Amounts
for Banks and the Noteholder Basic Make-Whole Amount) due Creditors
with respect to money loaned under the Credit Agreement or the Note
Purchase Agreement, and in payment of TCB's Outstanding Principal and
under the Cash Management Liability, (ii) in payment of money advanced
but not reimbursed under any ABN Letter of Credit or Bank L/C, and
(iii) to create Cash Collateral Accounts to secure the Letter
-20-
<PAGE> 24
of Credit Obligations; Fourth, to Noteholders for the Noteholder
Excess Make-Whole Amount, if any; and Fifth, to all Creditors pro rata
for costs and expenses for which such Creditors are entitled to
reimbursement plus the Noteholder Excess Make-Whole Amount, and Sixth,
to the Obligors as required by law.
(f) Distribution of the contents of the Cash Collateral
Accounts shall be made as follows:
(i) Upon receipt of a written request from TCB or ABN
certifying that a draft(s) has been made and paid on a Letter of
Credit and giving the amount and date of such payment, the Collateral
Agent shall distribute funds to the issuer of such Letter of Credit
from the applicable Cash Collateral Account in an amount determined
by multiplying the amount in the Cash Collateral Account by a
fraction, the numerator of which is the amount of the draft(s) and
the denominator of which is the total amount of the exposure of the
issuer under the Bank L/C's or the ABN Letters of Credit, as the case
may be, which were outstanding and unexpired immediately prior to the
payment of the draft(s);
(ii) Upon receipt of a L/C Reduction Notice certifying
that a Letter of Credit has expired or that the issuers' exposure
under an unexpired Letter of Credit has been permanently reduced and
giving the amount and date of such reduction of the issuer's Letter
of Credit Obligations, the Collateral Agent shall distribute pursuant
to the terms of Section 7.2(e) to the Creditors in their
Proportionate Shares determined immediately after the date of the
reduction of exposure, funds from the applicable Cash Collateral
Account in an amount determined by multiplying the amount in said
Cash Collateral Account by a fraction, the numerator of which is the
amount of the reduction of the issuers' Letter of Credit Obligations
and the denominator of which is the Letter of Credit Obligations of
the issuer immediately prior to the reduction.
(g) Collateral Agent shall promptly send to each Creditor
copies of any notices it receives with respect to the Security
Agreement or Deeds of Trust/Mortgages or the Collateral from any
Obligor or any other source and prior to any distribution shall give
notice to each Creditor Group of the Total Exposure and Letter of
Credit Obligations to be used in calculating the distribution.
7.3 Delegation Duties, Etc. The Collateral Agent may execute any
of its respective duties and perform any of its respective powers hereunder by
or through agents or employees and shall be entitled to consult with legal
counsel and any accountant or other professional selected by it. The
Collateral Agent shall not be responsible for the negligence or misconduct of
any agents or attorneys-in-fact selected by it with reasonable care.
-21-
<PAGE> 25
7.4 Indemnification. Each Creditor does hereby indemnify the
Collateral Agent in its capacity as such, and its directors, officers,
employees or agents, to the extent not reimbursed promptly by the Company or
any other Obligor, pro rata according to their Proportionate Shares from and
against any and all claims, liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever that may be imposed on, incurred by or asserted
against it in any way relating to or arising out of this Agreement, the Senior
Notes, the Credit Agreement, the ABN Letters of Credit or any of the other
documents or any action taken or omitted to be taken or suffered in good faith
by any of them hereunder or thereunder, provided that no Bank, Noteholder or
ABN shall be liable for any portion of any of the foregoing items resulting
from the gross negligence or willful misconduct of the Collateral Agent or any
of its respective directors, offices, employees or agents. Without limiting
the foregoing, each Bank, each Noteholder, and ABN agrees to reimburse the
Collateral Agent promptly upon demand for its Proportionate Share of any
out-of-pocket expenses (including reasonable counsel fees and disbursements)
incurred by the Collateral Agent in connection with the execution,
administration or enforcement of rights and responsibilities under, or
amendment, modification or waiver of any provision of, this Agreement, to the
extent that the Collateral Agent is not promptly reimbursed for such expenses
by the Company or any other Obligor. If the Collateral Agent is subsequently
reimbursed by the Company or any other Obligor for such expenses, the
Collateral Agent shall remit to the Creditors their pro rata shares of such
reimbursement. As a Creditor, Texas Commerce Bank shall bear its pro rata
share of all expenses and indemnities to be reimbursed to the Collateral Agent.
The obligation of each Creditor hereunder shall be several and not joint and
several.
7.5 Exculpatory Provisions.
(a) Neither the Collateral Agent, nor any of its
officers, directors, employees or agents shall be liable for any
action taken or omitted to be taken or suffered in good faith by it
hereunder or in connection herewith, except that the Collateral Agent
shall be liable for its own gross negligence or willful misconduct.
Neither the Collateral Agent nor any of its directors, officers,
employees or agents, shall be liable in any manner for the
effectiveness, enforceability, collectability, genuineness,
perfection, validity, sufficiency or the due execution of this
Agreement, the Security Agreements, the Deeds of Trust/Mortgages, the
Financing Statements or any of the other documents executed in
connection therewith or for the due authorization, authenticity or
accuracy of the representations and warranties herein or in any other
certificate, report, notice, consent, opinion, statement, or other
document furnished or to be furnished hereunder, and shall be entitled
to rely upon any of the foregoing believed by it to be genuine and
correct and to have been signed and sent or made by the proper party.
The Collateral Agent shall be under no duty or responsibility to
-22-
<PAGE> 26
any Creditor to ascertain or to inquire into the performance or
observance by the Company or any Affiliate of any of the provisions
hereof or of any document executed and delivered in connection
herewith. Each Creditor acknowledges that it has taken and will
continue to take such action and to make such investigation as it
deems necessary to inform itself of the affairs of the Company and the
other Obligors and each Creditor acknowledges that it has made and
will continue to make its own independent investigation of the
creditworthiness and the business and operations of the Company and
the other Obligors and that, in entering into this Agreement and in
making its extensions of credit, it has not relied and will not rely
upon any information or representations furnished or given by the
Collateral Agent or any other Creditor.
(b) If the Collateral Agent shall request instruction
from the Banks, TCB, Noteholders and/or ABN with respect to any act or
action (including the failure to take an action) in connection with
any Obligor's obligations under the Lending Agreements, the Collateral
Agent shall be entitled to refrain from such act or taking such action
unless and until it shall have received instructions form the
Creditors whose consent to such action or inaction is required
pursuant to the terms of this Agreement. Without prejudice to the
generality of the foregoing, (i) the Collateral Agent shall be
entitled to rely, and shall be fully protected in relying, upon any
communication, instrument or document believed by it to be genuine and
correct and to have been signed or sent by the proper party or
parties, and shall be entitled to rely and shall be protected in
relying on opinions and judgments of attorneys, accountants, experts
and other professional advisors selected by it and (ii) no Creditor
shall have any right of action whatsoever against the Collateral Agent
as a result of the Collateral Agent acting or (where so instructed)
refraining from acting under this Agreement with respect to any
Obligor's obligations under the Lending Agreements in accordance with
the instructions of all of the Creditors whose consent to such action
or inaction is required pursuant to the terms of this Agreement.
7.6 Knowledge of Default. It is expressly understood and agreed
that the Collateral Agent shall be entitled to assume that no Defaults or Event
of Default has occurred and is continuing, unless the officers of the
Collateral Agent immediately responsible for matters concerning this Agreement
shall have been notified in writing by (a) the Company or any other Obligor, or
(b) any Creditor that such Creditor considers that an Event of Default has
occurred and is continuing and specifying the nature thereof.
7.7 Collateral Agent in its Individual Capacity. The Collateral
Agent shall have the same rights and powers hereunder as any Creditor with
respect to this Agreement, all extensions of credit made by the Collateral
Agent, and any renewals, extensions or deferrals of the payment thereof, and
may exercise the same as
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<PAGE> 27
though it were not the Collateral Agent. The Collateral Agent may accept
deposits from, lend money to and generally engage in any kind of banking,
trust, financial advisory or other business with the Company or any Affiliate
of the Company as if it were not performing the duties specified herein, and
may accept reasonable and customary fees and other consideration from the
Company for services in connection with this Agreement and otherwise without
having to account for the same to the Creditors.
7.8 Resignation or Removal of Collateral Agent. If at any time
the Collateral Agent deems it advisable, in its sole discretion, it may submit
to each of the Creditors and the Company a written notification of its
intention to resign as Collateral Agent under this Agreement, such resignation
to be effective only at such time within thirty (30) days after such written
notification that a successor Collateral Agent, satisfactory to the Required
Creditors, has been appointed and accepted such appointment in writing, or at
such time more than thirty (30) days after such written notification that a
successor Collateral Agent has been identified by the original Collateral
Agent, and such successor has accepted such appointment in writing. In the
event that the Collateral Agent shall have breached any of its material
obligations to the Creditors hereunder, the Required Creditors other than the
Collateral Agent may remove the Collateral Agent and appoint a successor
Collateral Agent from among themselves or otherwise, effective on the date
specified by them, by written notice to the Collateral Agent and the Company.
7.9 Creditors as Owners. The Collateral Agent may deem and treat
each Creditor as the owner of such Creditor's indebtedness for all purposes
hereof unless and until a written notice of the assignment or transfer thereof
shall have been filed with the Collateral Agent. Any request, authority or
consent of any person who at the time of making such request or giving such
authority or consent is the owner of such indebtedness shall be conclusive and
binding on any subsequent owner, transferee or assignee of such indebtedness.
7.10 Compensation. The Company shall pay to the Collateral Agent
for its own account the Collateral Agent's fee of $10,000 payable upon
execution of this Agreement.
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<PAGE> 28
NOTEHOLDERS:
PRINCIPAL MUTUAL LIFE
INSURANCE COMPANY
By: /s/ JOHN D. CLEAVENGER
--------------------------------------------
Name: John D. Cleavenger, Counsel
-------------------------------------------
Title:
------------------------------------------
By: /s/ STEPHEN G. SKRIVANEK
--------------------------------------------
Name: Stephen G. Skrivanek, Counsel
-------------------------------------------
Title:
------------------------------------------
TMG LIFE INSURANCE COMPANY
By: /s/ ROBERT R. LAPOINTE
--------------------------------------------
Name: Robert R. Lapointe
-------------------------------------------
Title: Vice President
------------------------------------------
By: /s/ MICHAEL J. CAREW
--------------------------------------------
Name: Michael J. Carew
-------------------------------------------
Title: Assistant Vice President
------------------------------------------
BERKSHIRE LIFE INSURANCE COMPANY
By: /s/ ELLEN I. WHITTAKER
--------------------------------------------
Name: Ellen I. Whittaker
-------------------------------------------
Title: Investment Officer
------------------------------------------
THE SECURITY MUTUAL LIFE INSURANCE COMPANY
By: /s/ KEVIN W. HAMMOND
--------------------------------------------
Name: Kevin W. Hammond
-------------------------------------------
Title: Vice President
------------------------------------------
Chief Investment Officer
------------------------------------------
<PAGE> 29
BANKS:
TEXAS COMMERCIAL BANK NATIONAL ASSOCIATION
By: /s/ CURTIS D. KARGES
------------------------------------------
Name: Curtis D. Karges
------------------------------------------
Title: Senior Vice President
------------------------------------------
BANK ONE, TEXAS, N.A.
By: /s/ JOHN E. ELAM, JR.
------------------------------------------
Name: John E. Elam, Jr.
------------------------------------------
Title: Vice President
------------------------------------------
ABN:
ABN AMRO BANK, N.V., HOUSTON AGENCY
By: ABN AMRO NORTH AMERICA, INC.
By: /s/ H. GENE SHIELS
------------------------------------------
Name: H. Gene Shiels
------------------------------------------
Title: Vice President and Director
------------------------------------------
By: /s/ CHARLES W. RANDALL
------------------------------------------
Name: Charles W. Randall
------------------------------------------
Title: Senior Vice President and
------------------------------------------
Managing Director
------------------------------------------
<PAGE> 30
EXHIBIT A
SECURITY AGREEMENT
DUE TO THE LARGE VOLUME OF MATERIAL,
THIS EXHIBIT HAS BEEN INTENTIONALLY OMITTED.
PARTIES TO THE AGREEMENT HAVE BEEN SUPPLIED COPIES.
<PAGE> 31
EXHIBIT B
DEEDS OF TRUST/MORTGAGE
DUE TO THE LARGE VOLUME OF MATERIAL,
THIS EXHIBIT HAS BEEN INTENTIONALLY OMITTED.
PARTIES TO THE AGREEMENT HAVE BEEN SUPPLIED COPIES.
<PAGE> 32
EXHIBIT C
PARTICIPATION CERTIFICATE
Reference is made to the Intercreditor Agreement dated November __,
1996, executed by Principal Mutual Life Insurance Company, TMG Life Insurance
Company, Berkshire Life Insurance Company and the Security Mutual Life Insurance
Company (individually, a "Noteholder" and collectively, the "Noteholders");
Texas Commerce Bank National Association ("TCB") and Bank One, Texas, N.A.
(individually, a "Bank" and collectively, the "Banks"); and ABN AMRO Bank, N.V.,
a Netherlands chartered Bank acting through its Houston agency ("ABN"). All
capitalized terms used herein shall have the meaning set forth herein or, if no
definition is contained herein, as set forth in the Intercreditor Agreement.
1. ___________________________________________ ("Assignee"), has
purchased from ________________________________________ ("Assignor") and
Assignor has sold and assigned to Assignee a __________ percent (__%) interest
in and to Assignor's rights, title and interest as of the date hereof in all
Outstanding Principal, together with interest and other entitlements associated
therewith, under the terms of Assignor's Lending Agreement with the Company and
its Affiliates.
2. The participation purchased and evidenced by this Certificate shall
be held pursuant to and governed by all of the terms of the Intercreditor
Agreement and, in particular, Section 2.7 thereof.
Dates this _____ day of _________, 199_.
ASSIGNOR ASSIGNEE
(Name of Assignor) (Name of Assignee)
By: By:
------------------------------ -----------------------------------
Name: Name:
------------------------------ -----------------------------------
Title: Title:
------------------------------ -----------------------------------
<PAGE> 33
EXHIBIT D
Notice of Assignment
THIS NOTICE OF ASSIGNMENT is sent pursuant to the requirements of
Section 6.3 of that certain Intercreditor Agreement dated November _____, 1996
("Intercreditor Agreement") by and between ABN AMRO BANK, N.V., a Netherlands
Chartered Bank acting through its Houston agency, PRINCIPAL MUTUAL LIFE
INSURANCE COMPANY, TMG LIFE INSURANCE COMPANY, BERKSHIRE LIFE INSURANCE
COMPANY, SECURITY MUTUAL LIFE INSURANCE COMPANY, TEXAS COMMERCE BANK N.A., and
BANK ONE TEXAS, N.A. (collectively the "Creditors").
By this Notice ___________________________ ("Assignor") notifies the
other Creditors that it has assigned and transferred an interest in its
financial accommodation made to ____________________________ to
___________________________ as "Assignee" together with corresponding rights
and obligations of Assignor under any Guaranties, Security Agreements, Deeds of
Trust, Mortgages or other agreements made or executed in connection therewith
(the "Facility").
Assignor certifies that:
(1) Such Assignment is made in compliance with the terms of the
Intercreditor Agreement;
(2) Assignor has seen and reviewed the Intercreditor Agreement and is
fully aware of and consents to its terms;
(3) Assignor has purchased ___________ percent (__%) of Assignee's
interest in the Facility;
(4) Assignee has retained ____________ percent (__%) interest in the
Facility.
(5) Assignor's address is as follows:
----------------------------------------
----------------------------------------
----------------------------------------
----------------------------------------
Telecopier No.: (___)
------------------
Wire Transfer Instructions ;
----------------------
and
(6) The Assignment is effective as of ____________ __, 1996.
Exhibit D
Page 1
<PAGE> 34
(5) Assignor's address is as follows:
----------------------------------------
----------------------------------------
----------------------------------------
----------------------------------------
Telecopier No.: (___)
------------------
Wire Transfer Instructions ;
----------------------
and
(6) The Assignment is effective as of ____________ __, 1996.
Exhibit D
Page 1
<PAGE> 35
Dated this ______ day of _____________________, 199__.
ASSIGNOR: ASSIGNEE:
- ------------------------------- ----------------------------------
By: By:
---------------------------- ------------------------------
Name: Name:
-------------------------- ----------------------------
Its: Its:
---------------------- ------------------------
Exhibit D
Page 2
<PAGE> 36
CONSENT AND AGREEMENT
The Company and its Affiliates executing this Consent and Agreement
hereby certify and agree as follows:
(1) They have read, reviewed and understood the terms and
conditions set forth in the foregoing Intercreditor Agreement;
(2) They understand and agree that sums received by any party to
the Intercreditor Agreement from or on behalf of the Company
or any of its Affiliates after the occurrence of a Significant
Event will be distributed to Creditors and applied to the
obligations of the Company or its Affiliates to the Creditors
in the amounts and in the manner described in the
Intercreditor Agreement even if some other distribution may be
set out in other agreements with certain of the Creditors;
(3) They shall have no claims or right of action against any
Creditor for actions taken or not taken in compliance with the
terms of the Intercreditor Agreement;
(4) They are not third party beneficiaries of the Intercreditor
Agreement and they shall have no legal or equitable right,
remedy, or claim under or by virtue of the Intercreditor
Agreement or by virtue of any provision therein; and
(5) They understand and agree that the parties to the
Intercreditor Agreement may amend or modify its terms from
time to time with or without notice to the Company or its
Affiliates and that such amendment shall be effective without
the knowledge, consent or further agreement of the Company or
any of its Affiliates.
-1-
<PAGE> 37
Dated November __, 1996.
SERV-TECH, INC.
By:/s/ DAVID TUSA
-------------------------------------------------
Name: David Tusa
Title: Senior Vice President of
Finance and Administration
ADVANCED REFRACTORY SERVICES, INC.
AMERICAN MECHANICAL SERVICES, INC.
CASTING CONCEPTS, INC.
CON-SEAL, 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.
ST PIPING, INC.
TOTAL REFRACTORY SYSTEMS, INC.
TURNAROUND MAINTENANCE, INC.
UNITED INDUSTRIAL MATERIALS, INC.
By:/s/ DAVID TUSA
-------------------------------------------------
Name: David Tusa
Title: Vice President
SECO INDUSTRIES, INC.
SERV-TECH ENGINEERS, INC.
SERV-TECH EPC, INC.
By:/s/ DAVID TUSA
-------------------------------------------------
Name: David Tusa
Title: Senior Vice President of Finance
and Administration
PRS HOLDING, INC.
By:/s/ DAVID TUSA
-------------------------------------------------
Name: David Tusa
Title: Senior Vice President
-2-
<PAGE> 38
DELTA MAINTENANCE, INC.
PETRO RECOVERY SYSTEMS, INC.
SERV-TECH CONSTRUCTION AND
MAINTENANCE, INC. (FORMERLY SERV
TECH EPC - HOUSTON, INC.)
SERV-TECH INTERNATIONAL SALES, INC.
SERV-TECH OF NEW MEXICO, INC.
SERV-TECH SERVICES, INC.
TERMINAL TECHNOLOGIES, INC.
TIPCO ACQUISITION CORP.
By:/s/ DAVID TUSA
-------------------------------------------------
Name: David Tusa
Title: President
-3-
<PAGE> 39
SCHEDULE 1
Address for Notices
Texas Commerce Bank
713 Main Street
Houston, Texas 77002
Attention: Mr. Curtis D. Karges
Telecopy No: (713) 216-6004
Bank One Texas, N.A.
Bank One Center Building
910 Travis, 7th Floor
Houston, Texas 77002
Attention: John Elam
Telecopy No.: (713) 751-6199
ABN AMRO Bank N.V., Houston Agency
Three Riverway, Suite 1700
Houston, Texas 77056
Attention: Charles W. Randall
Senior Vice President and
Managing Director
Telecopy No: (713) 629-7533
Principal Mutual Life Insurance Company
711 High Street
Des Moines, Iowa 50392-0810
Attention: Investment Department/
Accounting & Treasury
Telecopy No: (515) 248-2490
Principal Mutual Life Insurance Company
711 High Street
Des Moines, Iowa 50392-0810
Attention: Investment Department/
Securities Division
Telecopy No: (515) 248-2490
TMG Life Insurance Company
The Mutual Group (U.S.)
401 North Executive Drive
Brookfield, Wisconsin 53008-0980
Attention: Ms. Lisa Harris
Telecopy No: (414) 797-3988
Berkshire Life Insurance Company
700 South Street
Pittsburgh, Massachusetts 01201
Attention: Securities Department
Telecopy No: (413) 443-9397
The Security Mutual Life Insurance Company of
Lincoln, Nebraska
200 Centennial Mall North (68508)
Post Office Box 82248
Lincoln, Nebraska 68501
Attention: Kevin Hammond
Telecopy No: (402) 434-9599
Schedule 1
Page 1
<PAGE> 1
EXHIBIT 10.40
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement is entered into as of this 5th
day of March, 1997 by and between David P. Tusa (the "Executive") and Serv-
Tech, Inc. (the "Company").
Reference is made to that certain Employment Agreement dated August 29,
1994 by and between the Executive and the Company (as amended, the "Employment
Agreement"). The Employment Agreement is hereby amended as follows:
1. Section 3.1 of the Employment Agreement shall be amended to read in full
as follows:
Section 3.1. Basic Severance Payment.
(a) If the Executive incurs a Qualifying Termination at
any time after the Effective Date, the Company shall pay to the Executive in a
lump sum within 30 days of the Qualifying Termination, a cash amount equal to:
(i) the greater of:
(A) his Base Salary (plus car allowance) for the 18-
month period ending immediately before the Change
in Control occurs; or
(B) his Base Salary (plus car allowance) for the 18-
month period ending immediately before the
Qualifying Termination occurs, minus
(ii) the Reduction Amount (as defined below).
(b) The Reduction Amount shall be the minimum amount
required (which may be zero but may not be less than zero) so as to avoid the
making of "excess parachute payments" that would subject the Executive to
excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended
from time to time (the "Code") or would be nondeductible by the Company for
Federal income tax purposes by reason of Section 280G of the Code. The
Reduction Amount shall be determined by independent firms of certified public
accountants in accordance with the Code and any applicable regulations
thereunder and interpretations thereof. All expenses incurred in making such
determinations, whether incurred by the accounting firms, by the Company, or by
the Executive, shall be paid directly by the Company. In determining the
Reduction Amount, the accounting firms shall take into account any and all
compensation and benefits to which the Executive may be entitled, to the extent
that such compensation and benefits are to be taken into account under
applicable law in making such a determination, and shall take into account and
apply, to the extent permissible under applicable law, the provisions of
Section 280G of the Code relating to the reasonable compensation for personal
services.
<PAGE> 2
(c) The Company agrees to cooperate reasonably with the
Executive to avoid the making of any excess parachute payments, including
without limitation (i) assisting the Executive in establishing that some or all
of the payments received by the Executive contingent on a change described in
Section 280G(b)(2)(A)(i) of the Code ("Change in Control") are reasonable
compensation for personal services actually rendered by the Executive before
the date of such change or to be rendered by the Executive on or after the date
of such change, or (ii) changing the terms of any options to acquire common
stock of the Company that the Executive holds in a manner not materially
adverse to the Company in order to minimize the value of any acceleration of
such option upon a Change in Control, such as by reducing the period during
which the options are exercisable following a Change in Control.
Notwithstanding the foregoing, the Company shall not be required to take any
actions which its tax advisor advises it in writing (i) is improper or (ii)
exposes the Company to material liability.
(d) The Company shall make any payment required to be
made under this Agreement in cash and on demand. Any payment required to be
paid by the Company under this Agreement which is not paid within five days of
receipt by the Company of the Executive's demand therefor shall thereafter be
deemed delinquent, and the Company shall pay to the Executive immediately upon
demand interest at the highest nonusurious rate per annum allowed by applicable
law from the date such payment becomes delinquent to the date of payment of
such delinquent sum.
2. Section 6.2 of the Employment Agreement shall be amended to read in full
as follows:
Section 6.2. Non-Competition. To induce the Company to enter into this
Agreement, the Executive agrees that, from the Effective Date until the first
to occur of
(a) the Executive's Retirement;
(b) the first anniversary date of a termination of his
employment under Section 1.6(d) or due to a
Qualifying Termination; and
(c) a material breach by the Company of this Agreement;
the Executive shall not engage in as an officer, director, owner, partner,
promoter, consultant, manager, or otherwise, or assist in or carry on through a
proprietorship, corporation, partnership or other form of business entity, the
business of providing turnaround services, consisting of turnaround planning
and management, heat exchanger services, and tower and vessel maintenance.
$25,000 of any payments made by the Company to the Executive pursuant to
Section 1.6(d) or Section 3.1 of this Agreement shall be made in consideration
for the Executive's agreements contained in this Section 6.2.
<PAGE> 3
IN WITNESS WHEREOF, the undersigned have executed this Amendment to
Employment Agreement as of the date first set forth above.
SERV-TECH, INC.
By: /s/ FRANK PERRONE
-------------------------------------
Name: Frank Perrone
----------------------------------
Title: Vice President, Secretary
----------------------------------
/s/ DAVID P. TUSA
----------------------------------------
David P. Tusa
<PAGE> 1
EXHIBIT 10.41
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement is entered into as of this 5th
day of March, 1997 by and between Frank A. Perrone (the "Executive") and Serv-
Tech, Inc. (the "Company").
Reference is made to that certain Employment Agreement dated November
10, 1994 by and between the Executive and the Company (as amended, the
"Employment Agreement"). The Employment Agreement is hereby amended as
follows:
1. Section 3.1 of the Employment Agreement shall be amended to read in full
as follows:
Section 3.1. Basic Severance Payment.
(a) If the Executive incurs a Qualifying Termination at
any time after the Effective Date, the Company shall pay to the Executive in a
lump sum within 30 days of the Qualifying Termination, a cash amount equal to:
(i) the greater of:
(A) his Base Salary (plus car allowance) for the 18-
month period ending immediately before the Change
in Control occurs; or
(B) his Base Salary (plus car allowance) for the 18-
month period ending immediately before the
Qualifying Termination occurs, minus
(ii) the Reduction Amount (as defined below).
(b) The Reduction Amount shall be the minimum amount
required (which may be zero but may not be less than zero) so as to avoid the
making of "excess parachute payments" that would subject the Executive to
excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended
from time to time (the "Code") or would be nondeductible by the Company for
Federal income tax purposes by reason of Section 280G of the Code. The
Reduction Amount shall be determined by independent firms of certified public
accountants in accordance with the Code and any applicable regulations
thereunder and interpretations thereof. All expenses incurred in making such
determinations, whether incurred by the accounting firms, by the Company, or by
the Executive, shall be paid directly by the Company. In determining the
Reduction Amount, the accounting firms shall take into account any and all
compensation and benefits to which the Executive may be entitled, to the extent
that such compensation and benefits are to be taken into account under
applicable law in making such a determination, and shall take into account and
apply, to the extent permissible under applicable law, the provisions of
Section 280G of the Code relating to the reasonable compensation for personal
services.
<PAGE> 2
(c) The Company agrees to cooperate reasonably with the
Executive to avoid the making of any excess parachute payments, including
without limitation (i) assisting the Executive in establishing that some or all
of the payments received by the Executive contingent on a change described in
Section 280G(b)(2)(A)(i) of the Code ("Change in Control") are reasonable
compensation for personal services actually rendered by the Executive before
the date of such change or to be rendered by the Executive on or after the date
of such change, or (ii) changing the terms of any options to acquire common
stock of the Company that the Executive holds in a manner not materially
adverse to the Company in order to minimize the value of any acceleration of
such option upon a Change in Control, such as by reducing the period during
which the options are exercisable following a Change in Control.
Notwithstanding the foregoing, the Company shall not be required to take any
actions which its tax advisor advises it in writing (i) is improper or (ii)
exposes the Company to material liability.
(d) The Company shall make any payment required to be
made under this Agreement in cash and on demand. Any payment required to be
paid by the Company under this Agreement which is not paid within five days of
receipt by the Company of the Executive's demand therefor shall thereafter be
deemed delinquent, and the Company shall pay to the Executive immediately upon
demand interest at the highest nonusurious rate per annum allowed by applicable
law from the date such payment becomes delinquent to the date of payment of
such delinquent sum.
2. Section 6.2 of the Employment Agreement shall be amended to read in full
as follows:
Section 6.2. Non-Competition. To induce the Company to enter into this
Agreement, the Executive agrees that, from the Effective Date until the first
to occur of
(a) the Executive's Retirement;
(b) the first anniversary date of a termination of his
employment under Section 1.6(d) or due to a
Qualifying Termination; and
(c) a material breach by the Company of this Agreement;
the Executive shall not engage in as an officer, director, owner, partner,
promoter, consultant, manager, or otherwise, or assist in or carry on through a
proprietorship, corporation, partnership or other form of business entity, the
business of providing turnaround services, consisting of turnaround planning
and management, heat exchanger services, and tower and vessel maintenance.
$25,000 of any payments made by the Company to the Executive pursuant to
Section 1.6(d) or Section 3.1 of this Agreement shall be made in consideration
for the Executive's agreements contained in this Section 6.2.
<PAGE> 3
IN WITNESS WHEREOF, the undersigned have executed this Amendment to
Employment Agreement as of the date first set forth above.
SERV-TECH, INC.
By: /s/ DAVID TUSA
-------------------------------------
Name: David Tusa
------------------------------------
Title: Sr. V.P. Finance & Administration
----------------------------------
/s/ FRANK PERRONE
----------------------------------------
Frank Perrone
<PAGE> 1
EXHIBIT 10.42
March 5, 1997
Mr. Dale W. Wilhelm
1047 Thornton
Houston, TX 77018
Dear Dale:
In your role as a corporate officer of Serv-Tech, Inc., the Company has agreed
to provide you with certain supplemental benefits as follows:
1. In the event of termination of your employment by Serv-Tech without cause or
your resignation prior to your age 64 1/2, you will be entitled to a lump
sum severance payment equal to twelve (12) months salary (plus car
allowance) at the time of the cessation of your employment, less applicable
deductions. The foregoing shall be in lieu of severance payments otherwise
due.
2. Additionally, you will be entitled to certain benefits (group health, dental
and car allowance) on the then current terms and cost for the twelve (12)
months subsequent to your above termination without cause or your
resignation. Group health and dental coverage will cease upon your
eligibility to so receive group health and dental coverage from any
subsequent employer.
3. Should a termination occur in conjunction with a change in control of
Serv-Tech, Inc. (as defined in Schedule A), you will also be eligible for a
discretionary transaction bonus determined by the Board of Directors of the
Company in its sole discretion.
4. This Agreement replaces and supersedes your Agreement dated July 9, 1996
with the Company.
Sincerely,
/s/ DAVID P. TUSA
- -----------------------------------------------
David P. Tusa
Sr. Vice President, Finance and Administration
<PAGE> 1
EXHIBIT 10.43
FIRST AMENDMENT TO THE
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
This FIRST AMENDMENT TO THE FIRST AMENDED AND RESTATED CREDIT
AGREEMENT dated as of March 17th, 1997 (the "Amendment") is to the First
Amended and Restated Credit Agreement dated as of November 12, 1996 (as
amended, supplemented or otherwise modified from time to time, the "Restated
Credit Agreement") among 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"),
as the Issuing Bank, and as agent for the other Banks (in such capacity
together with any other Person who becomes the agent the "Agent"). The Other
Senior Lenders join in this Amendment for the limited purposes hereinbelow
stated.
WHEREAS, the Company, the Guarantors, the Agent and the Banks
were parties to that one certain Credit Agreement dated May 15, 1995 (as
amended and modified from time to time, the "Prior Credit Agreement") pursuant
to which the Banks extended up to a $35,000,000.00 revolving credit to the
Company and the Guarantors guaranteed same (the "Prior Indebtedness"); and
WHEREAS, the Banks provided the Company with a new credit
facility under the Restated Credit Agreement, pursuant to which the Banks
committed to make a reducing revolving credit loan of up to $23,500,000.00 to
the Company to refinance the Prior Indebtedness, to finance permitted capital
expenditures, to provide for the issuance of Letters of Credit by the Issuing
Bank, and for use as working capital. The Company also asked the Banks to
waive certain defaults under the Prior Credit Agreement, including defaults
occasioned by the Company's default under documentation with the Other Senior
Lenders (as therein defined), and to consent to the modification of such
documentation in a manner consistent therewith. In connection therewith, the
Banks agreed to restate the Prior Credit Agreement and the Agent agreed to
serve as Agent for the Banks; and
WHEREAS, simultaneously with the execution of the Restated Credit
Agreement, the Banks and the Other Senior Lenders executed the Intercreditor
Agreement; and
WHEREAS, the Company asked the Banks to waive certain financial
covenants and restrictions contained in the Restated Credit Agreement, and the
Banks have done so by Waiver to First Amended and Restated Credit Agreement
dated February 28, 1997; and
WHEREAS, the Company has now asked the Banks to amend certain
other provisions of the Restated Credit Agreement and to extend additional
credit to the Company and the Banks and are willing to do so subject to the
terms and conditions set forth herein.
<PAGE> 2
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants set forth herein, the Company, the Agent and the Banks agree as
follows:
1. Defined Terms. Unless otherwise defined herein,
capitalized terms used herein have the meanings assigned to them in the
Restated Credit Agreement.
2. Amendment. The Restated Credit Agreement is hereby
amended as follows:
(a) The definition of Commitment in the Restated Credit
Agreement is hereby deleted and the following substituted therefor:
" 'Commitment' and 'Commitments' means the several
obligations 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 or on the signature page of any
amendment to this Amendment or any Assignment and Acceptance,
whichever is the latest with respect to such Bank, and all other
duties and obligations of the Banks hereunder, which Commitment
shall (i) until April 30, 1997 include a Supplemental Commitment
of $7,000,000.00 and a total Commitment for all Banks of
$26,500,000.00, and, thereafter (ii) until June 30, 1997 shall
include a Supplemental Commitment of $4,000,000.00 and shall
total $23,500,000.00 for all Banks and (iii) after June 30, 1997,
shall not include any Supplemental Commitment and shall total
$19,500,000.00 for all Banks, except as otherwise provided herein
in Sections 2.01(b), 2.07(c) or elsewhere."
(b) The definition of Supplemental Commitment in the Restated
Credit Agreement is hereby deleted and the following substituted therefor:
" 'Supplemental Commitment' means the $7,000,000.00 of
additional funds available over and above the basic Commitment of
$19,500,000.00, which Supplemental Commitment shall be available
only until April 30, 1997, and the $4,000,000.00 of additional
funds available thereafter only until June 30, 1997, which
Supplemental Commitment shall, while existent, unless otherwise
specified, be considered a part of the Commitment."
(c) Section 2.07(b) of the Restated Credit Agreement is hereby
deleted and the following substituted therefor:
-2-
<PAGE> 3
"(b) The Company shall repay any outstanding portion of
the Supplemental Commitment in excess of $4,000,000.00 by the
amount of such excess, on or before April 30, 1997, and shall
repay the remaining outstanding portion of the Supplemental
Commitment on or before June 30, 1997, on which date such
Supplemental Commitment shall terminate."
3. Conditions to Effectiveness. This Amendment shall become
effective upon the receipt by the Agent of: (a) counterparts of this Amendment,
duly executed and delivered by an authorized officer of the Company, the
Guarantors, the Banks, the Agent and each of the Other Senior Lenders, and (b)
an Amendment fee, for the benefit of the Banks, pro-rata, equal to .75% of the
increased amount of the Supplement Commitment, or $22,500.00.
4. Representations and Warranties. The Company hereby
confirms that the representations and warranties contained in the Restated
Credit Agreement are true and correct as of the date hereof, except to the
extent such representations and warranties specifically relate to an earlier
date, in which case they were true and correct as of such earlier date.
5. Continuing Effect of the Restated Credit Agreement. This
Amendment shall not constitute a waiver of any provision not expressly referred
to herein and shall not be construed as a consent to any action on the part of
the Company, any Subsidiary or the Guarantors that would require a waiver or
consent of the Banks or of the Agent or an amendment or modification to any
term of the Restated Credit Agreement except as expressly stated herein.
Except as expressly modified hereby, the provisions of the Restated Credit
Agreement are and shall remain in full force and effect.
6. Guarantor Ratification. The Guarantors execute this
Amendment to guaranty the Loans and the Obligations, as amended hereby, to
ratify and confirm the Guaranty, the effectiveness thereof and the liability of
each of them thereunder and to state that the Guaranty is in full force and
effect notwithstanding the execution hereof and that the Guaranty extends to
all of the Obligations, including the amended Supplemental Commitment.
7. Other Senior Lenders Ratification. The Other Senior
Lenders each execute this Amendment, in accordance with the provisions of
Section 3.2 of the Intercreditor Agreement, solely for the purpose of
acknowledging the terms hereof, agreeing to the increase in the Supplemental
Commitment described herein, agreeing that such increased Indebtedness of the
Company to the Banks shall be entitled to the same priority as the Supplemental
Commitment was previously, and that this Amendment does not create any default,
nor have any of said parties declared any default, under any documentation
existing between the applicable Other Senior Lender and the Company.
-3-
<PAGE> 4
8. Counterparts. This Amendment may be executed by all
parties hereto in any number of separate counterparts and all of such
counterparts taken together shall be deemed to constitute one and the same
instrument.
9. Headings Descriptive. The headings of the several
sections and subsections of this Amendment are inserted for convenience only
and shall not in any way affect the meaning or construction of any provision of
this Amendment.
10. Percentage of Commitment. As of the date of this
Amendment, TCB's percentage share of the Commitment is 71.5% and Bank One's
percentage share is 28.5%.
11. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
SHALL BE CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
TEXAS.
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be executed by their respective officers thereunto duly authorized as of the
date first above written.
BORROWER/DEBTOR:
SERV-TECH, INC.
By: /s/ DAVID P. TUSA
-------------------------------
David P. Tusa
Senior Vice President of
Finance and Administration
<PAGE> 6
DEBTORS/SUBSIDIARIES:
ADVANCED REFRACTORY SERVICES, INC.
AMERICAN MECHANICAL SERVICES, INC.
CASTING CONCEPTS, INC.
CON-SEAL, 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.
ST PIPING, INC.
TOTAL REFRACTORY SYSTEMS, INC.
TURNAROUND MAINTENANCE, INC.
UNITED INDUSTRIAL MATERIALS, INC.
By: /s/ DAVID P. TUSA
----------------------------------
David P. Tusa
Vice President
SECO INDUSTRIES, INC.
SERV-TECH ENGINEERS, INC.
SERV-TECH EPC, INC.
By: /s/ DAVID P. TUSA
----------------------------------
David P. Tusa
Senior Vice President of
Finance and Administration
<PAGE> 7
PRS HOLDINGS, INC.
By: /s/ DAVID P. TUSA
----------------------------------
David P. Tusa
Senior Vice President
DELTA MAINTENANCE, INC.
PETRO RECOVERY SYSTEMS, INC.
SERV-TECH CONSTRUCTION AND MAINTENANCE,
INC. (Formerly Serv Tech EPC -Houston, Inc.)
SERV-TECH INTERNATIONAL SALES, INC.
SERV-TECH OF NEW MEXICO, INC.
SERV-TECH SERVICES, INC.
TERMINAL TECHNOLOGIES, INC.
TIPCO ACQUISITION CORP.
By: /s/ DAVID P. TUSA
-------------------------------------
David P. Tusa
President
<PAGE> 8
AGENT/SECURED PARTY:
AMOUNT OF COMMITMENT TEXAS COMMERCE BANK NATIONAL
- -------------------- ASSOCIATION, as Agent and Individually,
as a Bank
$18,947,500.00*
By: /s/ JAMES W. SHREVE
------------------------------
James W. Shreve
Vice President
BANKS:
AMOUNT OF COMMITMENT BANK ONE, TEXAS, N.A.
- --------------------
$7,552,500.00*
By: /s/ JOHN E. ELAM, JR.
------------------------------
John E. Elam, Jr.
Vice President
* Includes pro rata share of up to $7,000,000.00 Supplemental Commitment
to be reduced as hereinabove stated.
<PAGE> 9
OTHER SENIOR LENDERS:
ABN AMRO BANK N.V.,
HOUSTON AGENCY
By: /s/ C.W. RANDALL
-------------------------------------
Name: C.W. Randall
-----------------------------------
Title: Senior Vice President
----------------------------------
By: /s/ MICHAEL N. OAK
-------------------------------------
Name: Michael N. Oak
-----------------------------------
Title: Vice President
----------------------------------
PRINCIPAL MUTUAL LIFE
INSURANCE COMPANY
By: /s/ JOHN D. CLEAVENGER
-------------------------------------
Name: John D. Cleavenger
-----------------------------------
Title: Counsel
----------------------------------
By: /s/ SARAH J. PITTS
-------------------------------------
Name: Sarah J. Pitts
-----------------------------------
Title: Counsel
----------------------------------
TMG LIFE INSURANCE COMPANY
By: /s/ ROBERT R. LAPOINTE
-------------------------------------
Name: Robert R. Lapointe
-----------------------------------
Title: Vice President
----------------------------------
By: /s/ MICHAEL J. STEPPE
-------------------------------------
Name: Michael J. Steppe
-----------------------------------
Title: Vice President
----------------------------------
<PAGE> 10
BERKSHIRE LIFE INSURANCE
COMPANY
By: /s/ ELLEN I. WHITTAKER
-------------------------------------
Name: Ellen I. Whittaker
-----------------------------------
Title: Investment Officer
----------------------------------
THE SECURITY MUTUAL LIFE
INSURANCE COMPANY
By: /s/ KEVIN W. HAMMOND
-------------------------------------
Name: Kevin W. Hammond
-----------------------------------
Title: Chief Investment Officer
----------------------------------
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF SERV-TECH, INC.
<TABLE>
<CAPTION>
State or Other Jurisdiction
Name of Subsidiary Incorporation or Organization
- ------------------ -----------------------------
<S> <C>
SECO Industries, Inc. Louisiana
Serv-Tech EPC, Inc. Nevada
ST Piping, Inc. Texas
Terminal Technologies, Inc. Texas
Hartney Industrial Services Corporation Nevada
F.C. Schaffer & Associates, Inc. Louisiana
Delta Maintenance, Inc. Louisiana
Chemisolv Holdings, Inc. Delaware
Hill Technical Services, Inc. Texas
</TABLE>
<PAGE> 1
EXHIBIT 23.1
The Board of Directors
Serv-Tech, Inc.:
We consent to incorporation by reference in the registration statement No.
33-62139 on Form S-8 of Serv-Tech, Inc. of our reports dated February 26,
1997, relating to the consolidated balance sheets of Serv-Tech, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
each of the years in the two-year period ended December 31, 1996, and the
related consolidated financial statement schedule, which reports appear in the
December 31, 1996 annual report on Form 10-K of Serv-Tech, Inc.
KPMG PEAT MARWICK LLP
Houston, Texas
March 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
AUDITED FINANCIAL STATEMENTS OF SERV-TECH, INC. AND SUBSIDIARIES AS OF DECEMBER
31, 1996, AND FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 4,532,622
<SECURITIES> 0
<RECEIVABLES> 24,307,240
<ALLOWANCES> (904,298)
<INVENTORY> 2,026,359
<CURRENT-ASSETS> 34,376,184
<PP&E> 46,662,106
<DEPRECIATION> (20,387,080)
<TOTAL-ASSETS> 81,144,101
<CURRENT-LIABILITIES> 27,707,465
<BONDS> 15,170,000
0
0
<COMMON> 3,436,855
<OTHER-SE> 33,794,935
<TOTAL-LIABILITY-AND-EQUITY> 81,144,101
<SALES> 142,385,571
<TOTAL-REVENUES> 142,385,571
<CGS> 0
<TOTAL-COSTS> 112,462,899
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,357,795
<INCOME-PRETAX> (2,226,853)
<INCOME-TAX> 237,000
<INCOME-CONTINUING> (2,463,853)
<DISCONTINUED> (14,668,754)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,668,754)
<EPS-PRIMARY> (2.55)
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
EXHIBIT 99.1
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders of
Serv-Tech, Inc.
We have audited the consolidated statements of operations, changes in
stockholders' equity and cash flows of Serv-Tech, Inc. for the year ended
December 31, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and the cash
flows of Serv-Tech, Inc. for the year ended December 31, 1994, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Houston, Texas
February 17, 1995
