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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 May 31, 1999.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________ to _________
Commission File No. 0-18716
MATRIX SERVICE COMPANY
(Exact name of registrant as specified in its charter)
Delaware 73-1352174
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10701 East Ute Street 74116
Tulsa, Oklahoma (Zip Code)
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (918) 838-8822.
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 $0.01 per share
(Title of class)
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 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. [ ]
The approximate aggregate market value of the registrant's common stock (based
upon the August 25, 1999 closing sale price of the common stock as reported by
the NASDAQ National Market System) held by non-affiliates as of August 25, 1999
was approximately $36,920,557.
The number of shares of the registrant's common stock outstanding as of August
25, 1999 was 8,950,438 shares.
Documents Incorporated by Reference
Certain sections of the registrant's definitive proxy statement relating to the
registrant's 1999 annual meeting of stockholders, which definitive proxy
statement will be filed within 120 days of the end of the registrant's fiscal
year, are incorporated by reference into Part III of this Form 10-K.
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TABLE OF CONTENTS
Part I
Page
----
Item 1. Business........................................................ 1
Item 2. Properties...................................................... 11
Item 3. Legal Proceedings............................................... 11
Item 4. Submission of Matters to a Vote of Security Holders............. 12
Part II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters..................................... 12
Item 6. Selected Financial Data......................................... 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk...... 22
Item 8. Financial Statements and Supplementary Data..................... 23
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure........................................ 48
Part III
Item 10. Directors and Executive Officers of the Registrant.............. 48
Item 11. Executive Compensation.......................................... 48
Item 12. Security Ownership of Certain Beneficial Owners
and Management.................................................. 48
Item 13. Certain Relationships and Related Transactions.................. 48
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K..................................................... 49
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PART I
Item 1. Business
BACKGROUND
Matrix Service Company (the "Company" or "Matrix") provides specialized on-site
maintenance and construction services for petroleum refining and storage
facilities for the private industry sector. Owners of these facilities use
Matrix's services in an effort to improve operating efficiencies and to comply
with stringent environmental and safety regulations. Through its subsidiaries
Matrix Service, Inc. ("MSI"), Matrix Service Mid-Continent, Inc. ("Mid-Con"),
and Matrix Service, Inc. - Canada ("Canada"), and through its South American
branch, Matrix Service, Inc. - Venezuela ("Venezuela"), Matrix provides
maintenance and construction services and related products for large aboveground
storage tanks ("ASTs") holding petroleum, petrochemical and other products and
piping systems located at petroleum refineries, and bulk storage terminals.
Matrix also provides maintenance and construction services for industrial
process plants and refineries. Matrix specializes in performing "turnarounds",
which involve complex, time-sensitive maintenance of the critical operating
units of a refinery and other in-plant maintenance. Matrix's fluid catalytic
cracking unit ("FCCU") services that were performed by its subsidiary, Midwest
Industrial Contractors, Inc. ("Midwest") were exited in the third quarter of
fiscal 1998. Matrix's Municipal Water Services that were performed by its
subsidiaries San Luis Tank Piping & Construction Company, Inc. ("SLT") and an
affiliated company, and Brown Steel Contractors, Inc. ("Brown") and affiliated
companies are in the process of being exited.
Matrix was incorporated in Delaware in 1989 to become a holding company for MSI,
which was incorporated in Oklahoma in 1984, and Mid-Con, which was incorporated
in Oklahoma in 1985. In October 1990, Matrix acquired through a subsidiary
substantially all of the assets and operations of Midwest. In June 1991, Matrix
acquired SLT. In December 1992, Matrix acquired through a subsidiary
substantially all of the assets and operations of Colt Construction Company
("Colt"). In June 1993, Matrix acquired substantially all of the assets and
assumed certain liabilities of Heath Engineering Ltd. which has subsequently
become Canada. In April 1994, Matrix acquired Brown. In August 1994, the Company
acquired certain assets of Mayflower Vapor Seal Corporation ("Mayflower"). In
June 1997, Matrix acquired General Service Corporation ("GSC") and affiliated
companies. GSC provides services and products similar to those provided by
Matrix and operates primarily in the Northeast part of the United States, with
products sales to U.S. and foreign customers. In September, 1998, Matrix formed
Venezuela to perform AST services in South America. In June 1999, Matrix merged
Colt and GSC into its existing subsidiary structure.
On December 16, 1997, the Company and ITEQ, Inc. ("ITEQ") entered into a Plan
and Agreement of Merger whereby ITEQ agreed to acquire the Company. On January
19, 1998 the Company and ITEQ mutually agreed to terminate the Plan and
Agreement of Merger, due to unanticipated difficulties in connection with the
expected integration of personnel from divergent corporate cultures.
During the third quarter of fiscal year 1998, the board of directors approved a
plan whereby Matrix would exit the operations of Midwest and terminate
operations in the markets that Midwest had historically participated. Matrix
completed all open contracts and disposed of all assets of Midwest. For each of
the fiscal years ended 1998 and 1997, Midwest had operating losses of $3.4
million and $1.8 million respectively.
Also during the third quarter of fiscal 1998, Matrix adopted a board of
directors approved plan to restructure operations to reduce costs, eliminate
duplication of facilities and improve efficiencies. The plan included closing
fabrication shops in Newark, Delaware and Rancocas, New Jersey and moving these
operations to a more efficient and geographically centered facility in Bristol,
Pennsylvania. Additionally, the Company closed a fabrication shop at Elkston,
Maryland. The production from the Maryland facility, which was principally
elevated water tanks, was to be provided by the Company's Newnan, Georgia plant.
(The facilities located in Delaware, New Jersey, Pennsylvania and Maryland were
all leased facilities.) Matrix sold real estate that was not being utilized in
Mississauga, Canada, and terminated the business of certain product lines that
were no longer profitable.
As part of a periodic review of long-lived assets, Matrix separately reviewed
the operations of SLT for impairment indicators as actual operating and cash
flow results were less than projections for Fiscal 1998, the principals in
management, from whom the original business was purchased, left the employment
of the company in early fiscal 1998, SLT reputation in the industry had
deteriorated and the business name was dissolved into Matrix. The operating
income and cash flows from this business unit were not historically negative;
however, there were significant concerns that future operations may not be
positive. Based on these potential impairment indicators, an estimate of the
undiscounted cash flows of the SLT operations was made. This estimate indicated
impairment and, as a result, the
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entire amount of the goodwill related to SLT was written off.
Additionally, in evaluating Matrix's Mayflower operations, the operating income
and cash flows from this business unit indicated that positive amounts were not
attainable. Therefore, the businesses was completely abandoned, the goodwill
written-off, and impaired assets abandoned or sold at their net realizable
value. The operating results of Mayflower were not significant to Matrix's
operations.
Employee termination costs associated with the reorganization and termination of
all employees of Midwest and Mayflower were recognized and paid during fiscal
1998.
Other reorganization costs include the cost of travel related expenses for
reorganization teams which proposed, planned and carried out the Company's
restructuring plans, cost of the failed merger with ITEQ and equipment moving.
On March 24, 1999 Matrix entered into a Letter of Intent with Caldwell Tanks,
Inc. for the sale of Brown, a subsidiary acquired in 1994. In April 1999, the
board of directors approved the transaction and a Stock Purchase Agreement was
executed on June 9, 1999. Based upon certain environmental concerns (See Item 1
- - Business - Environmental), however, the structure of this transaction is being
renegotiated as an asset sale with Matrix retaining temporary ownership of the
land and buildings until environmental remediation is completed.
Also, in May 1999 senior management approved and committed Matrix to an exit
plan related to the SLT operations which were acquired in 1992. The exit plan
specifically identified all significant actions to be taken to complete the exit
plan, listed the activities that would not be continued, and outlined the
methods to be employed for the disposition, with an expected completion date of
March 2000. Management obtained board approval and immediately began development
of a communication plan to the impacted employees under the Workers Adjustment
and Retraining Notification Act ("WARN Act").
In June 1999, notices were given as required under the WARN Act and Matrix
announced that it would also pursue potential opportunities to sell SLT and West
Coast Industrial Coatings, Inc., an affiliated Company.
As a result of these restructuring, abandonment and impairment operations,
Matrix recorded charges of $9.8 million and $21.0 million in 1999 and 1998
respectively. (See Note 3 to the Consolidated Financial Statements).
Unless the context otherwise requires, all references herein to the Company
include Matrix Service Company and its subsidiaries. The Company's principal
executive offices are located at 10701 East Ute Street, Tulsa, Oklahoma 74116,
and its telephone number at such address is (918) 838-8822.
ABOVEGROUND STORAGE TANK (AST) OPERATIONS
The Company's AST Operations include maintenance, repair, design and
construction of AST's. The repair and construction of these tanks incorporate
devices that meet current federal and state air and water quality guidelines.
These devices include secondary tank bottoms for containment of leaks, primary
and secondary seals for floating roof tanks that reduce evaporation loss from
the tank and water intrusion into the tank and many other fittings unique to the
tank industry. The floating roof seals are marketed under the Company's Flex-A-
SealO and Flex-A-SpanO trade names. The Company also markets a patented roof
drain swivel, the Flex-A-SwivelO used for floating roof drains that remove water
from open-top floating roof tanks.
AST Market and Regulatory Background
In 1989, the American Petroleum Institute estimated that there were
approximately 700,000 ASTs in the United States that stored crude oil,
condensate, lube oils, distillates, gasolines and various other petroleum
products. These tanks range in capacity from 26 barrels (42 gal/barrel) to in
excess of 1,000,000 barrels. The Company's principal focus is maintaining,
repairing, designing and constructing large ASTs, with capacities ranging from
250 barrels and larger. The Company believes, based on industry statistics,
that there are over 120,000 of these large tanks currently in use,
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accounting for more than 70% of the domestic petroleum product storage capacity.
These ASTs are used primarily by the refining, pipeline and marketing segments
of the petroleum industry.
Historically, many AST owners limited capital expenditures on ASTs to new
construction and periodic maintenance on an as-needed basis. Typically, these
expenditures decreased during periods of depressed conditions in the petroleum
and petrochemical industries, as AST owners sought to defer expenditures not
immediately required for continued operations.
During recent years, many AST owners have taken a more proactive approach to
tank maintenance and repair and protection of the environment. Much of this is
driven by the fact that in 1989 it was estimated that over forty percent of the
existing AST's were over twenty years old. The AST owners have come to rely on
AST service companies to furnish the necessary modifications because they can
provide technical expertise, experienced field labor trained in safe work
habits, and materials and equipment that satisfy federal and state mandates. In
addition, because of the recent consolidations and cut backs in the petroleum
industry, the AST owners have fewer experienced personnel on staff and must rely
on qualified service providers to assist them in meeting their goals.
A key factor driving new tank construction is a need to change the petroleum
transportation infrastructure to meet increases in population in different areas
of the country. As an example, there have been at least two projects that will
increase product delivery from the Gulf Coast to El Paso, Tucson and Phoenix.
The proposed Aspen project will provide the capability to move product from the
Gulf Coast to Albuquerque and then to Salt Lake City.
In January 1991, the American Petroleum Institute ("API") adopted industry
standards for the maintenance, inspection and repair of existing ASTs (API 653).
The API standards provide the industry with uniform guidelines for the periodic
inspection, maintenance and repair of ASTs. The Company believes that these
standards have resulted, and will continue to result, in an increased level of
AST maintenance and repair on the part of many AST owners.
AST Services and Products
The Company provides its customers with a comprehensive range of AST services
and products as outlined below.
New Construction
The Company designs, fabricates and constructs new ASTs to both petroleum and
industrial standards and customer specifications. These tanks range in capacity
from approximately 50 barrels to 1,000,000 barrels and larger. Clients require
new tanks in conjunction with expansion plans, replacement of old or damaged
tanks, storage for additional product lines to meet environmental requirements,
replacement of surface impoundments and changes in population.
Maintenance and Modification
The Company derives a significant portion of its revenues from providing AST
maintenance, repair and modification services. The principal services in this
area involve the design, construction and installation of floating roof and seal
assemblies, the design and construction of secondary containment systems (double
bottoms), and the provision of a variety of services for underground and
aboveground piping systems. The Company also installs, maintains and modifies
tank appurtenances, including spiral stairways, platforms, water drain-off
assemblies, roof drains, gauging systems, fire protection systems, rolling
ladders and structural supports.
Floating Roof and Seal Assemblies
Many ASTs are equipped with a floating roof and seal assembly. The floating
roof is required by environmental regulations to minimize vapor emissions and
reduce fire hazard. A floating roof also prevents losses of stored petroleum
products. The seal spans the gap between the rim of the floating roof and the
tank wall. The seal prevents vapor emissions from an AST by creating the
tightest possible seal around the perimeter of the roof while still allowing
movement of the roof and seal downward and upward with the level of stored
product. In addition, the Company's seal system prevents substantially all
rainwater from entering the tank. The Company's seals are manufactured from a
variety of materials designed for compatibility with specific petroleum
products. All of the seals installed by the Company may be installed while the
tank is in service, which reduces tank owners' maintenance, cleaning and
disposal costs.
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Secondary Containment Systems
The Company constructs a variety of secondary containment systems under or
around ASTs according to its own design or the design provided by its customers.
Secondary leak detection systems allow tank owners to detect leaks in the tanks
at an early stage before groundwater contamination has occurred. In addition,
the systems help to contain leakage until the tank can be repaired. The most
common type of secondary containment system constructed involves installing a
liner of high-density polyethylene, reinforced polyurethane or a layer of
impervious clay under the steel tank bottom. The space between the liner and
elevation of the new bottom is then filled with a layer of concrete or sand. A
cathodic protection system may be installed between the liner and the new bottom
to help control corrosion. Leak detection ports are installed between the
liner and steel bottom to allow for visual inspection while the tank is in
service. The Company believes that during the 1990's a substantial number of
AST owners have installed, and will continue to install, secondary containment
systems.
Specialty Tanks
The Company designs, fabricates and field erects new refrigerated liquefied gas
storage tanks for the storage of ammonia, butane, carbon dioxide, ethane,
methane, nitrogen, oxygen, propane and other low temperature products. These
tanks are utilized by the chemical, petrochemical and industrial gas industries.
Manufacturing
The Company operates three "state-of-the-art" facilities located in Oklahoma,
California, and Pennsylvania. The Company owns and operates a fabrication
facility located on 13 acres at the Tulsa Port of Catoosa. The Company owns the
building and equipment. This facility has the capacity to fabricate new tanks,
new tank components and all maintenance, retrofit and repair parts including
fixed roofs, floating roofs, seal assemblies, shell plate and tank
appurtenances. The Tulsa Port has transportation service via railroad and
Mississippi River barge facilities in addition to the interstate highway system,
making it economical to transport heavy loads of raw material and fabricated
steel. This facility is qualified to perform services on equipment that
requires American Society of Mechanical Engineer Code Stamps ("ASME codes"). The
Company leases one fabrication facility in California. The Company rents the
real estate and owns the equipment in the leased facility in California. The
Pennsylvania facilities contain 91,824 square feet, which is leased. The Company
owns the equipment which is used for the fabrication of new tanks and tank
components.
PLANT SERVICES OPERATIONS
The Company provides specialized maintenance and construction services to the
domestic petroleum refining industry and, to a lesser extent, to the gas
processing and petrochemical industries. The Company specializes in routine and
supplemental plant maintenance, turnarounds and capital construction services,
which involve complex, time-sensitive maintenance of the critical operating
units of a refinery.
Plant Services Market Overview
The domestic petroleum refining industry presently consists of approximately 161
operating refineries. To ensure the operability, environmental compliance,
efficiency and safety of their plants, refiners must maintain, repair or replace
process equipment, operating machinery and piping systems on a regular basis.
Major maintenance and capital projects require the shutdown of an operating
unit, or in some cases, the entire refinery. In addition to routine maintenance,
numerous repair and capital improvement projects are undertaken during a
turnaround. Depending on the type, utilization rate, and operating efficiency of
a refinery, turnarounds of a refinery unit typically occur at scheduled
intervals ranging from six months to four years.
The U.S. refinery industry has undergone significant changes in the last 18
years. From 1981 to 1998 domestic refining capacity went from 18.6 million
barrels per day to 16.4 million barrels per day. Many factors created this
reduction in capacity including the importing of refined product, the need to
close inefficient, uneconomic refining facilities and the changes in proximity
of crude production to refining capacity. With these refinery closings and the
domestic increase in demand for refined product, domestic refineries are
operating at high utilization rates. Generally higher utilization rates mean
more wear and tear on the processing units. With the consolidations and
subsequent reductions in staff within the petroleum industry and the need for
reliable maintenance either during the turn-around process or day to day
maintenance, more reliance for performance is placed on service providers such
as Matrix.
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Matrix provides day to day maintenance including managing the maintenance force
through reliability studies and other management tools. This continual effort to
improve performance is in concert with the industry's desire to reduce operating
cost. The day to day maintenance presence assists in the effort to obtain
turn-around work when the refinery periodically shuts down for major repairs.
Plant Services
The Company's principal plant services include turnarounds for most refinery
process units and complete construction and maintenance services. The Company
performs unit turnarounds involving maintenance and modification of heat
exchangers, heaters, vessels and piping.
Heat Exchanger Services
This service involves the removal, cleaning, testing, repairing and
re-installing of the heat exchanger tube bundles. The Company owns specialized
equipment to extract and reinstall heat exchangers at ground level and in aerial
installations. In addition, Matrix has re-tubing equipment, hydraulic
bolt-torquing equipment and specialized transport carriers for moving the heat
exchangers throughout the facilities.
Other Support Services
Emergency Response Services. The Company also performs substantial repair and
revamp services in connection with refinery unit failures, fires, explosions and
other accidents. The Company believes that it has enhanced its relationships
with its customers by responding quickly to these types of emergencies and by
providing timely repair services, returning the affected plants to normal
operations without substantial delays.
ASME Code Stamp Services. The Company is qualified to perform services on
equipment that contains ASME codes. Many state agencies and insurance companies
require that qualified ASME code installers perform services on ASME coded
equipment. Many of the Company's competitors are not ASME code qualified, which
forces them to subcontract portions of a project involving work with coded
equipment.
Daily and Routine Supplemental Maintenance. The Company provides supplemental
and routine daily maintenance services for operating refineries. Daily work
crews at the refineries range in size from 60 to over 150 per refinery. The
Company provides a wide range of supplemental services including equipment
operations and complete daily maintenance services and repairs. Moreover, the
pressure to reduce the overall cost of maintaining the refineries has initiated
a trend of restructuring the daily and routine maintenance forces. Refineries
are seeking outside supplemental maintenance forces with proven programs for
increasing unit and equipment reliability, and a history of performing work
safely. The Company has entered into two multi-year maintenance agreements. The
Company believes there is a substantial market for a quality maintenance
workforce that places an emphasis on safety and that can forge partnerships with
refinery personnel to reduce maintenance expenses.
CONSTRUCTION SERVICES OPERATIONS
The Company is active in providing construction services focusing primarily on
negotiated, turnkey, and design build contracts. Selected projects, however, are
also completed on a competitive bid basis. Projects range from one million to
thirty million dollars or more. The Construction Services division is especially
well suited for clients who require bundled services. Projects requiring storage
tanks, piping, and work and experience in dealing with and working around
hazardous materials are ideal because the Company is able to self-perform this
work. The Construction Services division has been successful in completing a
variety of different projects including the design and construction of a new
crude oil terminal, the cutdown and relocation of a large piece of process
equipment for a sugar processing plant, the successful completion of a
modification and expansion of production facilities for a silicon wafer
producer, and the erection of tanks at several co-generation facilities.
OTHER
Elevated Tanks
In April 1994, as a result of the Company's efforts to expand its product base,
the Company purchased Brown, which designs, fabricates and erects elevated tanks
for water storage for municipalities and industrial customers. In March
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1999, the Company signed a Letter of Intent to sell Brown to Caldwell Tanks,
Inc. and will exit the elevated water tank segment.
OTHER BUSINESS MATTERS
Customers and Marketing
The Company derives a significant portion of its revenues from performing
construction and maintenance services for the major integrated oil companies. In
fiscal 1999, Arco represented more than 10% of the Company's consolidated
revenues. In addition, Chevron accounted for more than 10% of the Company's
fiscal 1999 revenues from its core continuing segments. If the merger between
Amoco/BP and Arco is consummated, this will significantly increase the value of
this customer to Matrix. The loss of any one of these major customers could have
a material adverse effect on the Company. The Company also performs services for
independent petroleum refining and marketing companies, architectural and
engineering firms, food industry, general construction and for several major
petrochemical companies. The Company enjoys many preferred provider
relationships with clients wherein the work is released against a long-term
service contract. The Company sold its products and services to approximately
535 customers during fiscal 1999.
The Company markets its services and products primarily through its marketing
personnel, senior professional staff and its management. The marketing personnel
concentrate on developing new customers and assist management and staff with
existing customers. As previously stated, the Company enjoys many preferred
provider relationships with clients that are awarded without competitive bid
through long-term contract agreements. In addition, the Company competitively
bids many projects. Maintenance projects have a duration of one week to several
months depending on work scope. New tank projects have a duration of three
months to more than a year.
Competition
The AST, Plant Services, and Construction Services divisions are highly
fragmented and competition is intense within these industries. Major competitors
in the AST Service division include Chicago Bridge & Iron Company, Pitt-Des
Moines, Inc. and ITEQ as well as a number of smaller regional companies. Major
competitors in the West Coast refinery service industry are Timec and a number
of large engineering firms. Competition is based on, among other factors, work
quality and timeliness of performance, safety and efficiency, availability of
personnel and equipment, and price. The Company believes that its expertise and
its reputation for providing safe and timely services allow it to compete
effectively. Although many companies that are substantially larger than the
Company have entered the market from time to time in competition with the
Company, the Company believes that the level of expertise necessary to perform
complicated, on-site maintenance and construction operations presents an entry
barrier to these companies and other competitors with less experience than the
Company.
Backlog
At May 31, 1999, the Company's AST Services, Plant Maintenance and Construction
Services divisions had an estimated backlog of work under contracts believed to
be firm of approximately $40.8 million, as compared with an estimated backlog of
approximately $48.8 million as of May 31, 1998. Virtually all of the projects
comprising this backlog are expected to be completed within fiscal year 1999.
Because many of the Company's contracts are performed within short time periods
after receipt of an order, the Company does not believe that the level of its
backlog is a meaningful indicator of its sales activity.
Seasonality
The operating results of the Plant Services division may be subject to
significant quarterly fluctuations, affected primarily by the timing of planned
maintenance projects at customers' facilities. Generally, the Company's
turnaround projects are undertaken in two primary periods-February through May
and September through November-when refineries typically shut down certain
operating units to make changes to adjust to seasonal shifts in product demand.
As a result, the Company's quarterly operating results can fluctuate materially.
In addition, the AST Services Division typically has a lower level of operating
activity during the winter months and early into the new calendar year as many
of the Company's customers' maintenance budgets have not been finalized.
Raw Material Sources and Availability
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The only significant raw material that the Company purchases is steel which is
used primarily in the AST Services Division for new tank construction and tank
repair and maintenance activities. The Company purchases its steel from a number
of suppliers located throughout the United States. In today's market
environment, steel is readily available at attractive prices. However, the price
and availability of steel historically has been volatile and there is no
assurance that the current market conditions will remain unchanged in the
future. Significantly higher steel prices or limited availability could have a
negative impact on the Company's future operating performance.
Insurance
The Company maintains worker's compensation insurance, general liability
insurance and auto liability insurance in the primary amount of $1.0 million,
and an umbrella policy with coverage limits of $50.0 million in the aggregate.
The Company also maintains policies to cover its equipment and other property
with coverage limits of $60.2 million and policies for care, custody and control
with coverage limits of $2.7 million in the aggregate. Most of the Company's
policies provide for coverage on an occurrence basis, not a "claims made" basis.
The Company's liability policies are subject to certain deductibles, none of
which is higher than $250,000. The Company maintains a performance and payment
bonding line of $50.00 million. The Company also maintains key-man insurance
policies covering certain of its executive officers, and professional liability
insurance.
Many of the Company's contracts require it to indemnify its customers for
injury, damage or loss arising in connection with their projects, and provide
for warranties of materials and workmanship. There can be no assurance that the
Company's insurance coverage will protect it against the incurrence of loss as a
result of such contractual obligations.
Employees
As of May 31, 1999, the Company employed 1,387 employees, of which 326 were
employed in non-field positions and 1,061 in field or shop positions. Throughout
fiscal year 1999, the Company employed a total of 2,204 employees in field or
shop positions who worked on a project-by-project basis.
As of May 31, 1999, 220 of the 1,061 field or shop employees were covered by a
collective bargaining agreement. The Company operates under two collective
bargaining agreements through the Boilermakers Union - the NTL Agreement for
Tank Construction Work and the Maintenance and Repair Agreement covering Tank
Repair and Related Work. Both agreements provide the union employees with
benefits including a Health and Welfare Plan, Pension Plan, National Annuity
Trust, Apprenticeship Training, and a Wage and Subsistence Plan.
The Company has not experienced any significant strikes or work shortages and
has maintained high-quality relations with its employees.
Patents and Proprietary Technology
The Company holds one patent in the United States and one in Canada under the
Flex-A-Seal (R) trademark which covers a seal for floating roof storage tanks.
The United States patent expires in August 2000 and the Canadian patent expires
in September 2008. The Company also holds two United States and one United
Kingdom patents under the Flex-A-Span (R) trademark which covers a peripheral
seal for floating roof tank covers. The United States patents expire in August
2008 and October 2001 and the United Kingdom patent expires in May 2011. The
Company holds a U.S. patent which covers its ThermoStor (R) diffuser system that
receives, stores and dispenses both chilled and warm water in and from the same
storage tank. The ThermoStor (R) patent expires in March 2010. The Company also
holds a patent for a Floating Deck Support Apparatus (R) for aluminum roofs.
This patent expires in January 2001. The Company has developed the RS 1000 Tank
Mixer (R) which controls sludge build-up in crude oil tanks through
resuspension. The RS 1000 Tank Mixer (R) patent expires in August 2012. The
Company has designed and developed the Flex-A-Swivel (R), a swivel joint for
floating roof drain systems. The United States Patent expires in March 2019.
While the Company believes that the protection of its patents is important to
its business, it does not believe that these patents are essential to the
success of the Company.
Regulation
Various environmental protection laws have been enacted and amended during the
past 30 years in response to public concern over the environment. The operations
of the Company and its customers are subject to these evolving laws and the
related regulations, which are enforced by the EPA and various other federal,
state and local environmental, safety
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and health agencies and authorities. Except as described under "Item 1 --
Business -- Environmental," the Company believes that its operations are in
material compliance with such laws and regulations; however, there can be no
assurance that significant costs and liabilities will not be incurred due to
increasingly stringent environmental restrictions and limitations. Historically,
however, the cost of measures taken to comply with these laws has not had a
material adverse effect on the financial condition of the Company. In fact, the
proliferation of such laws has led to an increase in the demand for some of the
Company's products and services. A discussion of the principal environmental
laws affecting the Company and its customers is set forth below.
Air Emissions Requirements. The EPA and many state governments have adopted
legislation and regulations subjecting many owners and operators of storage
vessels and tanks to strict emission standards. The regulations prohibit the
storage of certain volatile organic liquids ("VOLs") in open-top tanks and
require tanks which store VOLs to be equipped with primary and/or secondary roof
seals mounted under a fixed or floating roof. Related regulations also impose
continuing seal inspection and agency notification requirements on tank owners
and prescribe certain seal requirements. Under the latest EPA regulations, for
example, floating roofs on certain large tanks constructed or modified after
July 1984 must be equipped with one of three alternative continuous seals
mounted between the inside wall of the tank and the edge of the floating roof.
These seals include a foam or liquid-filled seal mounted in contact with the
stored petroleum product; a combination of two seals mounted one above the
other, the lower of which may be vapor mounted; and a mechanical shoe seal,
composed of a metal sheet held vertically against the inside wall of the tank by
springs and connected by braces to the floating roof. The EPA has imposed
similar requirements which are now effective or will be after completion of
various phase-in periods on certain large tanks, regardless of the date of
construction, operated by companies in industries such as petroleum refining and
synthetic organic chemical manufacturing which are subject to regulations
controlling hazardous air pollutant emissions. The EPA is in the process of
developing further regulations regarding seals and floating roofs.
Amendments to the federal Clean Air Act adopted in 1990 require, among other
things, that refineries produce cleaner burning gasoline for sale in certain
large cities where the incidence of volatile organic compounds in the atmosphere
exceeds prescribed levels leading to ozone depletion. Refineries are undergoing
extensive modifications to develop and produce acceptable reformulated fuels
that satisfy the Clean Air Act Amendments. Such modifications are anticipated to
cost refineries several billion dollars, and require the use of specialized
construction services such as those provided by the Company. A significant
number of refineries have completed changes to produce "reformulated fuels",
principally refineries serving specific areas of the U.S.; however, there are a
substantial number of refineries that have not made the change. The EPA is also
in the process of developing further regulations to require production of
cleaner gasolines and diesel fuels including the production of reduced sulfur
gasoline and diesel duel.
As part of the Clean Air Act Amendments of 1990, Congress required EPA to
promulgate regulations to prevent accidental releases of air pollutants and to
minimize the consequences of any release. EPA adopted regulations requiring Risk
Management Plans ("RMPs") from companies which analyze and limit risks
associated with the release of certain hazardous air pollutants. In addition,
EPA requires companies to make RMPs available to the public. Many petroleum
related facilities, including refineries, will be subject to the regulations and
may be expected to upgrade facilities to reduce the risks of accidental
releases. Accordingly, the Company believes that the promulgation of accidental
release regulations could have a positive impact on its business.
Water Protection Regulations. Protection of groundwater and other water
resources from spills and leakage of hydrocarbons and hazardous substances from
storage tanks and pipelines has become a subject of increasing legislative and
regulatory attention, including releases from ASTs. Under Federal Water
Pollution Control Act regulations, owners of most ASTs are required to prepare
spill prevention, control and countermeasure ("SPCC") plans detailing steps that
have been taken to prevent and respond to spills and to provide secondary
containment for the AST to prevent contamination of soil and groundwater. These
plans are also subject to review by the EPA, which has authority to inspect
covered ASTs to determine compliance with SPCC requirements. Various states have
also enacted groundwater legislation that has materially affected owners and
operators of petroleum storage tanks. The adoption of such laws has prompted
many companies to install double bottoms on their storage tanks to lessen the
chance that their facilities will discharge or release regulated chemicals.
State statutes regarding protection of water resources have also induced many
petroleum companies to excavate product pipelines located in or near marketing
terminals, to elevate the pipelines aboveground and to install leak detection
systems under the pipelines. These laws and regulations have generally led to an
increase in the demand for some of the Company's products and services.
In the event hydrocarbons are spilled or leaked into groundwater or surface
water from an AST that the Company has constructed or repaired, the Company
could be subject to lawsuits involving such spill or leak. To date, the Company
has not suffered a material loss resulting from such litigation.
8
<PAGE>
Hazardous Waste Regulations. The Resource Conservation and Recovery Act of 1976
("RCRA") provides a comprehensive framework for the regulation of generators and
transporters of hazardous waste, as well as persons engaged in the treatment,
storage and disposal of hazardous waste. Under state and federal regulations,
many generators of hazardous waste are required to comply with a number of
requirements, including the identification of such wastes, strict labeling and
storage standards, and preparation of a manifest before the waste is shipped off
site. Moreover, facilities that treat, store or dispose of hazardous waste must
obtain a RCRA permit from the EPA, or equivalent state agency, and must comply
with certain operating, financial responsibility and site closure requirements.
In 1990, the EPA issued its Toxicity Characteristic Leaching Procedure ("TCLP")
regulations. Under the TCLP regulations, which have been amended from time to
time, wastes containing prescribed levels of any one of several identified
substances, including organic materials found in refinery wastes and
waste-waters (such as benzene), will be characterized as "hazardous" for RCRA
purposes. As a result, some owners and operators of facilities that produce
hazardous wastes are being required to make modifications to their facilities or
operations in order to remain outside the regulatory framework or to come into
compliance with the Subtitle C requirements. Many petroleum refining,
production, transportation and marketing facilities are choosing to replace
existing surface impoundments with storage tanks and to equip certain of the
remaining impoundments with secondary containment systems and double liners.
Accordingly, the Company believes that the promulgation of the TCLP regulations
are having a positive impact on its tank construction and modification business.
Amendments to RCRA require the EPA to promulgate regulations banning the land
disposal of hazardous wastes, unless the wastes meet certain treatment standards
or the particular land disposal method meets certain waste containment criteria.
Regulations governing disposal of wastes identified as hazardous under the TCLP,
for example, could require water drained from the bottom of many petroleum
storage tanks to be piped from the tanks to a separate facility for treatment
prior to disposal. Because the TCLP regulations can, therefore, provide an
incentive for owners of petroleum storage tanks to reduce the amount of water
seepage in the tanks, the Company believes that the regulations have and will
continue to positively influence sales of its Flex-A-Seal(R) roof seals, which
materially reduce the amount of water seepage into tanks.
CERCLA. The Comprehensive Environmental Response, Compensation and Liability Act
of 1980 ("CERCLA"), also known as "Superfund", authorizes the EPA to identify
and clean up sites contaminated with hazardous substances and to recover the
costs of such activities, as well as damages to natural resources, from certain
classes of persons specified as liable under the statute. Such persons include
the owner or operator of a site and companies that disposed or arranged for the
disposal of hazardous substances at a site. Under CERCLA, private parties which
incurred remedial costs may also seek recovery from statutorily responsible
persons. Liabilities imposed by CERCLA can be joint and several where multiple
parties are involved. Many states have adopted their own statutes and
regulations to govern investigation and cleanup of, and liability for, sites
contaminated with hazardous substances or petroleum products.
Although the liabilities imposed by RCRA, CERCLA and other environmental
legislation are more directly related to the activities of the Company's
clients, they could under certain circumstances give rise to liability on the
part of the Company if the Company's efforts in completing client assignments
were considered arrangements related to the transport or disposal of hazardous
substances belonging to such clients. In the opinion of management, however, it
is unlikely that the Company's activities will result in any liability under
either CERCLA or other environmental regulations in an amount which will have a
material adverse effect on the Company's operations or financial condition, and
management is not aware of any current liability of the Company based on such a
theory.
Oil Pollution Act. The Oil Pollution Act of 1990 ("OPA") established a new
liability and compensation scheme for oil spills from onshore and offshore
facilities. Section 4113 of the OPA directed the President to conduct a study to
determine whether liners or other secondary means of containment should be used
to prevent leaking or to aid in leak detection at onshore facilities used for
storage of oil. The Company believes that its business would be positively
affected by any regulations eventually promulgated by EPA that required liners
and/or secondary containment be used to minimize leakage from ASTs. While the
regulation has not, to date, been enacted, the industry designs secondary
containment in all new tanks being built and, in general, secondary containment
is installed in existing tanks when they are taken out of service for other
reasons, in anticipation of this regulation.
Health and Safety Regulations. The operations of the Company are subject to the
requirements of the Occupational Safety and Health Act ("OSHA") and comparable
state laws. Regulations promulgated under OSHA by the Department of Labor
require employers of persons in the refining and petrochemical industries,
including independent contractors, to implement work practices, medical
surveillance systems, and personnel protection programs in order to
9
<PAGE>
protect employees from workplace hazards and exposure to hazardous chemicals. In
addition, in response to recent accidents in the refining and petrochemical
industries, new legislation and regulations including OSHA's Process Safety
Management Standard ("PSM") requiring stricter safety requirements have been
enacted. Under PSM, employers and contractors must ensure that their employees
are trained in and follow all facility work practices and safety rules and are
informed of known potential hazards. The Company has established comprehensive
programs for complying with health and safety regulations. While the Company
believes that it operates safely and prudently, there can be no assurance that
accidents will not occur or that the Company will not incur substantial
liability in connection with the operation of its business.
The State of California has promulgated particularly stringent laws and
regulations regarding health and safety and environmental protection. The
Company's operations in California are subject to strict oversight under these
laws and regulations and the failure to comply with these laws and regulations
could have a negative impact on the Company.
Environmental
Matrix is a participant in certain environmental activities in various stages
involving assessment studies, cleanup operations and/or remedial processes.
An environmental assessment was conducted at the Newnan, Georgia facilities of
Brown upon execution of a Letter of Intent on March 24, 1999 to sell Brown to
Caldwell Tanks, Inc. The assessment turned up a number of deficiencies relating
to storm water permitting, air permitting and waste handling and disposal. An
inspection of the facilities also showed friable asbestos that needed to be
removed. In addition, Phase II soil testing indicated a number of VOC's, SVOC's
and metals above the State of Georgia notification limits. Ground water testing
also indicated a number of contaminants above the State of Georgia notification
limits.
Appropriate State of Georgia agencies have been notified of the findings and
corrective and remedial actions have been completed, are currently underway, or
plans for such actions have been submitted to the State of Georgia for approval.
The current estimated cost for cleanup and remediation is $1.5 million, all of
which has been accrued at May 31, 1999. Additional testing, however, could
result in greater costs for cleanup and remediation than is currently accrued.
Matrix is in the process of closing down or selling its SLT and West Coast
Industrial Coatings, Inc. subsidiaries. Although Matrix does not own the land or
building, it would be liable for any environmental exposure while operating at
the facility, a period from June 1, 1991 to the present. A potential purchaser
of the two companies has engaged an Environmental Engineer to conduct a Phase I
Environmental Study and if appropriate, a Phase II and Phase III evaluation. At
the present time, the environmental liability that could result from the testing
is unknown.
Matrix has other fabrication operations in Tulsa, Oklahoma; Bristol,
Pennsylvania; and Anaheim, California which could subject the Company to
environmental liability. It is unknown at this time if any such liability exists
but based on the types of fabrication and other manufacturing activities
performed at these facilities and the environmental monitoring that the Company
undertakes, Matrix does not believe it has any material environmental
liabilities at these locations.
Matrix builds aboveground storage tanks and performs maintenance and repairs on
existing aboveground storage tanks. A defect in the manufacturing of new tanks
or faulty repair and maintenance on an existing tank could result in an
environmental liability if the product stored in the tank leaked and
contaminated the environment. Matrix currently has liability insurance with
pollution coverage of $1 million, but the amount could be insufficient to cover
a major claim. Matrix is currently involved in one potential claim which
occurred before pollution coverage was obtained. The Company does not believe
that its repair work was defective and is not liable for any subsequent
environmental damage.
Item 2. Properties
The executive offices of the Company are located in a 20,400 square foot
facility owned by the Company and located in Tulsa, Oklahoma. The Company owns a
64,000 square foot facility located on 13 acres of land leased from the Tulsa
Port of Catoosa which is used for the fabrication of tanks and tank parts. The
Company owns a 60,000 square foot facility on 14 acres of land in Tulsa,
Oklahoma which use to house the Midwest operation but is now occupied by the new
tank construction group. The Company also owns a 22,000 square foot facility
located on 14 acres of land in Tulsa, Oklahoma for Tulsa regional operations, a
13,300 square foot facility in Temperance, Michigan for the Michigan
10
<PAGE>
regional operations and a 8,800 square foot facility in Houston, Texas for
Houston regional operations. The Company owns 143,300 square foot and 41,000
square foot facilities, located on 6.5 acres and 31.8 acres, respectively, in
Newnan, Georgia which are being sold and are currently used for the fabrication
of elevated tanks. The Company owns a 30,000 square foot facility located on 5.0
acres of land in Bellingham, Washington. Also, the Company owns a 1,806 square
foot facility located in Sarnia, Ontario, Canada. The Company leases offices in
Anaheim, Bay Point, and Paso Robles, California; Bristol and Bethlehem,
Pennsylvania; Houston, Texas and Newark, Delaware. The aggregate lease payments
for these leases during fiscal 1999 were approximately $1.0 million. The Company
believes that its facilities are adequate for its current operations.
Item 3. Legal Proceedings
The Company and its subsidiaries are named defendants in several lawsuits
arising in the ordinary course of their business. While the outcome of lawsuits
cannot be predicted with certainty, management does not expect these lawsuits to
have a material adverse impact on the Company.
An environmental assessment was conducted at the Newnan, Georgia facilities of
Brown upon execution of a Letter of Intent on March 24, 1999 to sell Brown to
Caldwell Tanks, Inc. The assessment turned up a number of deficiencies relating
to storm water permitting, air permitting and waste handling and disposal. An
inspection of the facilities also showed friable asbestos that needed to be
removed. In addition, Phase II soil testing indicated a number of VOC's, SVOC's
and metals above the State of Georgia notification limits. Ground water testing
also indicated a number of contaminants above the State of Georgia notification
limits.
Appropriate State of Georgia agencies have been notified of the findings and
corrective and remedial actions have been completed, are currently underway, or
plans for such actions have been submitted to the State of Georgia for approval.
(See "Item 1 -- Business - Environmental")
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Price Range of Common Stock
The Common Stock has traded on the National Market System of the National
Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") System
since the Company's initial public offering on September 26, 1990. The trading
symbol for the Common Stock is "MTRX". The following table sets forth the high
and low closing sale prices for the Common Stock on the National Market System
as reported by NASDAQ for the periods indicated:
Fiscal Year Fiscal Year
1999 1998
---------------- ---------------
High Low High Low
---- --- ---- ---
First Quarter $7.75 $ 4.88 $8.75 $6.63
Second Quarter 5.50 3.97 8.25 6.75
Third Quarter 5.13 3.50 9.63 5.69
Fourth Quarter 4.50 2.94 8.50 6.81
Fiscal Year
2000
-----------------
High Low
---- ---
First Quarter (through August 25, 1999) $4.63 $3.75
11
<PAGE>
As of August 25, 1999 there were approximately 90 holders of record of the
Common Stock. The Company believes that the number of beneficial owners of its
Common Stock is substantially greater than 90.
Dividend Policy
The Company has never paid cash dividends on its Common Stock. The Company
currently intends to retain earnings to finance the growth and development of
its business and does not anticipate paying cash dividends in the foreseeable
future. Any payment of cash dividends in the future will depend upon the
financial condition, capital requirements and earnings of the Company as well as
other factors the Board of Directors may deem relevant. Certain of the Company's
credit agreements restrict the Company's ability to pay dividends.
12
<PAGE>
Item 6. Selected Financial Data
The following table sets forth selected historical financial information for
Matrix covering the five years ended May 31, 1999. The following financial
information includes the operations of GSC from its date of acquisition in June
1997.
See the Notes to the Company's Consolidated Financial Statements.
<TABLE>
<CAPTION>
(In millions, except per share data)
Matrix Service Company
---------------------------------------------------------------------------
Years Ended
---------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- --------------- --------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Revenues 211.0 225.4 183.1 183.7 177.5
Gross profit 14.0 18.6 17.4 16.6 13.9
Gross profit % 6.6% 8.3% 9.5% 9.0% 7.8%
Operating income (loss) (11.5) (16.3) 5.5 4.7 1.5
Operating income (loss) % (5.5)% (7.2)% 3.0% 2.6% (0.8)%
Pre-tax income / (loss) (12.6) (17.3) 5.1 4.4 (0.5)
Net income / (loss) (12.6) (11.6) 3.0 2.4 (0.2)
Net income / (loss) % (6.0)% (5.1)% 1.6% 1.3% (0.1)%
Earnings / (loss) per share-diluted (1.34) (1.22) 0.31 0.26 (0.02)
Equity per share-diluted 5.29 6.87 7.86 7.68 7.53
Weighted average shares outstanding 9.4 9.5 9.7 9.5 9.4
Working capital 25.7 41.1 28.2 26.4 26.8
Total assets 88.2 112.7 116.9 105.8 105.7
Long-term debt 5.5 13.1 6.4 4.8 8.5
Capital expenditures 5.4 2.6 5.8 3.4 5.2
Stockholders' equity 49.7 65.3 76.2 73.0 70.8
Total long-term debt to equity 11.1% 20.1% 8.4% 6.6% 12.0%
Cash flow from operations 16.7 3.0 6.2 9.6 0.6
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward Looking Statements
Certain matters discussed in this report, excluding historical information,
include forward-looking statements. Although Matrix believes these
forward-looking statements are based on reasonable assumptions, it cannot give
any assurance that it will reach every objective. Matrix is making these
forward-looking statements in reliance on the safe harbor protections provided
under the Private Securities Litigation Reform Act of 1995.
As required by the act, Matrix identifies the following important factors that
could cause actual results to differ materially from any results projected,
forecasted, estimated, or budgeted:
. Changes in general economic conditions in the United States.
. Changes in laws and regulations to which Matrix is subject, including tax,
environmental, and employment laws and regulations.
. The cost and effects of legal and administrative claims and proceedings
against Matrix or its subsidiaries.
. Conditions of the capital markets Matrix utilizes to access capital to
finance operations.
13
<PAGE>
. The ability to raise capital in a cost-effective way.
. Year 2000 readiness of Matrix, its customers, and its vendors.
. The effect of changes in accounting policies.
. The ability to manage growth and to assimilate personnel and operations of
acquired businesses.
. The ability to control costs.
. Changes in foreign economies, currencies, laws, and regulations, especially
in Canada and Venezuela where Matrix has made direct investments.
. Political developments in foreign countries, especially in Canada
and Venezuela where Matrix has made direct investments.
. The ability of Matrix to develop expanded markets and product or service
offerings as well as its ability to maintain existing markets.
. Technological developments, high levels of competition, lack of customer
diversification, and general uncertainties of governmental regulation in
the energy industry.
. The ability to recruit, train, and retain project supervisors with
substantial experience.
. A downturn in the petroleum storage operations or hydrocarbon processing
operations of the petroleum and refining industries.
. Changes in the labor market conditions that could restrict the availability
of workers or increase the cost of such labor.
. The negative effects of a strike or work stoppage.
. The timing and planning of maintenance projects at customer facilities in
the refinery industry which could cause adjustments for seasonal shifts in
product demands.
. Exposure to construction hazards related to the use of heavy equipment with
attendant significant risks of liability for personal injury and property
damage.
. The use of significant production estimates for determining percent
complete on construction contracts could produce different results upon
final determination of project scope.
. The inherent inaccuracy of estimates used to project the timing and cost of
exiting operations of non-core businesses.
. Fluctuations in quarterly results.
14
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Matrix Service Company
Annual Results of Operations
($ Amounts in millions)
- ------------------------------------------------------------------------------------------------------------------------------------
AST Construction Plant Municipal Water FCCU Combined
Services Services Services Total Services Services Total Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended May 31, 1999
Revenues 112.6 22.9 29.9 165.4 45.1 0.5 45.6 211.0
Gross profit 12.9 (0.2) 3.8 16.5 (2.4) (0.1) (2.5) 14.0
Selling, general and 8.4 1.3 2.0 11.7 3.3 0.0 3.3 15.0
administrative expenses
Restructuring, impairment & 0.0 0.0 0.0 0.0 9.8 0.0 9.8 9.8
abandonment costs
Operating income (loss) 3.9 (1.5) 1.8 4.2 (15.6) (0.1) (15.7) (11.5)
Income (loss) before income tax expense 3.4 (1.6) 1.7 3.5 (16.1) 0.0 (16.1) (12.6)
Net income (loss) 3.4 (1.6) 1.7 3.5 (16.1) 0.0 (16.1) (12.6)
Earnings / (loss) per share - 0.36 (0.17) 0.18 0.37 (1.71) 0.00 (1.71) (1.34)
diluted
Weighted average shares 9,440
Year ended May 31, 1998
Revenues 103.0 45.0 20.6 168.6 46.2 10.6 56.8 225.4
Gross profit 11.0 5.4 2.4 18.8 1.7 (1.9) (0.2) 18.6
Selling, general and 6.8 1.1 1.6 9.5 2.7 0.7 3.4 12.9
administrative expenses
Restructuring, impairment & 1.9 0.0 0.0 1.9 4.1 15.0 19.1 21.0
abandonment costs
Operating income (loss) 1.8 4.3 0.8 6.9 (5.3) (17.9) (23.2) (16.3)
Income (loss) before income tax expense 1.5 4.2 0.7 6.4 (5.4) (18.3) (23.7) (17.3)
Net income (loss) 1.2 2.5 0.4 4.1 (4.8) (10.9) (15.7) (11.6)
Earnings / (loss) per share - 0.14 0.26 0.04 0.44 (0.51) (1.15) (1.66) (1.22)
diluted
Weighted average shares 9,546
Year ended May 31, 1997
Revenues 71.7 23.1 19.8 114.6 52.0 16.5 68.5 183.1
Gross profit 6.8 2.4 2.2 11.4 6.0 0.0 6.0 17.4
Selling, general and 4.6 0.9 1.3 6.8 2.9 1.4 4.3 11.1
administrative expenses
Restructuring, impairment & 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
abandonment costs
Operating income (loss) 2.0 1.5 0.9 4.4 2.9 (1.8) 1.1 5.5
Income (loss) before income tax expense 2.1 1.4 0.8 4.3 2.7 (1.9) 0.8 5.1
Net income (loss) 1.4 0.8 0.5 2.7 1.6 (1.3) 0.3 3.0
Earnings / (loss) per share - 0.15 0.08 0.05 0.28 0.16 (0.13) 0.03 0.31
diluted
Weighted average shares 9,699
Variances 1999 to 1998
Revenues 9.6 (22.1) 9.3 (3.2) (1.1) (10.1) (11.2) (14.4)
Gross profit 1.9 (5.6) 1.4 (2.3) (4.1) 1.8 (2.3) (4.6)
Selling, general and (1.6) (0.2) (0.4) (2.2) (0.6) 0.7 0.1 (2.1)
administrative expenses
Restructuring, impairment & 1.9 0.0 0.0 1.9 (5.7) 15.0 9.3 11.2
abandonment costs
Operating income (loss) 2.1 (5.8) 1.0 (2.7) (10.3) 17.8 7.5 4.8
Income (loss) before income tax expense 1.9 (5.8) 1.0 (2.9) (10.7) 18.3 7.6 4.7
Net income (loss) 2.2 (4.1) 1.3 (0.6) (11.3) 10.9 (0.4) (1.0)
Variances 1998 to 1997
Revenues 31.3 21.9 0.8 54.0 (5.8) (5.9) (11.7) 42.3
Gross profit 4.2 3.0 0.2 7.4 (4.3) (1.9) (6.2) 1.2
Selling, general and (2.2) (0.2) (0.3) (2.7) 0.2 0.7 0.9 (1.8)
administrative expenses
Restructuring , impairment & (1.9) 0.0 0.0 (1.9) (4.1) (15.0) (19.1) (21.0)
abandonment costs
Operating income (loss) (0.2) 2.8 (0.1) 2.5 (8.2) (16.1) (24.3) (21.8)
Income (loss) before income tax expense (0.6) 2.8 (0.1) 2.1 (8.1) (16.4) (24.5) (22.4)
Net income (loss) (0.2) 1.7 (0.1) 1.4 (6.4) (9.6) (16.0) (14.6)
</TABLE>
15
<PAGE>
Results of Operations
AST Services 1999 vs. 1998
Revenues for AST Services in 1999 were $112.6 million, an increase of $9.6
million or 9.3% over 1998, primarily as a result of a continued good business
climate and Matrix's strategic emphasis on alliances and building customer
relationships through value added services. Gross margin for 1999 of 11.5% was
slightly better than the 10.7% produced in 1998 as a direct result of higher and
more efficient man-hour utilization and better execution of job plans in a more
safety conscience work environment. These margin improvements along with the
increased sales volumes resulted in gross profit for 1999 of $12.9 million
exceeding that of 1998 by $1.9 million, or 17.3%.
Selling, general and administrative costs as a percent of revenues increased to
7.5% in 1999 vs. 6.6% in 1998 primarily as a result of increased salary and
wages, increased legal costs and increased information technology costs
associated with the new enterprise-wide management information system discussion
the "Year 2000 Compliance" section.
Operating income for 1999 of $3.9 million was significantly better than the $1.8
million produced in 1998, primarily the result of no restructuring, impairment
and abandonment costs in 1999 versus $1.9 million in 1998. The improvements in
gross profit of $1.9 million was almost offset by the increase in selling,
general and administrative expenses discussed above.
AST Services 1998 vs. 1997
Revenues for AST Services in 1998 were $103.0 million, an increase of $31.3
million or 43.7% over 1997, primarily as a result of a good business climate and
Matrix's strategic emphasis on alliances and building customer relationships
through value-added services. Gross margin for 1998 of 10.7% was significantly
better than the 9.5% produced in 1997 as a direct result of better execution of
job plans in a more safety conscience work environment. These margin gains along
with the increased sales volumes resulted in gross profit for 1998 of $11.0
million exceeding that of 1997 by $4.2 million, or 61.8%.
Selling, general and administrative costs as a percent of revenues were
relatively flat at 6.6% in 1998 vs. 6.4% in 1997.
In the third quarter of 1998, in connection with the shutdown of Midwest, the
AST services segment incurred $1.9 million of restructuring, impairment and
abandonment costs.
Operating income for 1998 of $1.8 million, or 1.8% as a percent of revenues was
significantly worse than the $2.0 million, or 2.8% produced in 1997, as a direct
result of selling, general and administrative increases and restructuring costs,
offset by the gross margin gains discussed above.
Construction Services 1999 vs. 1998
Revenues for Construction Services in 1999 were $22.9 million, a decrease of
$22.1 million or 49.1% from 1998, primarily as a result of two large projects
totaling $34.0 million of revenues in fiscal 1998 which were not replaced with
similar size projects in fiscal 1999. Gross margin for 1999 of (0.9)% was much
worse than the 12.0% produced in 1998 as a result of lower volume and the
establishment of a $2.0 million reserve for bad debts for two large potentially
uncollectible receivables. These margin declines along with the decreased sales
volumes resulted in gross profit for 1999 of ($0.2) million which was a decrease
from 1998 gross profit of $5.6 million, or (103.7%).
Selling, general and administrative expenses as a percent of revenues increased
to 5.7% in 1999 vs. 2.4% in 1998 primarily as a result of the fixed salary costs
not being reduced sufficiently to compensate for the decreased revenues in 1999.
Operating losses for 1999 of ($1.5) million, or (6.6%) were significantly worse
than the operating income of $4.3 million, or 9.6% produced in 1998 as a direct
result of the selling, general and administrative expense increases and the
gross margin declines discussed above.
Construction Services 1998 vs. 1997
Revenues for Construction Services in 1998 were $45.0 million, an increase of
$21.9 million or 94.8% over 1997,
16
<PAGE>
primarily as a result of two large projects totaling $34.0 million of fiscal
1998 revenues for which similar sized projects were not available in fiscal
1997. Gross profit for 1998 of 12.0% was slightly better than the 10.4% produced
in 1997 as a result of higher margin construction jobs. These margin gains along
with the increased sales volumes resulted in gross profit for 1998 of $5.4
million, exceeding that of 1997 by $3.0 million, or 125.0%.
Selling, general and administrative expenses as a percent of revenues decreased
to 2.4% in 1998 vs. 3.9% in 1997 primarily as a result of the fixed salary costs
being spread over a larger revenue base in 1998 vs. 1997.
Operating income for 1998 of $4.3 million, or 9.6% as a percent of revenues was
significantly better than the $1.5 million, or 6.5% produced in 1997 as a direct
result of the gross margin gains and selling, general and administrative
decreases discussed above.
Plant Services 1999 vs. 1998
Revenues for Plant Services in 1999 were $29.9 million, an increase of $9.3
million or 45.1% over 1998, primarily as a result of a good business climate and
Matrix's strategic emphasis on alliances and building customer relationships
through value-added services. Gross margin for 1999 of 12.7% was slightly better
than the 11.7% produced in 1998 as a direct result of better execution of job
plans, higher and more efficient man-hour utilization and a more favorable mix
of higher margin turnaround versus lower margin maintenance contracts. These
margin gains along with the increased sales volumes resulted in gross profit for
1999 of $3.8 million exceeding that of 1998 by $1.4 million, or 58.3%.
Selling, general and administrative expenses as a percent of revenues decreased
to 6.7% in 1999 vs. 7.8% in 1998 primarily as a result of the fixed salary costs
being spread over a larger revenue base in 1999 vs. 1998.
Operating income for 1999 of $1.8 million, or 6.0% as a percent of revenues was
significantly better than the $0.8 million, or 3.9% produced in 1998, as a
direct result of the selling, general and administrative decreases and the gross
margin gains discussed above.
Plant Services 1998 vs. 1997
Revenues for Plant Services in 1998 were $20.6 million, a modest increase of
4.0% over 1997. Gross margins for 1998 of 11.7% was slightly better than the
11.1% produced in 1997 as a direct result of better execution of job plans in a
more safety conscience work environment. These margin gains along with the
slightly increased sales volumes resulted in gross profit for 1998 of $2.4
million exceeding that of 1997 by $0.2 million, or 9.1%.
Selling, general and administrative expenses as a percent of revenues increased
to 7.8% in 1998 vs. 6.6% in 1997 primarily as a result of a decision to build
infrastructure to facilitate anticipated growth in 1999.
Operating income for 1998 of $0.8 million, or 3.9% as a percent of revenues was
slightly less than the $0.9 million, or 4.5% produced in 1997, as a direct
result of the selling, general and administrative increases, offset by the
margin gains discussed above.
Exited Operations
- -----------------
Fiscal Year 1999
- ----------------
On March 24, 1999, Matrix entered into a Letter of Intent with Caldwell Tanks,
Inc. for the sale of Brown, a subsidiary acquired in 1994. In April 1999, the
board of directors approved the transaction and a Stock Purchase Agreement was
executed on June 9, 1999. Based upon certain environmental concerns (see Item 1.
Business Environmental), the structure of this transaction is being renegotiated
as an asset sale with Matrix retaining temporary ownership of the land and
buildings until environmental remediation is completed.
Also, in May 1999 senior management approved and committed Matrix to an exit
plan related to the SLT operations which were acquired in 1992. The exit plan
specifically identified all significant actions to be taken to complete the exit
plan, listed the activities that would not be continued, and outlined the
methods to be employed for the disposition, with an expected completion date of
March 2000. Management obtained board approval and immediately began development
of a communication plan to the impacted employees under Workers Adjustment and
Retraining Notification Act ("WARN Act").
17
<PAGE>
In June of 1999, notices were given as required under the WARN Act and Matrix
announced that it would also pursue potential opportunities to sell SLT.
As a result of these restructuring, impairment and abandonment operations,
Matrix recorded a charge of $9.8 million (See Footnote 3 to the Consolidated
Financial Statements).
Fiscal Year 1998
- ----------------
During the third quarter of fiscal year 1998, the board of directors approved a
plan whereby Matrix would exit the operations of Midwest and discontinue to
operate in the markets that Midwest has historically participated. Matrix
completed all open contracts and disposed of all assets of Midwest. During each
of the fiscal years ended 1998 and 1997, Midwest had operating losses of
$3.4 million and $1.8 million respectively.
Also during the third quarter of fiscal 1998, Matrix adopted a board of
directors approved plan to restructure operations to reduce costs, eliminate
duplication of facilities and improve efficiencies. The plan included closing
fabrication shops in Newark, Delaware and Rancocas, New Jersey and moving these
operations to a more efficient and geographically centered facility in Bristol,
Pennsylvania. Additionally, the Company closed a fabrication shop at Elkston,
Maryland. The production from the Maryland facility, which was principally
elevated water tanks, will be provided by the Company's Newnan, Georgia plant.
(The facilities located in Delaware, New Jersey, Pennsylvania and Maryland were
all leased facilities.) Matrix sold real estate that was not being utilized in
Mississauga, Canada, and terminated the business of certain product lines that
were no longer profitable.
As part of the restructuring plan Matrix separately reviewed the operations of
SLT for impairment indicators as actual operating and cash flow results were
less than projections for Fiscal 1998, the principals in management, from whom
the original business was purchased, left the employment of the company in early
fiscal 1998, SLT reputation in the industry had deteriorated and the business
name was dissolved into Matrix. The operating income and cash flows from this
business unit were not historically negative; however, there were significant
concerns that future operations may not be positive. Based on these potential
impairment indicators, an estimate of the undiscounted cash flows of the SLT
operations was made. This estimate indicated impairment and, as a result, the
entire amount of the goodwill related to SLT was written off.
Additionally, in evaluating Matrix's Mayflower vapor seal operations, the
operating income and cash flows from this business unit indicated that positive
amounts were not attainable. Therefore, the businesses was completely abandoned,
the goodwill written-off, and impaired assets abandoned or sold at their net
realizable value. The operating results of Mayflower were not significant to
Matrix's operations.
Employee termination costs associated with the reorganization and termination of
all employees of Midwest and Mayflower were recognized and paid during fiscal
1998.
Other reorganization costs include the cost of travel related expenses for
reorganization teams which proposed, planned and carried out the Company's
restructuring plans, cost of a failed merger with ITEQ and equipment moving.
As a result of these restructuring and closing operations, Matrix recorded a
charge of $21.0 million (See Footnote 3 to the Consolidated Financial
Statements).
Municipal Water Services 1999 vs. 1998
Revenues for Municipal Water Services in 1999 were $45.1 million, a slight
decrease of $1.1 million, or 2.4% as compared to 1998 due principally to weak
market demand in the flat bottom water tank sector. Gross margin for 1999 of
(5.3)% was significantly worse than the 3.7% produced in 1998 as a result of
major weakness in the markets, intensified competition, poor execution of job
plans and the inefficiency experienced during the selling and shutdown process.
Included in 1999 margins was the impact of losses accrued on jobs yet to be
completed of $0.5 million. These margin declines along with the slightly
decreased sales volumes resulted in gross profit for 1999 of ($2.4) million, a
$4.1 million decrease from 1998.
Operating losses for 1999 of ($15.6) million were significantly worse than the
operating losses of ($5.3) million, in 1998 as a result primarily of lower gross
profits discussed above and restructuring impairment and abandonment costs of
$9.8 million relating to the decision to exit the business versus a
restructuring, impairment and
18
<PAGE>
abandonment charge of $4.1 million in 1998 relating to the impairment of
goodwill at SLT.
Municipal Water Services 1998 vs. 1997
Revenues for Municipal Water Services in 1998 were $46.2 million, a decrease of
$5.8 million or 11.2% from 1997, primarily as a result of a softening in the new
construction market. Gross margin for 1998 of 3.7% was significantly worse than
the 11.5% produced in 1997 as a direct result of intensified competition and
poor execution of job plans. These margin declines along with the decreased
sales volumes resulted in gross profit for 1998 of $1.7 million falling short of
1997 gross profits by $4.3 million, or 71.7%.
Selling, general and administrative costs as a percent of revenues was
relatively flat at 5.8% in 1998 vs. 5.6% in 1997.
Operating losses for 1998 of ($5.3) million were significantly worse than the
operating income of $2.9 million produced in 1997 as a direct result of gross
profit shortfalls discussed above and a $4.1 million charge for restructuring,
impairment and abandonment costs in 1998 relating to the impairment of goodwill
at SLT.
FCCU Services 1999 vs. 1998
Midwest was exited in the third quarter of 1998 and there was no significant
FCCU activity in 1999.
FCCU Services 1998 vs. 1997
After an extensive analysis of the market and an evaluation of Midwest's ability
to compete in that market, Management made the decision to terminate the
operations of Midwest effective February 28, 1998. Additionally, the decision
was made to exit the market for structural work on FCCU's and refractory linings
for hydrocarbon processing vessels, which is substantially the revenue base for
Midwest.
Revenue for Midwest was $10.6 million in fiscal 1998 as compared with $16.5
million for the full year ending May 31, 1997 or a decrease of $5.9 million or
35.8%. The decline was primarily the result of weak market conditions and the
decision to exit the business in the third quarter of fiscal 1998.
Gross margin for Midwest in fiscal 1998 of (17.9%) was significantly worse than
the 0.0% produced in 1997 as a direct result of poor execution of job plans and
the inefficiencies associated with the close down of the business. These margin
shortfalls along with decreased sales volumes resulted in gross profit for 1998
declining from 1997 levels by $1.9 million.
Financial Condition & Liquidity
Matrix's cash and cash equivalents totaled approximately $3.0 million at May 31,
1999 and $2.6 million at May 31, 1998.
Matrix has financed its operations recently with cash generated by operations
and advances under a credit agreement. Matrix has a credit agreement with a
commercial bank under which a total of $30.0 million may be borrowed. Matrix may
borrow up to $20.0 million on a revolving basis based on the level of the
Company's eligible receivables. Revolving loans bear interest at a Prime Rate or
a LIBOR based option, and mature on October 31, 2000. At May 31, 1999, there
were no outstanding advances under the revolver. The credit agreement also
provides for a term loan up to $10.0 million. On March 2, 1998, a term loan of
$10.0 million was made to Matrix. The term loan is due on February 28, 2003 and
is to be repaid in 60 equal payments beginning in March 1998 at an interest rate
based upon the Prime Rate or a LIBOR Option. At May 31, 1999 the balance
outstanding on the term loan was $7.5 million. In conjunction with the term loan
effective March 2, 1998, Matrix entered into an Interest Rate Swap Agreement
with a commercial bank, effectively providing a fixed interest rate of 7.5% for
the five-year period of the term loan.
Operations of the Company provided $16.7 million of cash for the year ended May
31, 1999 as compared with providing $3.0 million of cash for the year ended May
31, 1998, representing a increase of approximately $13.7 million. The increase
was due primarily to changes in net working capital for the year.
Capital expenditures during the year ended May 31, 1999 totaled approximately
$5.4 million. Of this amount, approximately $1.0 million was used to purchase
transportation equipment for field operations, and approximately $1.9 million
was used to purchase welding, construction, and fabrication equipment. Matrix
has invested approximately $2.0
19
<PAGE>
million in office equipment furniture and fixtures during the year, which
includes approximately $1.2 million invested for a new enterprise wide
management information system. Matrix has budgeted approximately $6.3 million
for capital expenditures for fiscal 2000. Of this amount, approximately $1.4
million would be used to purchase transportation equipment for field operations,
and approximately $2.7 million would be used to purchase welding, construction,
and fabrication equipment. A 6,000 square foot expansion is planned for the Port
of Catoosa fabrication facility at a cost of approximately $0.7 million and an
additional $0.8 million is anticipated to be spent on the enterprise wide
management information system. Matrix expects to be able to finance these
expenditures with operating cash flow and borrowings under the credit agreement.
Matrix believes that its existing funds, amounts available from borrowings under
its existing credit agreement, and cash generated by operations and through the
sale of Brown will be sufficient to meet the working capital needs through
fiscal 2000 and thereafter unless significant expansions of operations not now
planned are undertaken, in which case Matrix would need to arrange additional
financing as a part of any such expansion.
The preceding discussion contains forward-looking statements including, without
limitation, statements relating to Matrix's plans, strategies, objectives,
expectations, intentions, and adequate resources, that are made pursuant to the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. Readers are cautioned that such forward-looking statements contained in
the financial conditions and liquidity section are based on certain assumptions
which may vary from actual results. Specifically, the dates on which Matrix
believes the sale of Brown will be consummated and the capital expenditure
projections are based on management's best estimates, which were derived
utilizing numerous assumptions of future events, including the successful
remediation of environmental issues to complete the closing of the Brown sale
and other factors. However, there can be no guarantee that these estimates will
be achieved, or that there will not be a delay in, or increased costs associated
with, the successful closing of the Brown sale.
Qualitative & Quantitative Disclosures
Year 2000 Compliance
Matrix initiated an enterprise-wide project on 1998 to address the year 2000
compliance issue for both traditional and non-traditional technology areas. The
project focuses on all technology hardware, software, external interfaces with
customers and suppliers, and facility items. The phases of the project are
awareness, assessment, remediation, and implementation.
Matrix has completed its inventory and assessment efforts. During the assessment
phase, all systems were inventoried and classified into five categories: 1)
business applications, 2) end-user applications, 3) development tools, 4)
hardware and system software and 5) non-IT systems. Each system also was
assigned one of three priorities: critical, necessary, or low.
Based on assessment results, Matrix determined that it would be required to
modify, upgrade or replace only a limited number of its systems so that its
business areas would function properly with respect to dates in the year 2000
and thereafter. As of May 31, 1999, all critical and necessary systems have been
remediated and implemented in the production environment.
Remediation of the low priority systems is substantially complete. These systems
represent a minor portion of the inventory and have been considered to have no
material impact on the operations of the business.
Matrix has minimal external interface systems; however, communications have been
initiated with significant suppliers and large customers to determine the extent
to which these companies are addressing year 2000 compliance. In connection with
this activity, Matrix has processed approximately 250 letters and questionnaires
with external parties. As of May 31, 1999, approximately 30 percent of the
companies contacted have responded and all of these have indicated that they are
already compliant or will be compliant on a timely basis.
The anticipated cost of the year 2000 effort has been estimated at $200,000 and
is being funded through operating cash flows. Of the total project cost, 40% is
attributable to the purchase of new systems, which will be capitalized. The
remaining 60% will be expensed as incurred, is not expected to have a material
effect on the results of operations. As of May 31, 1999, expended project costs
were approximately $150,000. Matrix estimates any future costs will not exceed
$50,000.
20
<PAGE>
Despite the best planning and execution efforts, Matrix is working from the
premise that some issues will not be uncovered, and that some issues that are
uncovered will not be successfully resolved. In an effort to manage and mitigate
this risk exposure, Matrix has developed a risk management and contingency plan
for its critical operations.
In addition to Matrix's remediation strategy, a new enterprise-wide management
information system has been purchased as a replacement for the core financial
and operational systems. The project began in January 1999 and has an estimated
duration of nine months. The scope of this project has been maintained
separately and independent of Matrix's year 2000 efforts. If the existing
remediation strategy fails, this project could be escalated to mitigate any
material business disruptions.
All critical systems over which Matrix has control are planned to be compliant
and tested before year 2000. However, Matrix has identified the possibility of
service disruptions due to non-compliance by third parties as the area equating
to the most reasonably likely worst case scenario. For example, power failures
and telecommunication outages would cause service interruptions. It is not
possible to quantify the possible financial impact if this most reasonably
likely worst case scenario were to come to fruition.
The preceding discussion contains forward-looking statements including, without
limitation, statements relating to Matrix's plans, strategies, objectives,
expectations, intentions, and adequate resources, that are made pursuant to the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. Readers are cautioned that such forward-looking statements contained in
the year 2000 update are based on certain assumptions which may vary from actual
results. Specifically, the dates on which Matrix believes the year 2000 project
will be completed and computer systems will be implemented are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events, including the continued availability of certain resources,
third-party modification plans and other factors. However, there can be no
guarantee that these estimates will be achieved, or that there will not be a
delay in, or increased costs associated with, the implementation of the year
2000 project. Other specific factors that might cause differences between the
estimates and actual results include, but are not limited to, the availability
and cost of personnel trained in these areas, the ability to locate and correct
all relevant computer code, timely responses to and corrections by third parties
and suppliers, the ability to implement interfaces between the new systems and
the systems not being replaced, and similar uncertainties. Due to the general
uncertainty inherent in the year 2000 problem, resulting in large part from the
uncertainty of the year 2000 readiness of third parties, Matrix cannot ensure
its ability to timely and cost effectively resolve problems associated with the
year 2000 issue that may affect its operations and business, or expose it to
third-party liability.
21
<PAGE>
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk Disclosures
Interest Rate Risk
Matrix's interest rate risk exposure primarily results from its debt portfolio
which is influenced by short-term rates, primarily Prime Rate and LIBOR-Based
borrowings under its credit agreement. To mitigate the impact of fluctuations in
interest rates, Matrix utilizes interest-rate swaps to change the ratio of its
fixed and variable rate debt portfolio based on Management's assessment of
future interest rates, volatility of the yield curve and Matrix's ability to
access the capital markets as necessary. The following table provides
information about Matrix's long-term debt and interest rate swap that is subject
to interest rate risk. For long-term debt, the table presents principal cash
flows and weighted-average interest rates by expected maturity dates. For the
interest-rate swap, the table presents notional amounts and weighted-average
interest rates by contractual maturity dates. Notional amounts are used to
calculate the contractual cash flows to be exchanged under the interest rate
swap.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003 Fair Value Fair Value May
May 31, 1999 May 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Interest rate swap:
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pay fixed/receive $9,666,666 $7,666,666 $5,666,666 $3,666,666 $1,666,666 $0 $<35,900> $<54,300>
variable
- ------------------------------------------------------------------------------------------------------------------------------------
Pay rate 7.50% 7.50% 7.50% 7.50% 7.50% 7.50% 7.50% 7.50%
- ------------------------------------------------------------------------------------------------------------------------------------
Receive rate *
- ------------------------------------------------------------------------------------------------------------------------------------
* 30-day LIBOR (London Interbank Offer Rate) plus 150 basis points
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Foreign Currency Risk
Matrix has subsidiary companies whose operations are located in Canada and
Venezuela. Matrix's financial results could be affected if these companies incur
a permanent decline in value as a result of changes in foreign currency exchange
rates and the economic conditions in these foreign countries. Matrix attempts to
mitigate these risks by investing in different countries and business segments.
Venezuela's currency has recently suffered significant devaluation and
volatility. The ultimate severity of the conditions in Venezuela remain
uncertain, as does the long-term impact on Matrix's investment, however, the
total investment in Venezuela is not material to the Financial Position of
Matrix taken as a whole.
22
<PAGE>
Item 8. Financial Statements and Supplementary Data
Financial Statements of the Company
Report of Independent Auditors 24
Consolidated Balance Sheets as of May 31, 1999 and 1998. 25
Consolidated Statements of Operations for the years ended May 31,
1999, 1998 and 1997. 27
Consolidated Statements of Changes in Stockholders' Equity for the
years ended May 31, 1999, 1998 and 1997. 28
Consolidated Statements of Cash Flows for the years ended May 31,
1999, 1998 and 1997. 29
Notes to Consolidated Financial Statements 31
Quarterly Financial Data (Unaudited) 46
Schedule II - Valuation and Qualifying Accounts 47
Financial Statement Schedules
The following financial statement schedule is filed as a part of this report
under "Schedule II" immediately preceding the signature page: Schedule II -
Valuation and Qualifying Accounts for the three fiscal years ended May 31, 1999.
All other schedules called for by Form 10-K are omitted because they are
inapplicable or the required information is shown in the financial statements,
or notes thereto, included herein.
23
<PAGE>
Report of Independent Auditors
The Stockholders and Board of Directors
Matrix Service Company
We have audited the accompanying consolidated balance sheets of Matrix Service
Company as of May 31, 1999 and 1998, and the related consolidated statements of
operations, changes in stockholders' equity, and cash flows for each of the
three years in the period ended May 31, 1999. Our audits also included the
financial statement schedule listed in the Index under Item 14. These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Matrix
Service Company at May 31, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
May 31, 1999, in conformity with generally accepted accounting principles. Also
in our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
Ernst & Young LLP
Tulsa, Oklahoma
August 27, 1999
24
<PAGE>
Matrix Service Company
Consolidated Balance Sheets
<TABLE>
<CAPTION>
May 31
1999 1998
-------------------------------------------
(In Thousands)
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 2,972 $ 2,606
Accounts receivable, less allowances
(1999 - $2,464, 1998 - $-0-) 34,390 37,165
Costs and estimated earnings in excess of
billings on uncompleted contracts 8,541 15,340
Inventories 3,042 6,352
Assets held for disposal 8,556 -
Income tax receivable 104 5,279
Deferred income taxes - 3,252
Prepaid expenses 1,051 524
-------------------------------------------
Total current assets 58,656 70,518
Property, plant and equipment, at cost:
Land and buildings 9,645 16,481
Construction equipment 15,562 24,092
Transportation equipment 6,144 6,108
Furniture and fixtures 2,449 3,315
Construction in progress 2,385 973
-------------------------------------------
36,185 50,969
Accumulated depreciation 17,971 22,533
-------------------------------------------
18,214 28,436
Goodwill, net of accumulated amortization of $1,753
and $1,595 in 1999 and 1998, respectively 11,122 13,217
Other assets 228 570
-------------------------------------------
Total assets $ 88,220 $112,741
===========================================
</TABLE>
25
<PAGE>
Matrix Service Company
Consolidated Balance Sheets
<TABLE>
<CAPTION>
May 31
1999 1998
--------------------------------------------
(In Thousands)
Liabilities and stockholders' equity
Current liabilities:
<S> <C> <C>
Accounts payable $ 9,805 $ 12,250
Billings on uncompleted contracts in excess
of costs and estimated earnings 7,356 7,612
Accrued insurance 4,541 2,369
Accrued environmental reserves 1,778 -
Earnout payable 727 884
Income tax payable 307 -
Other accrued expenses 6,378 4,214
Current portion of long-term debt 2,092 2,105
--------------------------------------------
Total current liabilities 32,984 29,434
Long-term debt 5,521 13,106
Deferred income taxes - 4,949
Stockholders' equity:
Common stock - $.01 par value; 15,000,000
Shares authorized; 9,642,638 and 9,600,232
Shares issued in 1999 and 1998, respectively 96 96
Additional paid-in capital 51,596 51,458
Retained earnings 1,567 14,221
Cumulative translation adjustment (555) (523)
--------------------------------------------
52,704 65,252
Less treasury stock, at cost - 697,450 shares
in 1999 (2,989) -
--------------------------------------------
Total stockholders' equity 49,715 65,252
--------------------------------------------
Total liabilities and stockholders' equity $ 88,220 $112,741
============================================
</TABLE>
See accompanying notes.
26
<PAGE>
Matrix Service Company
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended May 31
1999 1998 1997
--------------------------------------------------------------------
(In thousands, except share
and per share amounts)
<S> <C> <C> <C>
Revenues $210,997 $225,428 $183,144
Cost of revenues 197,012 206,839 165,704
--------------------------------------------------------------------
Gross profit 13,985 18,589 17,440
Selling, general and administrative expenses 15,025 12,947 11,080
Goodwill and noncompete amortization 670 977 864
Restructuring, impairment and abandonment
costs 9,772 20,956 -
--------------------------------------------------------------------
Operating income (loss) (11,482) (16,291) 5,496
Other income (expense):
Interest expense (969) (1,275) (536)
Interest income 291 267 164
Other (452) (54) (10)
--------------------------------------------------------------------
Income (loss)
before income taxes (12,612) (17,353) 5,114
Provision (benefit) for federal, state and foreign
income taxes
- (5,715) 2,130
--------------------------------------------------------------------
Net income (loss) $(12,612) $ (11,638) $ 2,984
====================================================================
Basic earnings (loss) per common share $ (1.34) $ (1.22) $ .32
====================================================================
Diluted earnings (loss) per common share $ (1.34) $ (1.22) $ .31
====================================================================
Weighted average common shares outstanding:
Basic 9,440,310 9,545,979 9,330,246
Diluted 9,440,310 9,545,979 9,698,659
</TABLE>
See accompanying notes.
27
<PAGE>
Matrix Service Company
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-In Retained Treasury Comprehensive
Stock Capital Earnings Stock Income (Loss) Total
--------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balances, May 31, 1996 $95 $50,927 $23,617 $(1,498) $(107) $73,034
---------------
Net income - - 2,984 - - 2,984
Other comprehensive income,
net of tax
Translation adjustment - - - - (38) (38)
---------------
Comprehensive income 2,946
---------------
Exercise of stock options
(62,239 shares) - - (332) 588 - 256
Tax effect of exercised stock options - (24) - - - (24)
--------------------------------------------------------------------------------------
Balances, May 31, 1997 95 50,903 26,269 (910) (145) 76,212
Net loss - - (11,638) - - (11,638)
Other comprehensive income,
net of tax
Translation adjustment - - - - (378) (378)
---------------
Comprehensive income (12,016)
---------------
Exercise of stock options
(224,307 shares) 1 555 (410) 910 - 1,056
--------------------------------------------------------------------------------------
Balances, May 31, 1998 96 51,458 14,221 - (523) 65,252
Net loss - - (12,612) - - (12,612)
Other comprehensive income,
net of tax
Translation adjustment - - - - (32) (32)
---------------
Comprehensive income (12,644)
---------------
Purchase of treasury stock
(704,200 shares) - - - (3,036) - (3,036)
Exercise of stock options
(49,156 shares) - 138 (42) 47 - 143
--------------------------------------------------------------------------------------
Balances, May 31, 1999 $96 $51,596 $1,567 $(2,989) $(555) $49,715
======================================================================================
</TABLE>
See accompanying notes.
28
<PAGE>
Matrix Service Company
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended May 31
1999 1998 1997
------------------------------------------------------------
(In Thousands)
Operating activities
<S> <C> <C> <C>
Net income (loss) $(12,612) $(11,638) $2,984
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 4,717 5,134 5,365
Deferred income tax (1,697) (2,039) (356)
(Gain) loss on sale of equipment 632 467 (70)
Noncash write-off of restructuring,
impairment and abandonment costs 6,344 19,772 -
Changes in operating assets and
liabilities increasing (decreasing)
cash, net of effects of acquisitions:
Accounts receivable 2,775 5,166 (8,540)
Costs and estimated earnings
in excess of billings on
Uncompleted contracts 6,799 (2,858) 773
Inventories 1,470 (138) (840)
Prepaid expenses (527) (77) (277)
Accounts payable (2,445) (3,486) 3,281
Billings on uncompleted
contracts in excess of costs
and estimated earnings (256) 473 1,972
Accrued expenses 5,957 (2,484) 1,203
Income taxes receivable/payable 5,482 (4,544) 699
Other 47 (797) (15)
-------------------------------------------------------------------
Net cash provided by operating activities 16,686 2,951 6,179
Investing activities
Acquisition of property, plant and equipment (5,379) (2,577) (5,802)
Acquisitions and investment in foreign joint
venture, net of cash acquired (637) (5,068) (2,353)
Return of investment in foreign joint venture - - 200
Proceeds from other investing activities 182 652 155
-------------------------------------------------------------------
Net cash used in investing activities (5,834) (6,993) (7,800)
</TABLE>
29
<PAGE>
Matrix Service Company
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
Year ended May 31
1999 1998 1997
---------------------------------------------------------------------
(In Thousands)
Financing activities
<S> <C> <C> <C>
Issuance of common stock $ 143 $ 1,056 $ 256
Purchase of treasury stock (3,036) - -
Advances under bank credit agreement 5,425 11,750 7,000
Repayments of bank credit agreement (12,925) (4,200) (4,000)
Repayment of other notes (17) (3,652) (1,089)
Repayment of acquisition note (62) (459) (529)
Issuance of acquisition note - 250 -
Issuance of equipment lease - - 22
Issuance of equipment notes 4 40 -
Repayments of equipment notes (23) - (23)
---------------------------------------------------------------------
Net cash provided by (used in)
financing activities (10,491) 4,785 1,637
Effect of exchange rate changes on cash 5 (14) (38)
---------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 366 729 (22)
Cash and cash equivalents, beginning of year 2,606 1,877 1,899
---------------------------------------------------------------------
Cash and cash equivalents, end of year $ 2,972 $ 2,606 $1,877
=====================================================================
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes $ 477 $ 1,064 $1,706
Interest 967 1,275 545
</TABLE>
See accompanying notes.
30
<PAGE>
Matrix Service Company
Notes to Consolidated Financial Statements
May 31, 1999, 1998 and 1997
1. Summary of Significant Accounting Policies
Organization and Basis of Presentation
The consolidated financial statements present the accounts of Matrix Service
Company ("Matrix") and its subsidiaries (collectively referred to as the
"Company"). Subsidiary companies include Matrix Service, Inc., ("MSI"), Matrix
Service Mid-Continent ("Mid-Continent), Matrix Service, Inc. - Canada
("Canada"), San Luis Tank Piping Construction, Inc. and Affiliates ("San Luis"),
Brown Steel Contractors, Inc. and Affiliates ("Brown"), and Midwest Industrial
Contractors, Inc. ("Midwest"). In 1998, Matrix purchased General Services
Corporation and affiliates ("GSC") which was later merged into existing
subsidiaries, see Note 2. In 1998, Matrix exited the Midwest operation, and is
in the process of exiting Brown and San Luis in 1999, see Note 3. Intercompany
transactions and balances have been eliminated in consolidation.
The Company operates primarily in the United States and has operations in
Canada, Mexico and Venezuela. The Company's industry segments are Aboveground
Storage Tank Services (AST), Construction Services, Plant Services, Municipal
Water Services, and Fluid Catalytic Cracking Unit Services (FCCU).
Cash Equivalents
The Company includes as cash equivalents all investments with original
maturities of three months or less which are readily convertible into cash. The
carrying value of cash equivalents approximates fair value.
Inventories
Inventories consist primarily of raw materials and are stated at the lower of
cost or net realizable value. Cost is determined using the first-in, first-out
or average cost method.
Revenue Recognition
Revenues from fixed-price contracts are recognized on the
percentage-of-completion method measured by the percentage of costs incurred to
date to estimated total costs for each contract. Revenues from cost-plus-fee
contracts are recognized on the basis of costs incurred plus the estimated fee
earned. Anticipated losses on uncompleted contracts are recognized in full when
they become known.
31
<PAGE>
Matrix Service Company
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies (continued)
Depreciation and Amortization
Depreciation is computed using the straight-line method over the estimated
useful lives of the depreciable assets. Goodwill and noncompete agreements are
being amortized over 40 and 3 to 5 years, respectively, using the straight-line
method.
Impairment of Long-Lived Assets
The Company reviews long-lived assets and intangible assets, including goodwill,
for impairment periodically whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets is measured by comparison of the carrying amount of the asset to future
net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of the
assets.
Environmental Costs
Environmental liabilities are recognized when it is probable that a loss has
been incurred and the amount of that loss is reasonably estimable. Environmental
liabilities are based upon estimates of expected future costs without
discounting.
Income Taxes
Deferred income taxes are computed using the liability method whereby deferred
tax assets and liabilities are recognized based on temporary differences between
financial statement and tax bases of assets and liabilities using presently
enacted tax rates.
Earnings per Common Share
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share." Statement 128 replaced the
previously reported primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants, and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. Basic earnings per common share is
calculated based on the weighted average shares outstanding during the period.
Diluted earnings per share includes in average shares outstanding employee stock
options which are dilutive (-0-, -0- and 368,413 shares in 1999, 1998 and 1997,
respectively). All earnings per share amounts for all periods have been
presented, and where necessary, restated to conform to the Statement 128
requirements.
32
<PAGE>
Matrix Service Company
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies (continued)
Stock Option Plans
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its employee stock options because, as discussed in Note 7,
the alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," requires use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Comprehensive Income
In fiscal 1999, the Company adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income." This statement establishes standards
for reporting and display of comprehensive income and its components. The
Company has reclassified all years presented to reflect comprehensive income and
its components in the consolidated statements of shareholders' equity.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
2. Acquisition
On June 17, 1997, the Company acquired all of the outstanding common stock of
GSC for up to $7.75 million, subject to certain adjustments. The purchase price
consisted of $4.75 million in cash and a $0.25 million, prime rate (currently
8.25%) promissory note payable in 12 equal quarterly installments. In addition,
the stockholders of GSC are entitled to receive in the future up to an
additional $2.75 million in cash if GSC satisfies certain earnings requirements.
The Company recorded $0.8 million and $0.9 million under this provision in
fiscal 1999 and 1998, respectively. Under the provision of the contract the
stockholders have the right to elect 70% of the earnout amount upon change of
control of the Company. This transaction was accounted for as a purchase and
resulted in approximately $4.0 million of goodwill and non-competition
covenants. Operations of GSC are included in the accompanying financial
statements from date of acquisition. Operations of GSC from June 1, 1997 to date
of acquisition and for fiscal 1997 was not significant to the Company's reported
results.
33
<PAGE>
Matrix Service Company
Notes to Consolidated Financial Statements
3. Restructuring, Impairment and Abandonment Costs
During the third quarter of fiscal year 1998, the board of directors approved a
plan whereby the Company would exit the operations of Midwest and discontinue to
operate in the markets that Midwest has historically participated. The Company
completed all open contracts and disposed of all assets. The Company abandoned
this business entirely. During the years ended in fiscal 1998 and 1997, Midwest
had operating losses of $3.4 million and $1.8 million, respectively.
Also during the third quarter of 1998, the Company adopted a board of directors
approved plan to restructure operations to reduce costs, eliminate duplication
of facilities and improve efficiencies. The plan included closing fabrication
shops in Newark, Delaware and Rancocas, New Jersey and moving these operations
to a more efficient and geographically centered facility in Bristol,
Pennsylvania. Additionally, the Company closed a fabrication shop at Elkston,
Maryland. The production from the Maryland facility, which was principally
elevated water tanks, is now provided by the Company's Newnan, Georgia plant.
(The facilities located in Delaware, New Jersey, Pennsylvania and Maryland were
all leased facilities.) The Company sold real estate that was not being utilized
in Mississauga, Canada, and also discontinued certain product lines that were no
longer profitable.
As part of the 1998 restructuring plan the Company separately reviewed the
operations of San Luis for impairment indicators as actual operating and cash
flow results were less than projections for fiscal 1998, the principals in
management, from whom the original business was purchased, left the employment
of the company in early fiscal 1998, San Luis reputation in the industry had
deteriorated and the business name was dissolved into Matrix. The operating
income and cash flows from this business unit were not historically negative;
however, there were significant concerns that future operations may not be
positive. Based on these potential impairment indicators, an estimate of the
undiscounted cash flows of the San Luis operations was made. This estimate
indicated impairment and, as a result, the entire amount of the goodwill related
to San Luis was written off.
Additionally, in evaluating the Company's Mayflower vapor seal operations, the
operating income and cash flows from this business unit indicated that positive
amounts were not attainable. Therefore, the businesses was completely abandoned
in fiscal 1998, the goodwill written-off, and impaired assets abandoned and sold
at their net realizable value. The operating results of Mayflower have not been
significant to the Company's operations.
Employee termination costs associated with the reorganization and termination of
all employees of Midwest and Mayflower were recognized and paid during fiscal
1998.
34
<PAGE>
Matrix Service Company
Notes to Consolidated Financial Statements
3. Restructuring, Impairment and Abandonment Costs (continued)
Other reorganization costs in fiscal 1998 include the cost of travel related
expenses for reorganization teams which proposed, planned and carried out the
Company's restructuring plans, cost of a failed merger with ITEQ, Inc. and
equipment moving.
In May 1999 the Company entered into a Letter of Intent with Caldwell Tanks,
Inc. for the sale of Brown, a subsidiary acquired in 1994. In April 1999, the
board of directors approved the Transaction and a Stock Purchase Agreement was
executed on June 9, 1999. Based upon certain environmental concerns however, the
structure of this transaction is being renegotiated as an asset sale with the
Company retaining temporary ownership of the land and buildings until
environmental remediation is completed. The Company expects this transaction to
close in late August or early September 1999. During the years ended 1999 and
1998, Brown had operating losses of $4.0 million and $0.2 million,
respectively. In 1997, Brown had operating income of $2.2 million.
Also, in May 1999 senior management approved and committed the Company to an
exit plan related to the San Luis operations which were acquired in 1992. The
exit plan specifically identified all significant actions to be taken to
complete the exit plan, listed the activities that would not be continued, and
outlined the methods to be employed for the disposition, with an expected
completion date of March 2000. Management obtained board approval and
immediately began development of a communication plan to the impacted employees
under the Workers Adjustment and Retraining Notification Act ("WARN Act").
During the years ended 1999 and 1998, San Luis had operating loses of $1.8
million and $1.0 million, respectively. In 1997 San Luis had operating income of
$0.7 million.
In June 1999, notices were given as required under the WARN Act and the Company
announced that it would also pursue potential opportunities to sell San Luis.
As a result of these restructuring and closing operations, the Company recorded
the following charges:
May 31
1999 1998
----------------------- -----------------------
(In Thousands)
Impairment:
Midwest Goodwill $ - $14,555
San Luis Goodwill - 4,103
Mayflower Goodwill - 466
Brown Goodwill 2,333 -
Asset Impairment 4,011 648
Employee Termination 205 386
Environmental Reserves 1,778 -
Other Reorganization Costs 1,445 798
----------------------- -----------------------
Restructuring, impairment and
abandonment costs $9,772 $20,956
======================= =======================
35
<PAGE>
Matrix Service Company
Notes to Consolidated Financial Statements
3. Restructuring, Impairment and Abandonment Costs (continued)
In addition, the Company wrote down inventory held by Brown and San Luis by $1.0
million in fiscal 1999, which is included in cost of revenues.
4. Uncompleted Contracts
Contract terms of the Company's construction contracts generally provide for
progress billings based on completion of certain phases of the work. The excess
of costs incurred and estimated earnings recognized for construction contracts
over amounts billed on uncompleted contracts is reported as a current asset and
the excess of amounts billed over costs incurred and estimated earnings
recognized for construction contracts on uncompleted contracts is reported as a
current liability as follows:
<TABLE>
<CAPTION>
May 31
1999 1998
---------------------------------------------
(In Thousands)
Costs incurred and estimated earnings
<S> <C> <C>
recognized on uncompleted contracts $151,739 $207,229
Billings on uncompleted contracts 150,554 199,501
=============================================
$ 1,185 $ 7,728
=============================================
Shown on balance sheet as:
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 8,541 $ 15,340
Billings on uncompleted contracts in
excess of costs and estimated earnings 7,356 7,612
---------------------------------------------
$ 1,185 $ 7,728
=============================================
</TABLE>
Approximately $3.7 million and $4.0 million of accounts receivable at May 31,
1999 and 1998, respectively, relate to billed retainages under contracts.
36
<PAGE>
Matrix Service Company
Notes to Consolidated Financial Statements
5. Long-Term Debt
Long-term debt consists of the following:
1999 1998
--------------------------------------
(In Thousands)
Borrowings under bank credit facility:
Revolving note $ - $ 5,500
Term note 7,500 9,500
Other 113 211
--------------------------------------
7,613 15,211
Less current portion 2,092 2,105
--------------------------------------
$ 5,521 $13,106
======================================
On March 1, 1998, the Company and a commercial bank entered into an amendment to
a credit facility agreement originally established in 1994, whereby the Company
may borrow a total of $30 million. The amended agreement provides for a $20
million revolving credit facility based on the level of the Company's eligible
receivables. The agreement provides for an interest rate based on a prime or
LIBOR option and matures on October 31, 1999. The credit facility also provides
for a $10 million term loan, due February 29, 2003, payable in 60 equal payments
beginning in March 1999. The interest rates for the revolver and the term loan
at May 31, 1999 were 6.0% and 7.5%, respectively. The agreement requires
maintenance of certain financial ratios, limits the amount of additional
borrowings and prohibits the payment of dividends. The credit facility is
secured by all accounts receivable, inventory, intangibles, and proceeds related
thereto.
In conjunction with the term note, effective March 2, 1998, the Company entered
into an interest rate swap agreement for an initial notional amount of $10
million with a commercial bank, effectively providing a fixed interest rate of
7.5% for the five-year period on the term note. The Company pays 7.5% interest
and receives LIBOR plus 1 1/2%, calculated on the notional amount. The notional
amount was $7.7 million at May 31, 1999. Net receipts or payments under the
agreement are recognized as an adjustment to interest expense. The swap
agreement expires in 2003. If LIBOR decreases, interest payments received and
the market value of the swap position decrease.
37
<PAGE>
Matrix Service Company
Notes to Consolidated Financial Statements
5. Long-Term Debt (continued)
The Company has outstanding letters of credit and letters of guarantee totaling
$2.9 million which mature during 1999 and 2000.
Aggregate maturities of long-term debt for the years ending May 31 are as
follows (in thousands), for each fiscal year: 2000 - $2,092; 2001 - $2,021;
2002 -$2,000, and 2003 - $1,500.
The carrying value of debt approximates fair value.
6. Income Taxes
The components of the provision (benefit) for income taxes are as follows:
1999 1998 1997
-----------------------------------------------------------
(In Thousands)
Current:
Federal $ 1,003 $(2,760) $1,825
State 387 (961) 443
Foreign 307 45 218
-----------------------------------------------------------
1,697 (3,676) 2,486
Deferred:
Federal (1,516)* (1,963) (121)
State - (13) (180)
Foreign (181) (63) (55)
-----------------------------------------------------------
(1,697) (2,039) (356)
-----------------------------------------------------------
$ - $(5,715) $2,130
===========================================================
* Net of valuation allowance of $3,373.
38
<PAGE>
Matrix Service Company
Notes to Consolidated Financial Statements
6. Income Taxes (continued)
The difference between the expected tax rate and the effective tax rate is
indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Expected provision (benefit) for
Federal income taxes
at the statutory rate $(4,288) $(5,900) $1,739
State income taxes, net of
Federal benefit (255) (642) 290
Charges without tax benefit,
Primarily goodwill amortization 836 827 225
Valuation allowance 3,373 - -
Other 334 - (124)
============================================================
Provision for income taxes $ - $(5,715) $2,130
============================================================
</TABLE>
Significant components of the Company's deferred tax liabilities and assets as
of May 31, 1999 and 1998 are as follows:
1999 1998
-----------------------------------------
(In Thousands)
Deferred tax liabilities:
Tax over book depreciation $2,478 $4,878
Other - net 123 71
-----------------------------------------
Total deferred tax liabilities 2,601 4,949
Deferred tax assets:
Bad debt reserve 826 -
Foreign insurance dividend 104 275
Vacation accrual 248 239
Restructuring reserves 1,626 -
Noncompete amortization 481 472
Loss carryforward 2,664 1,377
Other - net 25 889
Valuation allowance (3,373) -
-----------------------------------------
Total deferred tax assets 2,601 3,252
=========================================
Net deferred tax liability $ - $1,697
=========================================
39
<PAGE>
Matrix Service Company
Notes to Consolidated Financial Statements
7. Stockholders' Equity
The Company has adopted a 1990 Incentive Stock Option Plan (the "1990 Plan") and
a 1991 Incentive Stock Option Plan (the "1991 Plan") to provide additional
incentives for officers and other key employees of the Company. The Company has
also adopted a 1995 Nonemployee Directors' Stock Option Plan (the "1995 Plan").
Under the 1990 and 1991 Plans, incentive and nonqualified stock options may be
granted to the Company's key employees and nonqualified stock options may be
granted to nonemployees who are elected for the first time as directors of the
Company after January 1, 1991. Options generally become exercisable over a
five-year period from the date of the grant. Under the 1995 Plan, qualified
stock options are granted annually to nonemployee directors. Stock options
granted under the 1995 Plan generally become exercisable over a two-year period
from the date of the grant. Under each plan, options may be granted with
durations of no more than ten years. The option price per share may not be less
than the fair market value of the common stock at the time the option is
granted. Shareholders have authorized an aggregate of 1,320,000, 900,000, and
250,000 options to be granted under the 1990, 1991, and 1995 Plans,
respectively. Options exercisable total 679,267 and 803,211 at May 31, 1999 and
1998, respectively.
Pro forma information regarding net income and earnings per share is required by
Statement of Financial Accounting Standards No. 123, and has been determined as
if the Company had accounted for its employee stock options under the fair value
method of that Statement. The fair value for these options was estimated at the
date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions: risk-free interest rates of 4.01% to 6.62%;
dividend yield of -0-%; volatility factors of the expected market price of the
Company's stock of .326 to .860; and an expected life of the options of 2 to 5
years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
40
<PAGE>
Matrix Service Company
Notes to Consolidated Financial Statements
7. Stockholders' Equity (continued)
The Statement's pro forma information from the options is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Net income (loss) before stock options $(12,612) $(11,638) $2,984
Compensation expense from stock options 580 362 269
--------------------------------------------------------------
Net income (loss) $(13,192) $(12,000) $2,715
==============================================================
Pro forma earnings (loss) per common share:
Basic $ (1.40) $ (1.26) $ .29
Diluted $ (1.40) $ (1.26) $ .28
</TABLE>
The effect of compensation expense from stock options on pro forma net income
reflects the vesting of awards granted after June 1, 1995, the year in which the
Pro Forma reporting requirements under SFAS 123 were adopted.
The following summary reflects option transactions for the past three years:
<TABLE>
<CAPTION>
Shares Option Price Per Share
------------------------------------------------------------
Shares under option:
<S> <C> <C> <C>
Balance at May 31, 1996 1,521,556 $ .67 - $6.25
Granted 113,000 5.88 - 7.875
Exercised (62,239) .67 - 6.25
Canceled (47,313) 3.63 - 6.25
------------------------------------------------------------
Balance at May 31, 1997 1,525,004 $ .67 - 7.875
Granted 530,500 6.75 - 8.00
Exercised (224,307) .67 - 6.25
Canceled (170,540) 3.625 - 8.00
------------------------------------------------------------
Balance at May 31, 1998 1,660,657 $ .67 - $8.00
Granted 883,000 3.75 - 4.375
Exercised (49,156) .67 - 6.25
Canceled (869,901) 3.625 - 8.00
============================================================
Balance at May 31, 1999 1,625,300 $ .67 - $7.75
============================================================
</TABLE>
41
<PAGE>
Matrix Service Company
Notes to Consolidated Financial Statements
8. Commitments
The Company is the lessee under operating leases covering real estate in Tulsa,
Oklahoma; Bristol, Pennsylvania; Anaheim, California; Bay Point, California;
Paso Robles, California; Bellingham, Washington; and Carson, California. The
Paso Robles lessors are former stockholders of San Luis. The Company is also the
lessee under operating leases covering office equipment. Future minimum lease
payments are as follows: 2000 - $723,000, 2001 - $552,000, 2002 - $386,000, 2003
- - $31,000, and 2004 - $31,000 and thereafter - $113,000. Rental expense was
$1,257,000, $710,000 and $516,000 for the years ended May 31, 1999, 1998 and
1997, respectively. Rental expense on related party leases was $344,000,
$157,000 and $149,000 for the years ended May 31, 1999, 1998 and 1997,
respectively.
9. Other Financial Information
The Company provides specialized on-site maintenance and construction services
for petrochemical processing and petroleum refining and storage facilities. The
Company grants credit without requiring collateral to customers consisting of
the major integrated oil companies, independent refiners and marketers, and
petrochemical companies. Although this potentially exposes the Company to the
risks of depressed cycles in oil and petrochemical industries, the Company's
receivables at May 31, 1999 have not been adversely affected by such conditions.
The Company did establish a bad debt reserve in the current year for
construction service projects of $2.0 million as well as a reserve of $0.4
million for municipal water projects, as that segment is being exited.
Sales to one customer accounted for approximately 11% of the Company's revenues
for the years ended May 31, 1999 and 1998. There were no sales to one customer
in excess of 10% of revenues for the year ended May 31, 1997.
10. Employee Benefit Plan
The Company sponsors a defined contribution 401(k) savings plan (the "Plan") for
all employees meeting length of service requirements. Participants may
contribute an amount up to 15% of pretax annual compensation as defined in the
Plan, subject to certain limitations in accordance with Section 401(k) of the
Internal Revenue Code. Beginning on July 1, 1998, the Company matched
contributions at 25% of the first 6% of employee contributions. The Company
recognized cost relating to the plan of $0.3 million for the year ended May 31,
1999.
42
<PAGE>
Matrix Service Company
Notes to Consolidated Financial Statements
11. Contingent Liabilities
The Company is insured for worker's compensation, auto, and general liability
claims with deductibles for self-insured retention of $250,000, $25,000, and
$250,000 per incident, respectively. Management estimates the reserve for such
claims based on knowledge of the circumstances surrounding the claims, the
nature of any injuries involved, historical experience, and estimates of future
costs provided by certain third parties. Accrued insurance at May 31, 1999
represents management's estimate of the Company's liability at that date.
Changes in the assumptions underlying the accrual could cause actual results to
differ from the amounts reported in the financial statements.
The Company is a defendant in various legal actions and is vigorously defending
against each of them. It is the opinion of management that none of such legal
actions will have a material effect on the Company's financial position.
12. Segment Information
The Company has three reportable segments from operations which are continuing -
Above Ground Storage Tank (AST) Services, Construction Services, and Plant
Maintenance Services - as well as two reportable segments from exited operations
- - Municipal Water Services and Fluid Catalytic Cracking Units (FCCU) Services.
The AST Services division consists of five operating units that perform
specialized on-site maintenance and construction services with related products
for large petroleum storage facilities. The Construction Services division
provides services to industrial process plants. The Plant Maintenance Services
division specializes in performing "turnarounds," which involve complex,
time-sensitive maintenance of the critical operating units of a refinery. The
Municipal Water Services division consists of two operating units "Brown" and
"San Luis," both of which have been exited (see footnote 3). The FCCU Services
division consisted of one operating unit "Midwest" which was exited in the 3rd
quarter of fiscal 1998 (see footnote 3).
The Company evaluates performance and allocates resources based on profit or
loss from operations before income taxes. The accounting policies of the
reportable segments are the same as those described in the summary of
significant accounting policies. Intersegment sales and transfers are recorded
at cost and there is no inter-company profit or loss on intersegment sales or
transfers.
The Company's reportable segments are business units that offer different
services. The reportable segments are each managed separately because they
require different expertise and resources for the services provided.
43
<PAGE>
Matrix Service Company
Notes to Consolidated Financial Statements
12. Segment Information (continued)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Matrix Service Company
Annual Results of Operations
($ Amounts in millions)
- ---------------------------------------------------------------------------------------------------------------------------------
Municipal
AST Construction Plant Water FCCU Combined
Services Services Services Services Services Total
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Year ended May 31, 1999
Revenues 112.6 22.9 29.9 45.1 0.5 211.0
Gross profit 12.9 (0.2) 3.8 (2.4) (0.1) 14.0
Selling, general and administrative expenses 8.4 1.3 2.0 3.3 0.0 15.0
Restructuring, impairment & abandonment costs 0.0 0.0 0.0 9.8 0.0 9.8
Operating income (loss) 3.9 (1.5) 1.8 (15.6) (0.1) (11.5)
Income (loss) before income tax expense 3.4 (1.6) 1.7 (16.1) 0.0 (12.6)
Net income (loss) 3.4 (1.6) 1.7 (16.1) 0.0 (12.6)
Identifiable assets 52.9 8.1 6.7 20.5 0.0 88.2
Capital expenditures 4.2 0.2 0.2 0.8 0.0 5.4
Depreciation expense 2.5 0.2 0.3 1.0 0.0 4.0
Year ended May 31, 1998
Revenues 103.0 45.0 20.6 46.2 10.6 225.4
Gross profit 11.0 5.4 2.4 1.7 (1.9) 18.6
Selling, general and administrative expenses 6.8 1.1 1.6 2.7 0.7 12.9
Restructuring, impairment & abandonment costs 1.9 0.0 0.0 4.1 15.0 21.0
Operating income (loss) 1.8 4.3 0.8 (5.3) (17.9) (16.3)
Income (loss) before income tax expense 1.5 4.2 0.7 (5.4) (18.3) (17.3)
Net income (loss) 1.2 2.5 0.4 (4.8) (10.9) (11.6)
Identifiable assets 61.9 13.7 7.7 29.4 0.0 112.7
Capital expenditures 1.7 0.2 0.4 0.3 0.0 2.6
Depreciation expense 2.5 0.2 0.3 1.1 0.2 4.3
Year ended May 31, 1997
Revenues 71.7 23.1 19.8 52.0 16.5 183.1
Gross profit 6.8 2.4 2.2 6.0 0.0 17.4
Selling, general and administrative expenses 4.6 0.9 1.3 2.9 1.4 11.1
Restructuring, impairment & abandonment costs 0.0 0.0 0.0 0.0 0.0 0.0
Operating income (loss) 2.0 1.5 0.9 2.9 (1.8) 5.5
Income (loss) before income tax expense 2.1 1.4 0.8 2.7 (1.9) 5.1
Net income (loss) 1.4 0.8 0.5 1.6 (1.3) 3.0
Identifiable assets 39.0 12.5 7.7 34.4 23.3 116.9
Capital expenditures 1.8 1.0 1.6 1.3 0.1 5.8
Depreciation expense 2.6 0.2 0.3 1.1 0.3 4.5
</TABLE>
44
<PAGE>
Matrix Service Company
Notes to Consolidated Financial Statements
12. Segment Information (continued)
Geographical information is as follows:
<TABLE>
<CAPTION>
Revenues Long Lived Assets
------------------------------- ----------------------------------
1999 1998 1999 1998
------------- --- ------------- -------------- ---- --------------
<S> <C> <C> <C> <C>
Domestic 207.7 222.3 26.6 38.6
International 3.3 3.1 2.9 3.1
------------- --- ------------- -------------- ---- --------------
211.0 225.4 29.5 41.7
============= === ============= ============== ==== ==============
</TABLE>
45
<PAGE>
Matrix Service Company
Quarterly Financial Data (Unaudited)
Summarized quarterly financial data are as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
1999 Quarter Quarter Quarter Quarter
- ----------------------------------------------------------------------------------------------------------------------------------
(In Thousands except per share amounts)
<S> <C> <C> <C> <C>
Revenues 51,158 55,399 47,074 57,366
Gross profit 4,989 4,878 3,136 982
Net income (loss) 837 1,023 (333) (14,139)
Net income (loss) per common share data:
Basic - net income (loss) .09 .11 (.03) (1.49)
Diluted - net income (loss) .09 .10 (.03) (1.49)
1998
- ----------------------------------------------------
Revenues 49,519 62,017 55,449 58,443
Gross profit 4,742 5,142 3,298 5,407
Net income (loss) 769 953 (14,657) 1,297
Net income (loss) per common share data:
Basic - net income (loss) .09 .11 (1.55) .13
Diluted - net income (loss) .09 .11 (1.55) .13
</TABLE>
Note: The summarized quarterly financial data for 1999 has been restated from
previously reported amounts in the Company's originally filed quarterly
reports on Form 10-Q for the first, second and third quarters of fiscal
1999 to reflect Midwest's operating activities as continuing
operations. (See Note 3 to the accompanying financial statements)
46
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Matrix Service Company
May 31, 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------------------------------------------------------------------------------------------------------
Additions
------------------------------------
Charged to
Balance at Charged to Other Balance
Beginning Costs and Accounts- Deductions- at End
Description of Period Expenses Describe Describe of Period
- ------------------------------------------------------------------------------------------------------------------------------------
(Amounts in Thousands
Year ended May 31, 1999: Deducted from assets accounts:
<S> <C> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $ - $2,464 $ - $2,464
Reserve for deferred tax assets - 3,373 - 3,373
----------------------------------------------------------------------------
Total $ - $5,837 $ - $5,837
============================================================================
</TABLE>
47
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not Applicable
PART III
The information called for by Part III of Form 10-K (consisting of Item 10 --
Directors and Executive Officers of the Registrant. Item 11 -- Executive
Compensation, Item 12 -- Security Ownership of Certain Beneficial Owners and
Management and Item 13 -- Certain Relationships and Transactions), of the
Company," is incorporated by reference from the Company's definitive proxy
statement, which will be filed with the Securities and Exchange Commission
within 120 days after the end of the fiscal year to which this Report relates.
48
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Financial Statements of the Company
The following financial statements are filed as a part of this report under
"Item 8 - Financial Statements and Supplementary Data":
<TABLE>
<S> <C>
Report of Independent Auditors 24
Consolidated Balance Sheets as of May 31, 1999 and 1998. 25
Consolidated Statements of Operations for the years ended May 31,
1999, 1998 and 1997. 27
Consolidated Statements of Changes in Stockholders' Equity for the
years ended May 31, 1999, 1998 and 1997. 28
Consolidated Statements of Cash Flows for the years ended May 31,
1999, 1998 and 1997. 29
Notes to Consolidated Financial Statements 31
Quarterly Financial Data (Unaudited) 46
Schedule II - Valuation and Qualifying Accounts 47
</TABLE>
Financial Statement Schedules
The following financial statement schedule is filed as a part of this report
under "Schedule II" immediately preceding the signature page: Schedule II -
Valuation and Qualifying Accounts for the three fiscal years ended May 31, 1999.
All other schedules called for by Form 10-K are omitted because they are
inapplicable or the required information is shown in the financial statements,
or notes thereto, included herein.
49
<PAGE>
List of Exhibits
2.1 Stock Purchase Agreement, dated February 22, 1994,
by and among Matrix Service Company and the
shareholders of Georgia Steel Fabricators, Inc.
(Exhibit 2.1 to the Company's Current Report on
Form 8-K (File No. 0-18716) filed March 7, 1994,
is hereby incorporated by reference).
3.1 Restated Certificate of Incorporation (Exhibit 3.1
to the Company's Registration Statement on Form
S-1 (No. 33-36081), as amended, filed July 26,
1990 is hereby incorporated by reference).
3.2 Bylaws, as amended (Exhibit 3.2 to the Company's
Registration Statement on Form S-1 (No. 33-36081)
as amended, filed July 26, 1990 is hereby
incorporated by reference).
4.1 Specimen Common Stock Certificate (Exhibit 4.1 to
the Company's Registration Statement on Form S-1
(File No. 33-36081), as amended, filed July 26,
1990 is hereby incorporated by reference).
+ 10.1 Matrix Service Company 1990 Incentive Stock Option
Plan (Exhibit 10.14 to the Company's Registration
Statement on Form S-1 (File No. 33-36081), as
amended, filed July 26, 1990 is hereby
incorporated by reference).
+ 10.2 Matrix Service Company 1991 Stock Option Plan, as
amended. Form S-8 (File No. 333-56945) filed June
12, 1998 is hereby incorporated by reference.
Exhibit 10.1 to the Company's Registration
Statement.
10.3 Standard Industrial Lease, dated June 30, 1989,
between Matrix Service, Inc. and the Kinney Family
Trust (Exhibit 10.16 to the Company's Registration
Statement on Form S-1 (No. 33-36081), as amended,
filed July 26, 1990 is hereby incorporated by
reference).
10.4 Lease Agreement, dated May 30, 1991, between Tim
S. Selby and Stephanie W. Selby as Co-Trustees of
the Selby Living Trust dated October 20, 1983, Tim
S. Selby and Stephanie W. Selby, and Richard
Chafin, Trustee of the Selby Children's Trust 1
dated December 12, 1983 and San Luis Tank Piping
Construction Co., Inc. (Exhibit 10.9 to the
Company's Registration Statement on Form S-1 (File
No. 33-48373) filed June 4, 1992 is hereby
incorporated by reference).
+ 10.5 Employment and Noncompetition Agreement, dated
June 1, 1991, between West Coast Industrial
Coatings, Inc. and San Luis Tank Piping
Construction Co., Inc., and Tim S. Selby (Exhibit
10.10 to the Company's Registration Statement on
Form S-1 (File No. 33-48373) filed June 4, 1992 is
hereby incorporated by reference).
10.6 Revolving Credit Agreement, dated August 30, 1994,
by and among the Company and its subsidiaries, and
Liberty Bank & Trust Company of Tulsa, N.A.
(Exhibit 10.9 to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1995
(File No. 0-18716) is hereby incorporated by
reference).
10.7 Security Agreement, dated August 30, 1994, by and
among the Company and its subsidiaries, and
Liberty Bank & Trust Company of Tulsa, N.A.
(Exhibit 10.12 to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1995
(File No. 0-18716) is hereby incorporated by
reference).
10.8 Promissory Note, dated December 30, 1992, by and
between the Company, Colt Acquisition Company and
Colt Construction Company and Duncan
50
<PAGE>
Electric Company. (Exhibit 10.17 to the Company's
Annual Report on Form 10-K (File No. 0-18716),
filed August 27, 1993, is hereby incorporated by
reference).
+ 10.9 Employment and Noncompetition Agreement dated
February 22, 1994, between Brown Steel
Contractors, Inc. and Mark A. Brown (Exhibit 99.2
to the Company's Current Report on Form 8-K, (File
No. 0-18716), filed March 7, 1994, is hereby
incorporated by reference).
+ 10.10 Employment and Noncompetition Agreement dated
February 22, 1994, between Brown Steel
Contractors, Inc. and Sample D. Brown (Exhibit
99.3 to the Company's Current Report on Form 8-K,
(File No. 0-18716), filed March 7, 1994, is hereby
incorporated by reference).
+ 10.11 Matrix Service Company 1995 Nonemployee Directors'
Stock Option Plan (Exhibit 4.3 to the Company's
Registration Statement on Form S-8 (File No. 333-
2771), filed April 24, 1996 is hereby incorporated
by reference).
10.12 Stock Purchase Agreement, dated June 17, 1997, by
and among Matrix Service Company and the
shareholders of General Service Corporation.
10.13 First Amendment to Credit Agreement, dated June
19, 1997, by and among the Company and its
subsidiaries, and Liberty Bank & Trust Company of
Tulsa, N.A.
10.14 Security Agreement, dated June 19, 1997, by and
among the Company and its subsidiaries, and
Liberty Bank & Trust Company of Tulsa, N.A.
10.15 Promissory Note (Revolving Note) dated June 19,
1997 by and between the Company and its
subsidiaries, and Liberty Bank & Trust Company of
Tulsa, N.A.
10.16 Promissory Note (Term Note, due August 31, 1999),
by and between the Company and its subsidiaries,
and Liberty Bank & Trust Company of Tulsa, N.A.
10.17 Promissory Note (Term Note, due June 19, 2002),
dated June 19, 1997 by and between the Company and
its subsidiaries, and Liberty Bank & Trust
Company, N.A.
* 10.18 Interest Rate Swap Agreement, dated February 26,
1998 between Matrix Service Company and Bank One,
Oklahoma, N.A.
10.19 Fourth Amendment to Credit Agreement, dated
October 22, 1998, by and among the Company and its
subsidiaries, and Bank One, Oklahoma, N.A.
* 10.20 Amended and Restated Security Agreement, dated
October 22, 1998, by and the Company and its
subsidiaries, and Bank One, Oklahoma, N.A.
* 10.21 Fifth Amendment to Credit Agreement, dated
October 22, 1998, by and among the Company and its
subsidiaries and Bank One, Oklahoma, N.A.
* 10.22 Stock Purchase Agreement by and among Caldwell
Tanks Alliance, LLC, Caldwell Tanks, Inc., Brown
Steel Contractors, Inc., Georgia Steel Acquisition
Corp. and Matrix Service Company, dated June 9,
1999.
* 11.1 Computation of Per Share Earnings.
* 21.1 Subsidiaries of Matrix Service Company.
51
<PAGE>
* 23.1 Consent of Ernst & Young LLP.
* 27.1 Financial Data Schedule.
- -------------------------
* Filed herewith.
+ Management Contract or Compensatory Plan.
Reports on Form 8-K
None
52
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Matrix Service Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Matrix Service Company
Date: August 27, 1999 /s/Bradley S. Vetal
---------------------------------------
Bradley S. Vetal, President
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>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Bradley S. Vetal Bradley S. Vetal August 27, 1999
- -------------------------------------------- President and Director
Bradley S. Vetal (Principal Executive Officer)
/s/ Michael J. Hall Michael J. Hall August 27, 1999
- -------------------------------------------- Chief Financial Officer
Michael J. Hall and Director
(Principal Financial and
Accounting Officer)
/s/ Hugh E. Bradley Director August 27, 1999
- ------------------------------------------
Hugh E. Bradley
/s/ Robert A. Peterson Director August 27, 1999
- ------------------------------------------
Robert A. Peterson
/s/ John S. Zink Director August 27, 1999
- ---------------------------------------------
John S. Zink
</TABLE>
55
<PAGE>
EXHIBIT 10.18
BANK ONE
35 N. Fourth Street, Lower Level
Columbus, Ohio 43271-0103
Fax Cover Sheet
DATE: February 26, 1998
TO: Matrix Service Company
Attention: Mr. C. William Lee
FAX: (918) 838-8810
Pages including this cover page:
RE: INTEREST RATE SWAP TRANSACTION
Our Reference No.: 52292NA
Bank One, Oklahoma, N.A. has entered into an Interest Rate Swap transaction with
you as attached.
If you agree with the terms specified therein, please arrange for the
confirmation to be signed by your authorized signatory and return the signed
copy to this office to the facsimile number detailed below.
Section 3 of the "Confirmation" ("Account Details~') asks you to provide us with
your payment instructions. These should include the following information for
wire transfers:
Bank One, Oklahoma, N.A. (Affiliate Name)
Account Number: 028004046
ABA Number. 10300648
The ISDA Master Agreement provides for the netting of payments. In accordance
with Section 2 (c) of the ISDA Master Agreement all payments made under this
transaction will be made on a net basis.
If you have"any amendments or comments to make, please do not hesitate to
contact the Derivative Documentation Department of Banc One Funds Management.
Telephone Number (614) 248-2982 Facsimile Number (614) 248-1241
Tonya M. Melsop
Derivative Documentation Coordinator
<PAGE>
cc: Mark Poole (918) 586-5474
CONFIDENTIALITY NOTICE; The information contained in and accompanying this
facsimile cover sheet is strictly and intended solely for the use of the
addressee(s) named above. It you are not a named addresses (or a person
responsible delivering this facsimile to a named addressee), you are hereby
notified that any review, distribution or copying of this facsimiles strictly
prohibited. If you have received this facsimile in error, please notify the
sender immediately by telephone at the number set forth above and destroy this
facsimile. Thank you.
BANK ONE
February 26, 1998
Mr. C. William Lee
Matrix Service Company
10701 East UTE Street
Tulsa, Oklahoma 74116-1517
Dear Mr. Lee:
This confirmation sets out the terms and conditions of the Interest Rate Swap
entered into between us on the Trade Date specified below. This constitutes a
Confirmation as referred to in the ISDA Master Agreement dated as of February 1,
1998 (the "Agreement") between Matrix Service Company, ("Matrix Service") and
Bank One, Oklahoma, N.A. ("Bank One").
This facsimile transmission will be the only written communication regarding
this Swap Transaction exchanged between us and will be deemed for all purposes
an original document, unless you request that we sign hard copy versions of this
Confirmation. Please contact the individual indicated in the last paragraph of
this letter to receive such copies.
1. The definitions and provisions contained in the 1991 ISDA Definitions (as
published by the International Swap Dealers Association, Inc.) are incorporated
into this Confirmation. In the event of any inconsistency between those
definitions and provisions and this Confirmation, this Confirmation will govern.
This Confirmation shall supplement, form part of, and be subject to the
Agreement.
Each party hereto represents and warrants to the other party hereto that, in
connection with the Transaction, (i) it has and will continue to consult with
its own legal, regulatory, tax, business, investment, financial and accounting
advisors to the extent it deems necessary, and it has and will continue to make
its own investment, hedging and trading decisions (including without limitations
decisions regarding the appropriateness and/or suitability of the Transaction)
based upon its own judgment and upon any advice from such advisors as it deems
necessary, and not in reliance upon the other party hereto or any of its
branches, subsidiaries or affiliates or any of their respective
-2-
<PAGE>
officers, directors or employees, or any view expressed by any of them, (ii) it
has evaluated and it fully understands all the terms, conditions and risks of
the Transaction, and it is willing to assume (financially and otherwise) all
such risks, (iii) it has and will continue to act as principal, and not agent of
any person, and the other party hereto and its branches, subsidiaries and
affiliates have not and will not be acting as a fiduciary or financial,
investment, commodity trading or other advisor to it and (iv) it is entering
into the Transaction for purposes of hedging its assets or liabilities or in
connection with a line of business, and not for the purpose of speculation.
2. The terms of this particular transaction to which this Confirmation relates
are as follows:
Notional Amount: USD 10,000,000 (See Exhibit "A")
Trade Date: February 26, 1998
Effective Date: March 2,1998
Termination Date: February 28, 2003
Fixed Amounts:
- --------------
Fixed Rate Payer: Matrix Service
Fixed Rate Payer The first of each month of each year, commencing
Payment Dates: on April 1, 1998, up to and including the
Termination Date, subject to adjustment in
accordance with the Modified Following Business
Day Convention.*
Fixed Rate: 7.50%
Fixed Rate Day Count Actual/360
Fraction:
Fixed Rate Period End The first of each month of each year, commencing
Dates: on April 1, 1998, up to and including the
Termination Date, subject to adjustment in
accordance with the Modified Following Business
Day Convention.*
Floating Amounts:
- -----------------
Floating Rate Payer: Bank One
Floating Rate Payer The first of each month of each year, commencing
Payment Dates: on April 1, 1998, up to and including the
Termination Date, subject to adjustment in
accordance with the Modified Following Business
Day Convention.*
Floating Rate Option: USD-LIBOR-BBA
-3-
<PAGE>
Floating Rate Designated One (1) Month
Maturity:
Floating Rate Spread: Plus 150 Basis Points
Floating Rate Reset Dates: The first day of each Calculation Period.
Floating Rate Day Count Actual/360
Fraction:
Floating Rate Period End The first of each month of each year, commencing
Dates: on April 1, 1998, up to and including the
Termination Date, subject to adjustment in
accordance with the Modified Following Business
Day Convention.*
Floating Initial Rate: 5.67188%
Method of Averaging: Not Applicable
Compounding: Not Applicable
Business Days: New York and London
Calculation Agent: Bank One
Governing Law: Laws of New York
3. Account Details:
Payments to Matrix Service: Bank One, Oklahoma, N.A.
Account #: 028004046
ABA #: 10300648
Payments to Bank One: Wire Transfer to:
Bank One, N.A.
ABA#: 044-0000-37
Account #: 151010-0630
Atten: Swap Operations
4. Offices:
(a) The Office of Bank One, Oklahoma, N.A. for this transaction is 150
E. Gay Street, 171, Floor, Columbus, Ohio 43271-0103.
-4-
<PAGE>
(b) The Office of Matrix Service Company for this transaction is 10701
East UTE Street, Tulsa, Oklahoma 74116-1517.
Please confirm that the foregoing correctly sets out the terms and conditions of
our agreement by responding within one (1) business day by returning via
facsimile an executed copy of this Confirmation on (614) 248-1241, Attention:
Tonya Melsop, telephone: (614) 248-2982. Failure to respond within such period
shall not affect the validity or enforceability of this transaction, and shall
be deemed to be an affirmation of the terms and conditions contained herein,
absent manifest error.
Banc One Corporation signing on For on behalf of be
behalf of Bank One, Oklahoma, N.A. Matrix Service Company
- ---------------------------------- ------------------------------
Shannon M. Goldrick Name: C. William Lee
Authorized Agent Title: Vice President-Finance
Date February 26, 1998 Date: February 27, 1998
Banc One Corporation signing on
behalf of Bank One, Oklahoma, N.A.
- ----------------------------------
David R. King
Vice President
Date: February 26, 1998
*Modified Following is specified, that date will be the first following day that
is a Business Day unless that day falls in the next calendar month, in which
case that date will be the first preceding day that is a Business Day.
-5-
<PAGE>
DATES
- ------------------
From To Notional
---- -- --------
3/2/98 4/1/98 $10,000,000.00
4/1/98 5/1/98 9,833,333.33
5/1/98 6/1/98 9,666,666.66
6/1/98 7/1/98 9,499,999.99
7/1/98 8/1/98 9,333,333.32
8/1/98 9/1/98 9,166,666.65
9/1/98 10/1/98 8,999,999.98
10/1/98 11/1/98 8,833,333.31
11/1/98 12/1/98 8,666,666.64
12/1/98 1/1/99 8,499,999.97
1/1/99 2/1/99 8,333,333.30
2/1/99 3/1/99 8,166,666.63
3/1/99 4/1/99 7,999,999.96
4/1/99 5/1/99 7,833,333.29
5/1/99 6/1/99 7,666,666.62
6/1/99 7/1/99 7,499,999.95
7/1/99 8/1/99 7,333,333.28
8/1/99 9/1/99 7,166,666.61
9/1/99 10/1/99 6,999,999.94
10/1/99 11/1/99 8,833,333.27
11/1/99 12/1/99 6,666,666.60
12/1/99 1/1/00 6,499,999.93
1/1/00 2/1/00 6,333,333.26
2/1/00 3/1/00 6,166,666.59
-6-
<PAGE>
From To Notional
---- -- --------
3/1/00 4/1/00 5,999,999.92
4/1/00 5/1/00 5,833,333.25
5/1/00 6/1/00 5,666,666.58
6/1/00 7/1/00 5,499,999.91
7/1/00 8/1/00 5,333,333.24
8/1/00 9/1/00 5,166,666.57
9/1/00 10/1/00 4,999,999.90
10/1/00 11/1/00 4,833,333.23
11/1/00 12/1/00 4,866,666.56
12/1/00 1/1/01 4,499,999.89
1/1/01 2/1/01 4,333,333.22
2/1/01 3/1/01 4,166,666.55
3/1/01 4/1/01 3,999,999.88
4/1/01 5/1/01 3,833,333.21
5/1/01 6/1/01 3,666,666.54
6/1/01 7/1/01 3,499,999.87
7/1/01 8/1/01 3,333,333.20
8/1/01 9/1/01 3,166,666.53
9/1/01 10/1/01 2,999,999.86
10/1/01 11/1/01 2,833,333.19
11/1/01 12/1/01 2,666,666.52
12/1/01 1/1/02 2,499,999.85
1/1/02 2/1/02 2,333,333.18
2/1/02 3/1/02 2,186,666.51
3/1/02 4/1/02 1,999,999.84
-7-
<PAGE>
From To Notional
---- -- --------
4/1/02 5/1/02 1,833,333.17
5/1/02 6/1/02 1,668,686.50
6/1/02 7/1/02 1,499,999.83
7/1/02 8/1/02 1,333,333.16
8/1/02 9/1/02 1,166,666.49
9/1/02 10/1/02 999,999.82
10/1/02 11/1/02 833,333.15
11/1/02 12/1/02 565,666.48
12/1/02 1/1/03 499,999.81
1/1/03 2/1/03 333,333.14
2/1/03 2/28/03 166,666.47
-8-
<PAGE>
(Local Currency-Single Jurisdiction)
ISDA(R)
International Swap Dealers Association, Inc.
MASTER AGREEMENT
dated as of _________________________________________
BANK ONE, OKLAHOMA, N.A. and MATRIX SERVICE COMPANY have entered and/or
anticipate entering into one or more transactions (each a "Transaction") that
are or will be governed by this Master Agreement, which includes the schedule
(the "Schedule"), and the documents and other confirming evidence (each a
"Confirmation") exchanged between the parties confirming those Transactions.
Accordingly, the parties agree as follows:
1. Interpretation
(a) Definitions. The terms defined in Section 12 and in the Schedule will have
the meanings therein specified for the purpose of this Master Agreement.
(b) Inconsistency. In the event of any inconsistency between the provisions of
the Schedule and the other provisions of this Master Agreement, the Schedule
will prevail. In the event of any inconsistency between the provisions of any
Confirmation and this Master Agreement (including the Schedule), such
Confirmation will prevail for the purpose of the relevant Transaction.
(c) Single Agreement. All Transactions are entered into in reliance on the fact
that this Master Agreement and all Confirmations form a single agreement between
the parties (collectively referred to as this "Agreement"), and the parties
would not otherwise enter into any Transactions.
2. Obligations
(a) General Conditions.
(i) Each party will make each payment or delivery specified in each
Confirmation to be made by it, subject to the other provisions of this
Agreement.
(ii) Payments under this Agreement will be made on the due date for value
on that date in the place of the account specified in the relevant
Confirmation or otherwise pursuant to
-9-
<PAGE>
this Agreement, in freely transferable funds and in the manner customary
for payments in the required currency. Where settlement is by delivery
(that is, other than by payment), such delivery will be made for receipt on
the due date in the manner customary for the relevant obligation unless
otherwise specified in the relevant Confirmation or elsewhere in this
Agreement.
(iii) Each obligation of each party under Section 2(a)(i) is subject to
(1) the condition precedent that no Event of Default or Potential Event of
Default with respect to the other party has occurred and is continuing, (2)
the condition precedent that no Early Termination Date in respect of the
relevant Transaction has occurred or been effectively designated and (3)
each other applicable condition precedent specified in this Agreement.
(b) Change of Account. Either party may change its account for receiving a
payment or delivery by giving notice to the other party at least five Local
Business Days prior to the scheduled date for the payment or delivery to which
such change applies unless such other party gives timely notice of a reasonable
objection to such change.
(c) Netting. If on any date amounts would otherwise be payable:
(i) in the same currency; and
(ii) in respect of the same Transaction,
by each party to the other, then, on such date, each party's obligation to make
payment of any such amount will be automatically satisfied and discharged and,
if the aggregate amount that would otherwise have been payable by one party
exceeds the aggregate amount that would otherwise have been payable by the other
party, replaced by an obligation upon the party by whom the larger aggregate
amount would have been payable to pay to the other party the excess of the
larger aggregate amount over the smaller aggregate amount.
The parties may elect in respect of two or more Transactions that a net amount
will be determined in respect of all amounts payable on the same date in the
same currency in respect of such Transactions, regardless of whether such
amounts are payable in respect of the same Transaction. The election may be made
in the Schedule or a Confirmation by specifying that subparagraph (ii) above
will not apply to the Transactions identified as being subject to the election,
together with the starting date (in which case subparagraph (ii) above will not,
or will cease to, apply to such Transactions from such date). This election may
be made separately for different groups of Transactions and will apply
separately to each pairing of branches or offices through which the parties make
and receive payments or deliveries.
(d) Default Interest; Other Amounts. Prior to the occurrence or effective
designation of an Early Termination Date in respect of the relevant Transaction,
a party that defaults in the performance of any payment obligation will, to the
extent permitted by law and subject to Section
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6(c), be required to pay interest (before as well as after judgment) on the
overdue amount to the other party on demand in the same currency as such overdue
amount~ for the period from (and including) the original due date for payment to
(but excluding) the date of actual payment, at the Default Rate. Such interest
will be calculated on the basis of daily compounding and the actual number of
days elapsed. If, prior to the occurrence or effective designation of an Early
Termination Date in respect of the relevant Transaction, a party defaults in the
performance of any obligation required to be settled by delivery, it will
compensate the other party on demand if-and to the extent provided for in the
relevant Confirmation or elsewhere in this Agreement-
3. Representations
Each party represents to the other party (which representations will be deemed
to be repeated by each party on each date on which a Transaction is entered
into) that-
(a) Basic Representations.
(i) Status. It is duly organized and validly existing under the laws of the
jurisdiction of its organization or incorporation and, if relevant under
such laws, in good standing;
(ii) Powers. It has the power to execute this Agreement and any other
documentation relating to this Agreement to which it is a party, to deliver
this Agreement and any other documentation relating to this Agreement that
it is required by this Agreement to deliver and to perform its obligations
under this Agreement and any obligations it has under any Credit Support
Document to which it is a party and has taken all necessary action to
authorize such execution, delivery and performance;
(iii) No Violation or Conflict. Such execution, delivery and performance
do not violate or conflict with any law applicable to it~ any provision of
its constitutional documents, any order or judgment of any court or other
agency of government applicable to it or any of its assets or any
contractual restriction binding on or affecting it or any of its assets;
(iv) Consents. All governmental and other consents that are required to
have been obtained by it with respect to this Agreement or any Credit
Support Document to which it is a party have been obtained and are in full
force and effect and all conditions of any such consents have been complied
with; and
(v) Obligations Binding. Its obligations under this Agreement and any
Credit Support Document to which it is a party constitute its legal, valid
and binding obligations, enforceable in accordance with their respective
terms (subject to applicable bankruptcy, reorganization, insolvency,
moratorium or similar laws affecting creditors' rights generally and
subject, as to enforceability, to equitable principles of general
application (regardless of whether enforcement is sought in a proceeding in
equity or at law)).
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(b) Absence of Certain Events. No Event of Default or Potential Event of
Default or, to its knowledge, Termination Event with respect to it has
occurred and is continuing and no such event or circumstance would occur as
a result of its entering into or performing its obligations under this
Agreement or any Credit Support Document to which it is a party.
(c) Absence of Litigation. There is not pending or, to its knowledge,
threatened against it or any of its Affiliates any action, suit or
proceeding at law or in equity or before any court, tribunal, governmental
body, agency or official or any arbitrator that is likely to affect the
legality, validity or enforceability against it of this Agreement or any
Credit Support Document to which it is a party or its ability to perform
its obligations under this Agreement or such Credit Support Document.
(d) Accuracy of Specified Information. All applicable information that is
furnished in writing by or on behalf of it to the other party and is
identified for the purpose of this Section 3(d) in the Schedule is, as of
the date of the information, true, accurate and complete in every material
respect.
4. Agreements
Each party agrees with the other that, so long as either party has or may have
any obligation under this Agreement or under any Credit Support Document to
which it is a party:-
(a) Furnish Specified Information. It will deliver to the other party any
forms, documents or certificates specified in the Schedule or any
Confirmation by the date specified in the Schedule or such Confirmation or,
if none is specified, as soon as reasonably practicable.
(b) Maintain Authorizations. It will use all reasonable efforts to maintain in
full force and effect all consents of any governmental or other authority
that are required to be obtained by it with respect to this Agreement or
any Credit Support Document to which it is a party and will use all
reasonable efforts to obtain any that may become necessary in the future.
(c) Comply with Laws. It will comply in all material respects with all
applicable laws and orders to which it may be subject if failure so to
comply would materially impair its ability to perform its obligations under
this Agreement or any Credit Support Document to which it is a party.
5. Events of Default and Termination Events
(a) Events of Default. The occurrence at any time with respect to a party or,
if applicable, any Credit Support Provider of such party or any Specified
Entity of such party of any of the following events constitutes an event of
default (an "Event of Default") with respect to such party:-
(i) Failure to Pay or Deliver. Failure by the party to make, when due, any
payment under this Agreement or delivery under Section 2(a)(i) or 2(d)
required to be made by it if such failure is not remedied on or before the
third Local Business Day after notice of such failure is given to the
party;
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(ii) Breach of Agreement. Failure by the party to comply with or perform
any agreement or obligation (other than an obligation to make any payment
under this Agreement or delivery under Section 2(a)(i) or 2(d) or to give
notice of a Termination Event) to be complied with or performed by the
party in accordance with this Agreement if such failure is not remedied on
or before the thirtieth day after notice of such failure is given to the
party;
(iii) Credit Support Default.
(1) Failure by the party or any Credit Support Provider of such party
to comply with or perform any agreement or obligation to be complied with
or performed by it in accordance with any Credit Support Document if such
failure is continuing after any applicable grace period has elapsed;
(2) the expiration or termination of such Credit Support Document or
the failing or ceasing of such Credit Support Document to be in full force
and effect for the purpose of this Agreement (in either case other than in
accordance with its terms) prior to the satisfaction of all obligations of
such party under each Transaction to which such Credit Support Document
relates without the written consent of the other party; or
(3) the party or such Credit Support Provider disaffirms, disclaims,
repudiates or rejects, in whole or in part, or challenges the validity of,
such Credit Support Document;
(iv) Misrepresentation. A representation made or repeated or deemed to have
been made or repeated by the party or any Credit Support Provider of such
party in this Agreement or any Credit Support Document proves to have been
incorrect or misleading in any material respect when made or repeated or
deemed to have been made or repeated;
(v) Default under Specified Transaction. The party, any Credit Support
Provider of such party or any applicable Specified Entity of such party (1)
defaults under a Specified Transaction and, after giving effect to any
applicable notice requirement or grace period, there occurs a liquidation
of, an acceleration of obligations under, or an early termination of, that
Specified Transaction, (2) defaults, after giving effect to any applicable
notice requirement or grace period, in making any payment or delivery due
on the last payment, delivery or exchange date of, or any payment on early
termination of, a Specified Transaction (or such default continues for at
least three Local Business Days if there is no applicable notice
requirement or grace period) or (3) disaffirms, disclaims, repudiates or
rejects, in whole or in part, a Specified Transaction (or such action is
taken by any person or entity appointed or empowered to operate it or act
on its behalf);
(vi) Cross Default. If "Cross Default" is specified in the Schedule as
applying to the party, the occurrence or existence of (1) a default, event
of default or other similar condition
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or event (however described) in respect of such. party, any Credit Support
Provider of such party or any applicable Specified Entity of such party
under one or more agreements or instruments relating to Specified
Indebtedness of any of them (individually or collectively) in an aggregate
amount of not less than the applicable Threshold Amount (as specified in
the Schedule) which has resulted in such Specified Indebtedness becoming,
or becoming capable at such time of being declared, due and payable under
such agreements or instruments, before it would otherwise have been due and
payable or (2) a default by such party, such Credit Support Provider or
such Specified Entity (individually or collectively) in making one or more
payments on the due date thereof in an aggregate amount of not less than
the applicable Threshold Amount under such agreements or instruments (after
giving effect to any applicable notice requirement or grace period);
(vii) Bankruptcy. The party, any Credit Support Provider of such party or
any applicable Specified Entity of such party:
(1) is dissolved (other than pursuant to a consolidation,
amalgamation or merger); (2) becomes insolvent or is unable to pay
its debts or fails or admits in writing its inability generally to
pay its debts as they become due; (3) makes a general assignment,
arrangement or composition with or for the benefit of its creditors;
(4) institutes or has instituted against it a proceeding seeking a
judgment of insolvency or bankruptcy or any other relief under any
bankruptcy or insolvency law or other similar law affecting
creditors* rights, or a petition is presented for its winding-up or
liquidation, and, in the case of any such proceeding or petition
instituted or presented against it, such proceeding or petition (A)
results in a judgment of insolvency or bankruptcy or the entry of an
order for relief or the making of an order for its winding-up or
liquidation or (B) is not dismissed, discharged, stayed or
restrained in each case within 30 days of the institution or
presentation thereof; (5) has a resolution passed for its winding-
up, official management or liquidation (other than pursuant to a
consolidation, amalgamation or merger); (6) seeks or becomes subject
to the appointment of an administrator, provisional liquidator,
conservator, receiver, trustee, custodian or other similar official
for it or for all or substantially all its assets; (7) has a secured
party take possession of all or substantially all its assets or has
a distress, execution, attachment, sequestration or other legal
process levied, enforced or sued on or against all or substantially
all its assets and such secured party maintains possession, or any
such process is not dismissed, discharged, stayed or restrained, in
each case within 30 days thereafter; (8) causes or is subject to any
event with respect to it which, under the applicable laws of any
jurisdiction, has an analogous effect to any of the events specified
in clauses (1) to (7) (inclusive); or (9) takes any action in
furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the foregoing acts; or
(viii) Merger Without Assumption. The party or any Credit Support Provider
of such party consolidates or amalgamates with, or merges with or into, or
transfers all or substantially all
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its assets to, another entity and, at the time of such consolidation,
amalgamation, merger or transfer
(1) the resulting, surviving or transferee entity fails to assume all
the obligations of such party or such Credit Support Provider under this
Agreement or any Credit Support Document to which it or its predecessor
was a party by operation of law or pursuant to an agreement reasonably
satisfactory to the other party to this Agreement; or
(2) the benefits of any Credit Support Document fail to extend (without
the consent of the other party) to the performance by such resulting,
surviving or transferee entity of its obligations under this Agreement.
(b) Termination Events. The occurrence at any time with respect to a party or,
if applicable, any Credit Support Provider of such party or any Specified
Entity of such party of any event specified below constitutes an Illegality
if the event is specified in (i) below, and, if specified to be applicable,
a Credit Event Upon Merger if the event is specified pursuant to (ii) below
or an Additional Termination Event if the event is specified pursuant to
(iii) below:
(i) Illegality. Due to the adoption of, or any change in, any applicable
law after the date on which a Transaction is entered into, or due to the
promulgation of, or any change in, the interpretation by any court,
tribunal or regulatory authority with competent jurisdiction of any
applicable law after such date, it becomes unlawful (other than as a result
of a breach by the party of Section 4(b)) for such party (which will be the
Affected Party):-
(1) to perform any absolute or contingent obligation to make a payment
or delivery or to receive a payment or delivery in respect of such
Transaction or to comply with any other material provision of this
Agreement relating to such Transaction; or
(2) to perform, or for any Credit Support Provider of such party to
perform, any contingent or other obligation which the party (or such
Credit Support Provider) has under any Credit Support Document
relating to such Transaction;
(ii) Credit Event Upon Merger. If "Credit Event Upon Merger" is specified
in the Schedule as applying to the party, such party ("X"), any Credit
Support Provider of X or any applicable Specified Entity of X consolidates
or amalgamates with, or merges with or into, or transfers all or
substantially all its assets to, another entity and such action does not
constitute an event described in Section 5(a)(viii) but the
creditworthiness of the resulting, surviving or transferee entity is
materially weaker than that of X, such Credit Support Provider or such
Specified Entity, as the case may be, immediately prior to such action
(and, in such event, X or its successor or transferee, as appropriate, will
be the Affected Party); or
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(iii) Additional Termination Event. If any "Additional Termination Event"
is specified in the Schedule or any Confirmation as applying, the
occurrence of such event (and, in such event, the Affected Party or
Affected Parties shall be as specified for such Additional Termination
Event in the Schedule or such Confirmation).
(c) Event of Default and Illegality. If an event or circumstance which would
otherwise constitute or give rise to all Event of Default also constitutes
an Illegality, it will be treated as an Illegality and will not constitute
an Event of Default.
6. Early Termination
(a) Right to Terminate Following Event of Default. If at any time an Event of
Default with respect to a party (the "Defaulting Party") has occurred and
is then continuing, the other party (the "Non-defaulting Party") may, by
not more than 20 days notice to the Defaulting Party specifying the
relevant Event of Default, designate a day not earlier than the day such
notice is effective as an Early Termination Date in respect of all
outstanding Transactions. If, however, "Automatic Early Termination" is
specified in the Schedule as applying to a party, then an Early Termination
Date in respect of all outstanding Transactions will occur immediately upon
the occurrence with respect to such party of an Event of Default specified
in Section 5(a)(vii)(1), (3), (5), (6) or, to the extent analogous thereto,
(8), and as of the time immediately preceding the institution of the
relevant proceeding or the presentation of the relevant petition upon the
occurrence with respect to such party of an Event of Default specified in
Section 5(a)(vii)(4) or, to the extent analogous thereto, (8).
(b) Right to Terminate Following Termination Event.
(i) Notice. If a Termination Event occurs, an Affected Party will, promptly
upon becoming aware of it, notify the other party, specifying the nature of
that Termination Event and each Affected Transaction and will also give
such other information about that Termination Event as the other party may
reasonably require-
(ii) Two Affected Parties. If an Illegality under Section 5(b)(i)(1) occurs
and there are two Affected Parties, each party will use all reasonable
efforts to reach agreement within 30 days after notice thereof is given
under Section 6(b)(i) on action to avoid that Termination Event.
(iii) Right to Terminate. If:
(1) an agreement under Section 6(b)(ii) has not been effected with
respect to all Affected Transactions within 30 days after an Affected
Party gives notice under Section 6(b)(i); or
(2) an Illegality other than that referred to in Section 6(b)(ii), a
Credit Event Upon Merger or an Additional Termination Event occurs,
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either party in the case of an Illegality, any Affected Party in the case of an
Additional Termination Event if there is more than one Affected Party, or the
party which is not the Affected Party in the case of a Credit Event Upon Merger
or an Additional Termination Event if there is only one Affected Party may, by
not more than 20 days notice to the other party and provided that the relevant
Termination Event is then continuing, designate a day not earlier than the day
such notice is effective as an Early Termination Date in respect of all Affected
Transactions.
(c) Effect of Designation.
(i) If notice designating an Early Termination Date is given under Section
6(a) or (b), the Early Termination Date will occur on the date so
designated, whether or not the relevant Event of Default or Termination
Event is then continuing.
(ii) Upon the occurrence or effective designation of an Early Termination
Date, no further payments or deliveries under Section 2(a)(i) or 2(d) in
respect of the Terminated Transactions will be required to be made, but
without prejudice to the other provisions of this Agreement. The amount, if
any, payable in respect of an Early Termination Date shall be determined
pursuant to Section 6(e).
(d) Calculations.
(i) Statement. On or as soon as reasonably practicable following the
occurrence of an Early Termination Date, each party will make the
calculations on its part, if any, contemplated by Section 6(e) and will
provide to the other party a statement (1) showing, in reasonable detail,
such calculations (including all relevant quotations and specifying any
amount payable under Section 6(e)) and (2) giving details of the relevant
account to which any amount payable to it is to be paid. In the absence of
written confirmation from the source of a quotation obtained in determining
a Market Quotation, the records of the party obtaining such quotation will
be conclusive evidence of the existence and accuracy of such quotation.
(ii) Payment Date. An amount calculated as being due in respect of any
Early Termination Date under Section 6(e) will be payable on the day that
notice of the amount payable is effective (in the case of an Early
Termination Date which is designated or occurs as a result of an Event of
Default) and on the day which is two Local Business Days after the day on
which notice of the amount payable is effective (in the case of an Early
Termination Date which is designated as a result of a Termination Event).
Such amount will be paid together with (to the extent permitted under
applicable law) interest thereon (before as well as after judgment), from
(and including) the relevant Early Termination Date to (but excluding) the
date such amount is paid, at the Applicable Rate. Such interest will be
calculated on the basis of daily compounding and the actual number of days
elapsed.
(e) Payments on Early Termination. If an Early Termination Date occurs, the
following provisions shall apply based on the parties' election in the
Schedule of a payment measure, either
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"Market Quotation" or "Loss", and a payment method, either the "First
Method" or the "Second Method". If the parties fail to designate a payment
measure or payment method in the Schedule, it will be deemed that "Market
Quotation" or the "Second Method", as the case may be, shall apply. The
amount, if any, payable in respect of an Early Termination Date and
determined pursuant to this Section will be subject to any Set-off.
(i) Events of Default. If the Early Termination Date results from an Event
of Default:
(1) First Method and Market Quotation. If the First Method and Market
Quotation apply, the Defaulting Party will pay to the Non-defaulting
Party the excess, if a positive number, of (A) the sum of the
Settlement Amount (determined by the Non-defaulting Party) in respect
of the Terminated Transactions and the Unpaid Amounts owing to the
Non-defaulting Party over (B) the Unpaid Amounts owing to the
Defaulting Party.
(2) First Method and Loss. If the First Method and Loss apply, the
Defaulting Party will pay to the Non-defaulting Party, if a positive
number, the Non-defaulting Party's Loss in respect of this Agreement.
(3) Second Method and Market Quotation. If the Second Method and
Market Quotation apply, an amount will be payable equal to (A) the sum
of the Settlement Amount (determined by the Non-defaulting Party) in
respect of the Terminated Transactions and the Unpaid Amounts owing to
the Non-defaulting Party less (B) the Unpaid Amounts owing to the
Defaulting Party. If that amount is a positive number, the Defaulting
Party will pay it to the Non-defaulting Party; if it is a negative
number, the Non-defaulting Party will pay the absolute value of that
amount to the Defaulting Party.
(4) Second Method and Loss. If the Second Method and Loss apply, an
amount will be payable equal to the Non-defaulting Party's Loss in
respect of this Agreement. If that amount is a positive number, the
Defaulting Party will pay it to the Non-defaulting Party; if it is a
negative number, the Non-defaulting Party will pay the absolute value
of that amount to the Defaulting Party.
(ii) Termination Events. If the Early Termination Date results from a
Termination Event:
(1) One Affected Party. If there is one Affected Party, the amount
payable will be determined in accordance with Section 6(e)(i)(3), if
Market Quotation applies, or Section 6(e)(i)(4), if Loss applies,
except that, in either case, references to the Defaulting Party and to
the Non-defaulting Party will be deemed to be references to the
Affected Party and the party which is not the Affected Party,
respectively, and, if Loss applies and fewer than all the Transactions
are being terminated, Loss shall be calculated in respect of all
Terminated Transactions.
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(2) Two Affected Parties. If there are two Affected Parties:
(A) if Market Quotation applies, each party will determine a
Settlement Amount in respect of the Terminated Transactions, and
an amount will. be payable equal to (1) the sum of (a) one-half of
the difference between the Settlement Amount of the party with the
higher Settlement Amount CW') and the. Settlement Amount of the
party with the lower Settlement Amount ("Y") and (b) the Unpaid
Amounts owing to X less (H) the Unpaid Amounts owing to Y; and
(B) if Loss applies, each party will determine its Loss in
respect of this Agreement (or, if fewer than all the Transactions
are being terminated, in respect of all Terminated Transactions)
and an amount will be payable equal to one-half of the difference
between the Loss of the party with the higher Loss (")C') and the
Loss of the party with the lower Loss ("Y").
If the amount payable is a positive number, Y will pay it to X; if it is a
negative number, X will pay the absolute value of that amount to Y.
(iii) Adjustment for Bankruptcy. In circumstances where an Early
Termination Date occurs because "Automatic Early Termination" applies in
respect of a party, the amount determined under this Section 6(e) will be
subject to such adjustments as are appropriate and permitted by law to
reflect any payments or deliveries made by one party to the other under
this Agreement (and retained by such other party) during the period from
the relevant Early Termination Date to the date for payment determined
under Section 6(d)(ii).
(iv) Pre-Estimate. The parties agree that if Market Quotation applies an
amount recoverable under this Section 6(e) is a reasonable pre-estimate of
loss and not a penalty. Such amount is payable for the loss of bargain and
the loss of protection against future risks and except as otherwise
provided in this Agreement neither party will be entitled to recover any
additional damages as a consequence of such losses.
7. Transfer
Neither this Agreement nor any interest or obligation in or under this Agreement
may be transferred (whether by way of security or otherwise) by either party
without the prior written consent of the other party, except that:
(a) a party may make such a transfer of this Agreement pursuant to a
consolidation or amalgamation with, or merger with or into, or transfer of
ail or substantially all its assets to, another entity (but without
prejudice to any other right or remedy under this Agreement); and
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(b) a party may make such a transfer of all or any part of its interest in any
amount payable to it from a Defaulting Party under Section 6(e).
Any purported transfer that is not in compliance with this Section will be void.
8. Miscellaneous
(a) Entire Agreement. This Agreement constitutes the entire agreement and
understanding of the parties with respect to its subject matter and
supersedes all oral communication and prior writings with respect thereto.
(b) Amendments. No amendment, modification or waiver in respect of this
Agreement will be effective unless in writing (including a writing
evidenced by a facsimile transmission) and executed by each of the parties
or confirmed by an exchange of telexes or electronic messages on an
electronic messaging system.
(c) Survival of Obligations. Without prejudice to Sections 2(a)(iii) and
6(c)(ii), the obligations of the parties under this Agreement will survive
the termination of any Transaction.
(d) Remedies Cumulative. Except as provided in this Agreement, the rights,
powers, remedies and privileges provided in this Agreement are cumulative
and not exclusive of any rights, powers, remedies and privileges provided
by law.
(e) Counterparts and Confirmations.
(i) This Agreement (and each amendment, modification and waiver in respect
of it) may be executed and delivered in counterparts (including by
facsimile transmission), each of which will be deemed an original
(ii) The parties intend that they are legally bound by the terms of each
Transaction from the moment they agree to those terms (whether- orally or
otherwise). A Confirmation shall be entered into as soon as practicable and
may be executed and delivered in counterparts (including by facsimile
transmission) or be created by an exchange of telexes or by an exchange of
electronic messages on an electronic messaging system, which in each case
will be sufficient for all purposes to evidence a binding supplement to
this Agreement. The parties will specify therein or through another
effective means that any such counterpart, telex or electronic message
constitutes a Confirmation.
(f) No Waiver of Rights. A failure or delay in exercising any right, power or
privilege in respect of this Agreement will not be presumed to operate as a
waiver, and a single or partial exercise of any right, power or privilege
will not be presumed to preclude any subsequent or further exercise, of
that right, power or privilege or the exercise of any other right, power or
privilege.
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(g) Headings. The headings used in this Agreement are for convenience of
reference only and are not to affect the construction of or to be taken
into consideration in interpreting this Agreement.
9. Expenses
A Defaulting Party will, on demand, indemnify and hold harmless the other party
for and against all reasonable out-of-pocket expenses, including legal fees,
incurred by such other party by reason of the enforcement and protection of its
rights under this Agreement or any Credit Support Document to which the
Defaulting Party is a party or by reason of the early termination of any
Transaction, including, but not limited to, costs of collection.
10. Notices
(a) Effectiveness. Any notice or other communication in respect of this
Agreement may be given in any manner set forth below (except that a notice
or other communication under Section 5 or 6 may not be given by facsimile
transmission or electronic messaging system) to the address or number or in
accordance with the electronic messaging system details provided (see the
Schedule) and will be deemed effective as indicated:-
(i) if in writing and delivered in person or by courier, on the date it is
delivered;
(ii) if sent by telex, on the date the recipient's answer back is received;
(iii) if sent by facsimile transmission, on the date that transmission is
received by a responsible employee of the recipient in legible form (it
being agreed that the burden of proving receipt will be on the sender and
will not be met by a transmission report generated by the sender's
facsimile machine);
(iv) if sent by certified or registered mail (airmail, if overseas) or the
equivalent (return receipt requested), on the date that mail is delivered
or its delivery is attempted; or
(v) if sent by electronic messaging system, on the date that electronic
message is received,
unless the date of that delivery (or attempted delivery) or that receipt, as
applicable, is not a Local Business Day or that communication is delivered (or
attempted) or received, as applicable, after the close of business on a Local
Business Day, in which case that communication shall be deemed given and
effective on the first following day that is a Local Business Day.
(b) Change of Addresses. Either party may by notice to the other change the
address, telex or facsimile number or electronic messaging system details
at which notices or other communications are to be given to it.
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11. Governing Law and Jurisdiction
(a) Governing Law. This Agreement will be governed by and construed in
accordance with the law specified in the Schedule.
(b) Jurisdiction. With respect to any suit, action or proceedings relating to
this Agreement ("Proceedings"), each party irrevocably:
(i) submits to the jurisdiction of the English courts, if this Agreement is
expressed to be governed by English law, or to the non-exclusive
jurisdiction of the courts of the State of New York and the United States
District Court located in the Borough of Manhattan in New York City, if
this Agreement is expressed to be governed by the laws of the State of New
York; and
(ii) waives any objection which it may have at anytime to the laying of
venue of any Proceedings brought in any such cowl, waives any claim that
such Proceedings have been brought in an inconvenient forum and further
waives the right to object, with respect to such Proceedings, that such
court does not have any jurisdiction over such party.
Nothing in this Agreement precludes either party from bringing Proceedings in
any other jurisdiction (outside, if this Agreement - is expressed to be governed
by English law, the Contracting States, as defined in Section 10) of the Civil
Jurisdiction and Judgments Act 1982 or any modification, extension or re-
enactment thereof for the time being in force) nor will the bringing of
Proceedings in any one or more jurisdictions preclude the bringing of
Proceedings in any other jurisdiction.
(c) Waiver of Immunities. Each party irrevocably waives, to the fullest extent
permitted by applicable law, with respect to itself and its revenues and
assets (irrespective of their use or intended use), all immunity on the
grounds of sovereignty or other similar grounds from W suit, (ii)
jurisdiction of any court, (iii) relief by way of injunction, order for
specific performance or for recovery of property, GO attachment of its
assets (whether before or after judgment) and (v) execution or enforcement
of any judgment to which it or its revenues or assets might otherwise be
entitled in any Proceedings in the courts of any jurisdiction and
irrevocably agrees, to the extent permitted by applicable law, that it will
not claim any such immunity in any Proceedings.
12. Definitions
As used in this Agreement:
"Additional Termination Event" has the meaning specified in Section 5(b).
"Affected Party" has the meaning specified in Section 5(b).
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"Affected Transactions" means (a) with respect to any Termination Event
consisting of an Illegality, all Transactions affected by the occurrence of such
Termination Event and (b) with respect to any other Termination Event, all
Transactions.
"Affiliate" means, subject to the Schedule, in relation to any person, any
entity controlled, directly or indirectly, by the person, any entity that
controls, directly or indirectly, the person or any entity directly or
indirectly under common control with the person. For this purpose, "control" of
any entity or person means ownership of a majority of the voting power of the
entity or person.
"Applicable Rate" means:
(a) in respect of obligations payable or deliverable (or which would have been
but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate;
(b) in respect of an obligation to pay an amount under Section 6(e) of either
party from and after the date (determined in accordance with Section
6(d)(ii)) on which that amount is payable, the Default Rate;
(c) in respect of all other obligations payable or deliverable (or which would
have been but for Section 2(a)(iii)) by a Non-defaulting Party, the Non-
default Rate; and
(d) in all other cases, the Termination Rate.
"consent" includes a consent, approval, action, authorization, exemption,
notice, filing, registration or exchange control consent.
"Credit Event Upon Merger" has the meaning specified in Section 5(b).
"Credit Support Document" means any agreement or instrument that is specified as
such in this Agreement.
"Credit Support Provider" has the meaning specified in the Schedule.
"Default Rate" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the relevant payee (as certified by it) if it
were to fund or of funding the relevant amount plus 1 % per annum.
"Defaulting Party" has the meaning specified in Section 6(a).
"Early Termination Date" means the date determined in accordance with Section
6(a) or 6(b)(iii).
"Event of Default" has the meaning specified in Section 5(a) and, if applicable,
in the Schedule.
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<PAGE>
"Illegality" has the meaning specified in Section 5(b).
"law" includes any treaty, law, rule or regulation and "lawful" and
"unlawful"will be construed accordingly.
"Local Business Day" means, subject to the Schedule, a day on which commercial
banks are open for business (including dealings in foreign exchange and foreign
currency deposits) (a) in relation to any obligation under Section 2(a)(i), in
the place(s) specified in the relevant Confirmation or, if not so specified, as
otherwise agreed by the parties in writing or determined pursuant to provisions
contained, or incorporated by reference, in this Agreement, (b) in relation to
any other payment, in the place where the relevant account is located, (c) in
relation to any notice or other communication, including notice contemplated
under Section 5(a)(i), in the city specified in the address for notice provided
by the recipient and, in the case of a notice contemplated by Section 2(b), in
the place where the relevant new account is to be located and (d) in relation to
Section 5(a)(v)(2), in the relevant locations for performance with respect to
such Specified Transaction.
"Loss" means, with respect to this Agreement or one or more Terminated
Transactions, as the case may be, and a party, an amount that party reasonably
determines in good faith to be its total losses and costs (or gain, in which
case expressed as a negative number) in connection with this Agreement or that
Terminated Transaction or group of Terminated Transactions, as the case may be,
including any loss of bargain, cost of funding or, at the election of such party
but without duplication, loss or cost incurred as a result of its terminating,
liquidating, obtaining or reestablishing any hedge or related trading position
(or any gain resulting from any of them). Loss includes losses and costs (or
gains) in respect of any payment or delivery required to have been made
(assuming satisfaction of each applicable condition precedent) on or before the
relevant Early Termination Date and not made, except so as to avoid duplication,
if Section 6(e)(i)(1) or (3) or 6(e)(ii)(2)(A) applies. Loss does not include a
party's legal fees and out-of-pocket expenses referred to under Section 9. A
party will determine its Loss as of the relevant Early Termination Date, or, if
that is not reasonably practicable, as of the earliest date thereafter as is
reasonably practicable. A party may (but need not) determine its Loss by
reference to quotations of relevant rates or prices from one or more leading
dealers in the relevant markets.
"Market Quotation" means, with respect to one or more Terminated Transactions
and a party making the determination, an amount determined on the basis of
quotations from Reference Market-makers. Each quotation will be for an amount,
if any, that would be paid to such party (expressed as a negative number) or by
such party (expressed as a positive number) in consideration of an agreement
between such party (taking into account any existing Credit Support Document
with respect to the obligations of such party) and the quoting Reference Market-
maker to enter into a transaction (the "Replacement Transaction") that would
have the effect of preserving for such party the economic equivalent of any
payment or delivery (whether the underlying obligation was absolute or
contingent and assuming the satisfaction of each applicable condition precedent)
by the parties under Section 2(a)(i) in respect of such Terminated Transaction
or group of Terminated Transactions that would, but for the occurrence of the
relevant Early Termination Date, have been required after
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<PAGE>
that date. For this purpose, Unpaid Amounts in respect of the Terminated
Transaction or group of Terminated Transactions are to be excluded but, without
limitation, any payment or delivery that would, but for the relevant Early
Termination Date, have been required (assuming satisfaction of each applicable
condition precedent) after that Early Termination Date is to be included. The
Replacement Transaction would be subject to such documentation as such party and
the Reference Market-maker may, in good faith, agree. The party making the
determination (or its agent) will request each Reference Market-maker to provide
its quotation to the extent reasonably practicable as of the same day and time
(without regard to different time zones) on or as soon as reasonably practicable
after the relevant Early Termination Date. The day and time as of which those
quotations are to be obtained will be selected in good faith by the party
obliged to make a determination under Section 6(e), and, if each party is so
obliged, after consultation with the other. If more than three quotations are
provided, the Market Quotation will be the arithmetic mean of the quotations,
without regard to the quotations having the highest and lowest values. If
exactly three such quotations are provided, the Market Quotation will be the
quotation remaining after disregarding the highest and lowest quotations. For
this purpose, if more than one quotation has the same highest value or lowest
value, then one of such quotations shall be disregarded. If fewer than three
quotations are provided, it will be deemed that the Market Quotation in respect
of such Terminated Transaction or group of Terminated Transactions cannot be
determined.
"Non-default Rate" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the Non-defaulting Party (as certified by it) if
it were to fund the relevant amount-
"Non-defaulting Party" has the meaning specified in Section 6(a).
"Potential Event of Default" means any event which, with the giving of notice or
the lapse of time or both, would constitute an Event of Default.
"Reference Market-makers" means four leading dealers in the relevant market
selected by the party determining a Market Quotation in good faith (a) from
among dealers of the highest credit standing which satisfy all the criteria that
such party applies generally at the Lime in deciding whether to offer or to make
an extension of credit and (b) to the extent practicable, from among such
dealers having an office in the same city.
"Scheduled Payment Date" means a date on which a payment or delivery is to be
made under Section 2(a)(i) with respect to a Transaction-
"Set-off" means set-off, offset, combination of accounts, right of retention or
withholding or similar right or requirement to which the payer of an amount
under Section 6 is entitled or subject (whether-arising under this Agreement,
another contract, applicable law or otherwise) that is exercised by, or imposed
on, such payer.
"Settlement Amount" means, with respect to a party and any Early Termination
Date, the sum of:-
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(a) the Market Quotations (whether positive or negative) for each Terminated
Transaction or group of Terminated Transactions for which a Market
Quotation is determined; and
(b) such party's Loss (whether positive or negative and without reference to
any Unpaid Amounts) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation cannot be determined or would not
(in the reasonable belief of the party making the determination) produce a
commercially reasonable result.
"Specified Entity" has the meaning specified in the Schedule.
"Specified Indebtedness" means, subject to the Schedule, any obligation (whether
present or future, contingent or otherwise, as principal or surety or otherwise)
in respect of borrowed money.
"Specified Transaction" means, subject to the Schedule, (a) any transaction
(including an agreement with respect thereto) now existing or hereafter entered
into between one party to this Agreement (or any Credit Support Provider of such
party or any applicable Specified Entity of such party) and the other party to
this Agreement (or any Credit Support Provider of such other party or any
applicable Specified Entity of such other party) which is a rate swap
transaction, basis swap, forward rate transaction, commodity swap, commodity
option, equity or equity index swap, equity or equity index option, bond option,
interest rate option, foreign exchange transaction, cap transaction, floor
transaction, collar transaction, currency swap transaction, cross-currency rate
swap transaction, currency option or any other similar transaction (including
any option with respect to any of these transactions), (b) any combination of
these transactions and (c) any other transaction identified as a Specified
Transaction in this Agreement or the relevant confirmation.
"Terminated Transactions" means with respect to any Early Termination Date (a)
if resulting from a Termination Event, all Affected Transactions and (b) if
resulting from an Event of Default, all Transactions (in either case) in effect
immediately before the effectiveness of the notice designating that Early
Termination Date (or, if "Automatic Early Termination" applies, immediately
before that Early Termination Date).
"Termination Event" means an Illegality or, if specified to be applicable, a
Credit Event Upon Merger or an Additional Termination Event.
"Termination Rate" means a rate per annum equal to the arithmetic mean of the
cost (without proof or evidence of any actual cost) to each party (as certified
by such party) if it were to fund or of funding such amounts.
"Unpaid Amounts" owing to any party means, with respect to an Early Termination
Date, the aggregate of (a) in respect of all Terminated Transactions, the
amounts that became payable (or that would have become payable but for Section
2(a)(iii)) to such party under Section 2(a)(i) on or prior to such Early
Termination Date and which remain unpaid as at such Early Termination Date and
(b) in respect of each Terminated Transaction, for each obligation under Section
2(a)(i) which was (or
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<PAGE>
would have been but for Section 2(a)(iii)) required to be settled by delivery to
such party on or prior to such Early Termination Date and which has not been so
settled as at such Early Termination Date, an amount equal to the fair market
value of that which was (or would have been) required to be delivered as of the
originally scheduled date for delivery, in each case together with (to the
extent permitted under applicable law) interest, in the currency of such
amounts, from (and including) the date such amounts or obligations were or would
have been required to have been paid or performed to (but excluding) such Early
Termination Date, at the Applicable Rate. Such amounts of interest will be
calculated on the basis of daily compounding and the actual number of days
elapsed. The fair market value of any obligation referred to in clause (b) above
shall be reasonably determined by the party obliged to make the determination
under Section 6(e) or, if each party is so obliged, it shall be the average of
the fair market values reasonably determined by both parties.
IN WITNESS WHEREOF the parties have executed this document on the respective
dates specified below with effect from the date specified on the first page of
this document.
BANK ONE, OKLAHOMA, N.A. MATRIX SERVICE COMPANY
(Name of Party) (Name of Party)
By: By:
------------------------ ------------------------------
Name: Name:
Title: Title:
Date: Date:
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<PAGE>
(Local Currency-Single Jurisdiction)
ISDA(R)
International Swaps and Derivatives Association, Inc.
SCHEDULE
to the
MASTER AGREEMENT
dated as of February 1, 1998
between
BANK ONE, OKLAHOMA N.A.,
a national banking association
with its main office located in Oklahoma City, Oklahoma
("Party All)
and
MATRIX SERVICE COMPANY,
a Delaware corporation
with its principal place of business in Tulsa, Oklahoma
("Party B")
Part 1. Termination Provisions and Certain Other Matters
In this Agreement:
(a) "Specified Entity" will not apply to Party A and for Party B will mean, for
purposes of Sections 5(a)(v), 5(a)(vi) and 5(a)(vii) of this Agreement, any
Affiliate of Party B.
(b) "Specified Transaction" includes for Party 13, in addition to the
transactions specified in Section 12 of this Agreement, any transaction
between Party A (or any Affiliate of Party A), on the one hand, and Party B
(or any Affiliate of Party B), on the other.
(c) The "Cross Default" provisions of Section 5(a)(vi) of this Agreement will
not apply to Party A and will apply to Party B and, with respect thereto,
"Specified Indebtedness " will have for Party B the meaning specified in
Section 12 of this Agreement and "Threshold Amount" will mean for Party
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<PAGE>
B $0 (including the United States Dollar equivalent on the date of any Cross
Default of any obligation stated in any other currency).
(d) The "Credit Event upon Merger" provisions of Section 5(b)(ii) will not
apply to Party A and will apply to Party B.
(e) The "Automatic Early Termination" provision of Section 6(a) will not apply
to Party A or to Party B.
(f) Payments on Early Termination. For the purpose of Section 6(e):
(i) Market Quotation will apply.
(ii) The Second Method will apply.
(g) Additional Termination Event will not apply.
Part 2. Agreement to Deliver Documents
Party B agrees to deliver to Party A, upon execution of this Agreement and upon
consummation of any Transaction, such evidence as Party A may reasonably require
(including, without limitation, an opinion reasonably acceptable in form and
substance to Party A of legal counsel reasonably acceptable to Party A) that
Party B is duly authorized to enter into this Agreement or into such
Transaction, and that the person(s) executing this Agreement or any Confirmation
on Party B's behalf is duly authorized by Party B to do so.
Part 3. Miscellaneous
(a) Addresses for Notices. For the purpose of Section 10(a) of this Agreement:
Address for notices or communications to Party A:
Address: 35 North Fourth Street, Lower Level
Columbus, Ohio 43271-0103
Attention: Swap Operations
Facsimile No.: 614/248-5209 Telephone No.:614/248-5621
Address for notices or communications to Party B:
Address: 10701 East UTE Street
Tulsa, Oklahoma 74116-1517
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<PAGE>
Attention: C. William Lee or Doyl West
Facsimile No.: 918/838-8810 Telephone No.:8918/838-8822
(b) Calculation Agent. "Me Calculation Agent is Party A, unless otherwise
specified in a Confirmation in relation to the relevant Transaction.
(c) Credit Support Document. Does not apply to Party A and, with respect to
Party B, means each contract, agreement, instrument and other document
listed in Annex A hereto, each of which is intended by both Parties to
secure the full and timely performance of Party B's obligations under this
Agreement. Annex A is hereby incorporated herein in its entirety.
(d) Credit Support Provider. Does not apply to Party A and, with respect to
Party B, means each party to any Credit Support Document of Party B other
than Party A or Party 13, any Affiliate of Party A, and any other secured
party under any such Credit Support Document.
(e) Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of New York (without reference to
choice of law doctrine).
(d) Netting of Payments. Subparagraph (ii) of Section 2(c) will not apply to
any Transaction unless otherwise provided in the Confirmation for such
Transaction.
(g) "Affiliate" means, with respect to each Party, any entity that, directly or
indirectly, controls, is controlled by, or is under common control with
such Party. For this purpose, a person shall be deemed to "control" any
entity if such person, directly or indirectly or acting through one or more
other persons, (a) owns, controls or has the power to vote 50% or more of
any class of voting securities of such entity, (b) is a general partner of
such entity, (c) controls in any manner the election of a majority of the
directors, trustees or other similar officials of such entity, or (d)
otherwise exercises a controlling influence over the management or policies
of such entity.
(h) "Party" means Party A and/or Party B, as the context may require.
Part 4. Other Provisions
(a) Additional Representations. Each Party hereby represents and warrants to
the other Party (which representations will be deemed to be repeated by
each Party on each date on which a Transaction is entered into) as follows:
(i) The necessary action to authorize referred to in the representation in
Section 3(a)(ii) includes all authorizations, if any, required by such
Party under the Federal Deposit Insurance Act, as amended, including
amendments effected by the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989, and under any
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<PAGE>
agreement, writ, decree, or order entered into with such party's
supervisory authorities;
(ii) This Agreement is a "qualified financial contract" as defined in
Section 11 (e)(8)(D)(i) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1821(e)(8)(D)(i); a "swap agreement" as defined in Section 11
(e)(8)(D)(vi) of the Federal Deposit Insurance Act, 12 U.S.C. (S) 182 1
(e)(8)(D)(vi); and a "swap agreement" as defined in Section 10 1 (53B) of
the Bankruptcy Code, 11 U.S.C. (S) 10 1 (53 B);
(iii) It is not relying (for purposes of making any investment decision
or otherwise) upon any advice, counsel or representations (whether written
or oral) of the other party to this Agreement, other than the
representations expressly set forth in this Agreement, each Credit Support
Document and in any Confirmation;
(iv) It has consulted with its own legal, regulatory, tax, business,
investment, financial and accounting advisors to the extent it has deemed
necessary, and has made its own investment, hedging and trading decisions
(including decisions regarding the suitability of any Transaction pursuant
to this Agreement) based upon its own judgment and upon any advice from
such advisors as it has deemed necessary and not upon any view expressed by
the other party to this Agreement;
(v) It has a full understanding of all the terms, conditions and risks
(economic and otherwise) of this Agreement, each Credit Support Document
and each Transaction, and is capable of assuming and willing to assume
(financially and otherwise) such risks;
(vi) It is entering into this Agreement, each Credit Support Document and
each Transaction for the purposes of managing its borrowings or
investments, hedging its underlying assets or liabilities or in connection
with a line of business, and not for purposes of speculation; and
(vii) It is entering into this Agreement and will enter into all
Transactions as principal and in connection with its business or the
management of its business, and not as agent or in any other capacity,
fiduciary or otherwise.
(b) Exchange of Confirmations. Anything in this Agreement to the contrary
notwithstanding, for each Transaction entered into hereunder, Party A shall
promptly send to Party B a Confirmation, via telex or facsimile
transmission, in such form as the parties may from time to time agree. The
parties agree that any such exchange of telexes or facsimile transmissions
shall constitute a Confirmation for all purposes hereunder.
(c) Right of Set-Off. If an Early Termination Date occurs as the result of (i)
an Event of Default or (ii) a Termination Event with respect to which there
is only one Affected Party, the
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<PAGE>
Non-Defaulting or Non-Affected Party may Set-off (x) against any amount due
and payable by it under Section 6(e) of this Agreement, any Other
Obligations of the Defaulting or Affected Party; and (y) against any of its
Other Obligations, any amount due and payable to it under Section 6(e) of
this Agreement. A Party may exercise such Set-off rights without prior
notice to the other Party, but shall notify the other Party promptly, after
any exercise of such rights. If the amount of any Other Obligation Set-off
is unascertained, the Non-Defaulting or Non-Affected Party may in good
faith estimate such amount and Set-off based on such estimate, subject to
an accounting to the other Party when such amount is ascertained, and to
appropriate adjustment. The Set-off rights of each Party hereunder shall be
in addition to, and not in lieu of, such other remedies, including such
other set-off rights, as such Party may have by contract, operation of law,
in equity or otherwise. As used herein, the term "Other Obligations- means,
with respect to either Party, any amount payable by it or any of its
Affiliates to the other Party, whether such amount is payable-under this
Agreement, another contract, applicable law or otherwise, and whether such
amount is due at the time in question, in the future or subject to a.
contingency.
(d) Events of Default Termination Event Designation of Early Termination Date.
Notwithstanding the terms of Sections 5 and 6 of this Agreement, if at any
time and so long as one of the Parties to this Agreement CW~ shall have
satisfied in full all its payment and delivery obligations under Section
2(a)(i) of this Agreement and shall at such time have no future payment or
delivery obligations thereunder, whether absolute or contingent, then
unless the other Party ("Y") is required pursuant to appropriate
proceedings to return to X or otherwise returns to X upon demand of X any
portion of any such payment or delivery, (i) the occurrence of an event
described in Section 5(a) of this Agreement with respect to X, any Credit
Support Provider of X or any Specified Entity of X shall not constitute an
Event of Default with respect to X as the Defaulting Party and (ii) Y shall
be entitled to designate an Early Termination Date pursuant to Section 6 of
this Agreement only as a result of the occurrence of a Termination Event
set forth in Section 5(b)(i) with respect to Y as the Affected Party.
(e) Condition to Payments. The condition precedent in Section 2(a)(iii)(1) does
not apply to a payment and delivery owing by a Party if the other Party
shall have satisfied in full all its payment or delivery obligations under
Section 2(a)(i) of this Agreement and shall at the relevant time have no
future payment or delivery obligations, whether absolute or contingent,
under Section 2(a)(i).
ACCEPTED AND AGREED:
BANK ONE, OKLAHOMA, N.A. MATRIX SERVICE COMPANY
By: By:
--------------------- ---------------------
Name: Name:
------------------- -------------------
Title: Title:
------------------ ------------------
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ANNEX A
Credit Support Documents
Each of the following is a Credit Support Document of Party B for purposes of
this Agreement, and is intended by both Parties to secure the full and timely
performance of Party B's obligations under this Agreement:
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<PAGE>
EXHIBIT 10.20
AMENDED AND RESTATED SECURITY AGREEMENT
---------------------------------------
This Amended and Restated Security Agreement ("Agreement") is made and
entered into effective as of the 22/nd/ day of October, 1998, by and among
MATRIX SERVICE COMPANY, a Delaware corporation (hereinafter referred to as
"MSI"), MIDWEST INDUSTRIAL CONTRACTORS, INC., a Delaware corporation
(hereinafter referred to as "MIC"), MATRIX SERVICE MID-CONTINENT, INC., an
Oklahoma corporation (hereinafter referred to as "MSM"), PETROTANK EQUIPMENT,
INC., an Oklahoma corporation (hereinafter referred to as "PEI"), TANK SUPPLY,
INC., an Oklahoma corporation (hereinafter referred to as "TSI"), SAN LUIS TANK
PIPING CONSTRUCTION CO., INC., a Delaware corporation (hereinafter referred to
as "SLT"), COLT CONSTRUCTION CO., INC., a Delaware corporation (hereinafter
referred to as "CCC"), MIDWEST INTERNATIONAL, INC., a Delaware corporation
(hereinafter referred to as "MII"), BROWN STEEL CONTRACTORS, INC., a Georgia
corporation (hereinafter referred to as "BSC"), BROWN TANKS, INC., a Georgia
corporation (hereinafter referred to as "BTI"), AQUA TANKS, INC., a Georgia
corporation (hereinafter referred to as "ATI"), WEST COAST INDUSTRIAL COATINGS,
INC., a California corporation (hereinafter referred to as "WCI"), MIDWEST
SERVICE COMPANY, a Delaware corporation (hereinafter referred to as "MSC"),
MATRIX SERVICE, INC. (CANADA), an Ontario corporation (hereinafter referred to
as "MSIC"), MAYFLOWER VAPOR SEAL CORPORATION, an Oklahoma corporation
(hereinafter referred to as "MVS"), GENERAL SERVICE CORPORATION, a Delaware
corporation (hereinafter referred to as "GSC"), MAINSERV-ALLENTECH, INC., a
Delaware corporation (hereinafter referred to as "MA"), MAINTENANCE SERVICES,
INC., a Delaware corporation (hereinafter referred as to "MSERV"), in favor of
BANK ONE, OKLAHOMA, N.A., successor in interest to LIBERTY BANK AND TRUST
COMPANY OF TULSA, NATIONAL ASSOCIATION (hereinafter referred to as the "Secured
Party"). Matrix, MSI, MIC, MSM, PEI, TSI, SLT, CCC, MII, BSC, BTI, ATI, WCI,
MSC, MSIC, MVS, GSC, MA and MSERV are hereinafter collectively referred to as
the "Debtors" and individually as a "Debtor."
RECITALS
--------
A. Pursuant to that certain Credit Agreement dated August 30, 1994 (the
"Original Credit Agreement"), as amended by that certain First Amendment to
Credit Agreement dated June 19, 1997 (the "First Amendment"), as amended by that
certain Second Amendment to Credit Agreement dated September 15, 1997 (the
"Second Amendment"), as amended by that certain Third Amendment to Credit
Agreement dated March 1, 1998 (the "Third Amendment"), and as further amended by
that Amended and Restated Credit Agreement dated as of October 22, 1998 (the
"Amended and Restated Credit Agreement") (the Original Credit Agreement, First
Amendment, Second Amendment, Third Amendment, and Amended and Restated Credit
Agreement, as amended, supplemented or otherwise modified from time to time,
being hereinafter referred to as the "Credit Agreement"), among Debtors as
Borrowers (as such term is defined in the Credit Agreement) and Secured Party,
Secured Party has established in favor of the Debtors, on the terms and
conditions set forth therein, (i) a revolving credit facility in the original
principal amount not to exceed $20,000,000, and (ii) a term loan facility in the
original principal amount not to exceed $10,000,000.
B. Pursuant to the Original Credit Agreement, Matrix, MSI, MIC, MSM, PEI,
TSI, SLT, CCC, MII, BSC, WCI, and MSC, among others, each as a Debtor, and
Secured Party executed and
<PAGE>
delivered invidia Security Agreements dated as of August 30, 1994 (the "Original
Security Agreements").
C. Pursuant to the First Amendment, GSC, MA, and MSERV, each as a Debtor,
and Secured Party executed and delivered individual Security Agreements dated as
of June 19, 1997 (the "Supplemental Security Agreements") (the "Original
Security Agreements" and the "Supplemental Security Agreements" hereinafter
referred to as the "Existing Security Agreements").
D. Pursuant to the Amended and Restated Credit Agreement, the Bank (among
other modifications made to the Credit Agreement) removed Georgia Steel
Acquisition Corporation, Georgia Steel Fabricators, Inc., Heath Engineering,
LTD., and Heath (Tank Maintenance) Engineering, LTD., as Borrowers and added
BTI, ATI, and MSIC as Borrowers.
E. Debtors and Secured Party desire to execute this Agreement to renew
and continue the Existing Security Agreements and to grant Secured Party a
security interest in the rights of BTI, ATI and MSIC in and to the Collateral
(as hereinafter defined).
F. It is a condition precedent to the obligations of Secured Party under
the Credit Agreement that Debtors shall have executed and delivered this
Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged and in order to induce Secured Party to make loans and
other extensions of credit under the Credit Agreement, Debtors hereby agree as
follows:
ARTICLE I
DEFINITIONS
-----------
1.1 Terms Defined in Credit Agreement. Capitalized terms used herein and
---------------------------------
not otherwise defined have the respective meanings assigned to them in the
Credit Agreement.
1.2 Defined Terms. The following terms used herein shall have the
-------------
meanings indicated:
Accounts. "Accounts" shall mean and include all accounts (as such
--------
term is defined in Article 9 of the UCC) of Debtors, of every nature,
whether now existing or hereafter arising, including, without limitation,
all accounts receivable and other rights to payment for goods sold or
leased or for services rendered.
Collateral. "Collateral" shall mean and include (i) all Accounts,
----------
(ii) all Inventory, (iii) all General Intangibles, (iv) all books, records,
ledger cards, electronic data processing materials and other general
intangibles relating to the foregoing property, and (v) all Proceeds of the
foregoing property.
-2-
<PAGE>
General Intangibles. "General Intangibles" shall mean and include (i)
-------------------
all general intangibles (as such term is defined in Article 9 of the UCC)
of Debtors, of every nature, whether now owned or existing or hereafter
arising or acquired, including, without limitation, all books,
correspondence, credit files, records, computer programs, source codes,
computer tapes, computer cards, computer disks, Permits, know-how,
technologies, trade secrets, claims (including, without limitation, claims
for income tax and other refunds), causes of action, choses in action,
judgments, goodwill, patents, copyrights, brand names, trademarks,
tradenames, service names, service marks, logos, licensing agreements,
franchises, royalty payments, settlements, partnership interests (whether
general, limited or special), interests in joint ventures, contracts,
contract rights and monies due under any contract or agreement, (ii) all
chattel paper of Debtors, whether now owned or existing or hereafter
arising or acquired, and (iii) all papers and documents evidencing or
constituting any of the foregoing.
Governmental Authority. "Governmental Authority" shall mean any court
----------------------
or any administrative or governmental department, commission, board,
bureau, authority, agency or body of any governmental entity, whether
foreign or domestic, and whether national, federal, state, county, city,
municipal or otherwise.
Indebtedness. "Indebtedness" shall mean and include all liabilities,
------------
obligations and indebtedness of the Debtors to the Secured Party or an
affiliate of the Secured Party, of every kind and description, now existing
or hereafter incurred, direct or indirect, absolute or contingent, due or
to become due, matured or unmatured, and whether or not of the same or a
similar class or character as the Credit Facilities and whether or not
currently contemplated by the Secured party or the Debtors, including,
without limitation, (i) all Advances, and Letters of Credit (including
interest accruing thereon and fees payable in respect thereof), (ii) all
Reimbursement Obligations, (iii) all liabilities, obligations and
indebtedness of the Debtors to the Secured Party arising out of or relating
to the Credit Agreement, the Credit Facilities, the Notes, the L/C
Agreements or any other of the Loan Documents, (iv) any overdrafts by any
of the Debtors on any deposit account maintained with the Secured Party,
(v) any Interest Rate Swap with the Secured Party or affiliate of the
Secured Party, and (vi) any and all extensions and renewals of any of the
foregoing.
Inventory. "Inventory" shall mean and include all inventory (as such
---------
term is defined in Article 9 of the UCC) of Debtors, now existing or
hereafter acquired and wherever located, including, without limitation, (i)
raw goods and raw materials, (ii) goods in process, (iii) finished goods,
(iv) materials, supplies, containers, boxes and packaging materials, (v)
materials used or consumed in the course of business, and (vi) all other
goods held or stored for sale or lease or furnished or to be furnished
under contracts of service.
Permit. "Permit" shall mean any permit, certificate, consent,
------
franchise, concession, license, authorization, approval, filing,
registration or notification from or with any Governmental Authority or
other Person.
-3-
<PAGE>
Person. "Person" shall mean any individual, sole proprietorship,
------
partnership, joint venture, trust, unincorporated organization,
association, corporation, limited liability company, institution, entity,
party or Governmental Authority.
Proceeds. "Proceeds" shall mean all proceeds of all or any portion of
--------
the Collateral within the meaning of Article 9 of the UCC, including,
without limitation, (i) all proceeds of any insurance, judgment, indemnity,
warranty or guaranty payable to or for the account of Debtors with respect
to all or any portion of the Collateral, (ii) all proceeds in the form of
accounts, collections, contract rights, documents, instruments, chattel
paper or general intangibles relating in whole or in part to the
Collateral, and (iii) all payments, in any form whatsoever, made or due and
payable to or for the account of Debtors in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of all or
any portion of the Collateral by any Governmental Authority.
UCC. "UCC: shall mean the Uniform Commercial Code as in effect from
---
time to time in the State of Oklahoma.
1.3 Interpretations. Unless otherwise defined herein, (i) terms defined
---------------
in the UCC are used herein as so defined, and (ii) the singular shall be deemed
to include the plural and the plural shall be deemed to include the singular.
ARTICLE II
GRANT OF SECURITY INTEREST
--------------------------
In order to secure the prompt and complete payment and performance when due
(whether at the stated maturity, upon a mandatory prepayment, by acceleration or
otherwise) of the Indebtedness, Debtors hereby renew and continue their
assignment, transfer and pledge unto Secured Party, and additionally, as
applicable, grant to Secured Party a continuing security interest in, the
Collateral.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
------------------------------
3.1 Ownership; Free of Encumbrances. Debtors are and will remain the
-------------------------------
legal and beneficial owners of the Collateral, free and clear of any prior
Liens, except the security interest created hereby and except as set forth in
Subsection 5.6 of the Credit Agreement. Debtors will defend the Collateral
against all claims and demands of all persons at any time claiming the
Collateral or any interest therein, other than persons holding Liens permitted
under Subsection 5.6 of the Credit Agreement. No security agreement, financing
statement or other public notice with respect to all or any part of the
Collateral is on file or of record in any public office except such as may have
been filed pursuant to this Agreement and except as set forth in Schedule I
attached to the Existing Security Agreement. Debtors have exclusive possession
and control of the Collateral.
-4-
<PAGE>
3.2 Conflicting Agreements and Charter Provisions. Neither the execution
---------------------------------------------
and delivery of this Agreement, nor fulfillment nor compliance with the terms
and provisions hereof, will conflict with, or result in a breach of the terms,
conditions or provisions of, or constitute a default under, or result in any
violation of, the charter or bylaws of Debtors, or any agreement, instrument,
judgment, decree, statute, law, rule or regulation to which Debtors are subject
or by which the Collateral is bound or affected, or require any authorization,
consent, approval or other action by, or notice to any Governmental Authority.
Except for the filings and other actions contemplated under Subsection 4.2
hereof, no consent or authorization of or filing with or other act by and in
respect of any other Person is required in connection with the execution,
delivery, performance, validity or enforceability of this Agreement.
3.3 Actions and Proceedings. There is no action or proceeding against or
-----------------------
investigation of Debtors, pending or threatened, which questions the validity of
this Agreement or any of the Loan Documents or which is likely to have a
Material Adverse Effect.
3.4 Organization; Authority. Each of the Debtors is a corporation, duly
-----------------------
organized, validly existing and in good standing under the laws of the state or
jurisdiction of its incorporation and is duly qualified to conduct business and
in good standing under the laws of the State of Oklahoma and all other states or
jurisdictions in which it does business. Each of the Debtors is duly
authorized, qualified and licensed under all applicable laws, regulations,
ordinances and orders of public authorities to carry on its business as
currently conducted and as contemplated to be conducted, or, if not, such
noncompliance does not create or give rise to a Material Adverse Effect. Debtors
now have and will have at all material times requisite corporate power and
authority to enter into this Agreement and to carry out the terms and provisions
hereof. This Agreement has been duly authorized by all necessary corporate
action on the part of Debtors, has been duly executed and delivered by the
Debtors' duly authorized officers, and constitutes the legal, valid and binding
obligation of Debtors, enforceable in accordance with its terms (except as
enforceability may be limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally, and (ii) general principles of equity).
3.5 Location of Principal Office; Records. The chief place of business
-------------------------------------
and chief executive office of Debtors and the offices where Debtors keep their
records concerning the Accounts and the original copies of all contracts that
evidence or constitute Collateral are located at the following address:
c/o Matrix Service Company
10701 East Ute Street
Tulsa; Oklahoma 74116-1517
Attn: Michael J. Hall,
Chief Financial Office and Vice President/Finance
Fax: (918) 838-8810
-5-
<PAGE>
Schedule II attached to the Existing Security Agreements contains a complete and
accurate list of the location of all Inventory. Within the last four months, no
Debtor has changed its name, identity or corporate structure (by reorganization
or otherwise), or its address.
3.6 Tradenames. Schedule III attached to the Existing Security Agreements
----------
contains a complete and accurate list of (i) all names under which Debtors are
or have been doing business within the last twelve months, including, without
limitation, tradenames, division names, and fictitious names, (ii) all
tradenames owned by Debtors or that Debtors are licensed to use, and (iii) all
tradenames that Debtors have established the right to use.
3.7 Instruments. None of the Accounts is currently evidenced by a
-----------
promissory note or other instrument.
3.8 Accounts. The amount represented to Secured Party from time to time
--------
as owing by each account debtor or by all account debtors in respect of the
Accounts will at no time be other than the correct amount actually owing by such
account debtor or debtors thereunder. No consent of any account debtor in
respect of any account is required, or purports to be required, in connection
with the execution, delivery and performance of this Agreement by Debtors. Each
of the Accounts is in full force and effect and constitutes a valid and legally
enforceable obligation of the account debtor in respect thereof.
3.9 Law and Ordinances. Debtors have not violated and will not violate
------------------
any applicable statute, regulation or ordinance of any Governmental Authority in
any material adverse respect as to the ownership, acquisition, use and operation
of the Collateral including, without limitation, any Environmental Laws.
3.10 Permits. Each of the Debtors has acquired or will acquire at
-------
appropriate times, and are in compliance with the terms of, all Permits and has
made all governmental and regulatory filings, registrations and notifications
(i) which are presently necessary for it to carry on its business as now being
conducted or as contemplated to be conducted, (ii) which are or will be
necessary for it to own, maintain, use or operate the Collateral, or (iii) which
if not obtained would have a Material Adverse Effect. All such Permits are or
will be valid and subsisting, and none of the Debtors is or will be in material
violation of any such Permit.
ARTICLE IV
COVENANTS
---------
Debtors covenant and agree with Secured Party that, from and after the date
of this Agreement until the Indebtedness is paid in full:
-6-
<PAGE>
4.1 Insurance. Debtors, at their cost and expense, shall maintain in full
---------
force and effect liability and casualty insurance on the Inventory as required
under the terms of the Credit Agreement.
4.2 Recordings, Filings, Further Assurances. Debtors agree that from time
---------------------------------------
to time, at the expense of Debtors, Debtors will promptly execute and deliver
all further instruments and documents, and take all further action that may be
necessary or desirable, or that Secured Party may reasonably request, in order
to continue, perfect and protect any security interest granted hereby or to
enable Secured Party to exercise and enforce its rights and remedies hereunder
with respect to any Collateral. Without limiting the generality of the
foregoing, Debtors will: (i) mark conspicuously each item of chattel paper
included in the Accounts with a legend in form and substance satisfactory to
Secured Party, indicating that such chattel paper is subject to the security
interest granted hereby; (ii) if any of the Accounts shall be evidenced by a
promissory note or other instrument, deliver and pledge to Secured Party such
note or instrument duly endorsed and accompanied by duly executed instruments of
transfer or assignment, all in form and substance satisfactory to Secured Party;
(iii) execute and file such financing or continuation statements or amendments
thereto and such other instruments or notices as may be necessary or desirable,
or as Secured Party may request, in order to perfect and preserve the security
interest granted or purported to be granted hereby; (iv) deliver to Secured
Party promptly upon receipt thereof all promissory notes and other instruments
representing or evidencing any of the Collateral; and (v) prepare and furnish to
Secured Party upon request such lists of the Accounts as Secured Party may, from
time to time, reasonably request. Debtors hereby authorize Secured Party to file
one or more financing or continuation statements and amendments thereto relative
to all or part of the Collateral without the signature of Debtors, where
permitted by law and to execute the same as attorney-in-fact for Debtors to the
extent Debtors' signature is required by law.
4.3 Records and Inspection; Field Audits. Debtors shall keep and shall
------------------------------------
make available to Secured Party at reasonable times, accurate and complete books
and records with respect to the Collateral and Debtors' business generally, in
accordance with generally accepted accounting principles or other reasonable and
sound business practices, including a record of all payments received and any
credits granted on any of the Accounts, and Secured Party shall have the right
to inspect and copy such records and to inspect the Collateral at reasonable
times. Without limiting the generality of the foregoing, Debtors will: (i)
permit Secured Party, through its authorized representatives, to conduct
periodic field audits of Debtors and to review Debtors' operations, books and
records, accounts receivable methods and controls, and other matters relating to
the value and maintenance of the Collateral and Debtors' financial reporting,
and (ii) afford any authorized representative of Secured Party with access to
any Property owned by Debtors, during business hours and upon reasonable notice.
For the further security of Secured Party, Secured Party shall have a security
interest in all such books and records pertaining to the Collateral, and after
any Event of Default Debtors shall turn over any such books and records to
Secured Party or to its representatives during normal business hours at the
request of Secured Party.
4.4 Location of Office and Records; Change of Name. Debtors shall keep
----------------------------------------------
their chief place of business and chief executive office, and the offices where
they keep their records concerning
-7-
<PAGE>
the Accounts and the original copies of all contracts and chattel paper that
evidence or constitute Collateral, at the location therefor specified in
Subsection 3.5 above and shall notify Secured Party at least thirty (30) days
prior to any change from said location. No Debtor will change its name, identity
or corporate or other structure to such an extent that any financing statement
filed by Secured Party in connection with this Agreement would become seriously
misleading, unless it shall have given Secured Party at least thirty (30) days
prior written notice thereof and prior to effecting any such change taken such
steps as Secured Party may deem necessary or advisable to continue the
perfection and priority of the security interest granted pursuant hereto.
4.5 Removal of Inventory. Debtors shall keep the Inventory at the
--------------------
locations listed on Schedule II (attached to the Existing Security Agreements)
or, with the prior written consent of Secured Party, at such other location in a
jurisdiction in which all actions required by Subsection 4.2 shall have been
taken with respect to the Collateral as Debtors may have advised Secured Party
at least thirty (30) days prior to such removal.
4.6 Debtors Remain Liable. Debtors shall remain liable under all
---------------------
contracts or other agreements included in the Collateral to the extent set forth
therein to perform all of their duties and obligations thereunder to the same
extent as if this Agreement had not bee executed. The exercise by Secured Party
of any of the rights hereunder shall not release Debtors from any of their
duties or obligations under such contracts or agreements included in the
collateral. Secured Party shall not have any obligation or liability under such
contracts or agreements included in the Collateral by reason of this Agreement,
nor shall Secured Party be obligated to perform any of the obligations or duties
of Debtors thereunder or to take any action to collect or enforce any claim for
payment assigned hereunder. Debtors shall at their expense perform and observe
all of the terms and provisions of such contracts to be performed or observed by
them to maintain such contracts in full force and effect, enforce such contracts
in accordance with their terms, and take all such action to such ends as may
from time to time be reasonably requested by Secured Party.
4.7 Debtors to Pay Taxes. Each of the Debtors will pay promptly when due
--------------------
all taxes, assessments, governmental charges or levies owing or payable by it,
and will pay when due all claims for labor, materials, supplies, rent and other
obligations which, if unpaid, might become a Lien against any of the Collateral,
except to the extent any of the foregoing are being diligently contested in good
faith by appropriate legal proceedings and against which there are established
adequate reserves in conformity with GAAP.
4.8 Transfers and Other Liens. Debtors shall not: (a) sell, assign, or
-------------------------
otherwise dispose of or grant any option with respect to any of the Collateral
(except as permitted by Subsection 7.2 of the Credit Agreement), or (b) create
or suffer to exist any lien upon or with respect to any of the Collateral
(except as permitted by Subsection 7.1 of the Credit Agreement).
4.9 Limitations on Modifications, Waivers or Extensions of Agreements
-----------------------------------------------------------------
Giving Rise to Accounts. Debtors will not (i) amend, modify, terminate or waive
- -----------------------
any provision of any agreement giving rise to an Account in any manner which
could reasonably be expected to materially adversely affect the value of such
Account as Collateral, or (ii) fail to exercise promptly and diligently each
-8-
<PAGE>
and every material right which it may have under each agreement giving rise to
an Account (other than any right of termination). Debtors will deliver to
Secured Party a copy of each material demand, notice or document sent or
received by it relating in any way to any amendment, modification, termination
or waiver of any provision of any agreement giving rise to an Account.
4.10 Secured Party's Rights and Duties. Debtors shall remain liable under
---------------------------------
the Accounts to observe and perform al the conditions and obligations to be
observed and performed by it thereunder, all in accordance with and pursuant to
the terms and provisions of each Account. Secured Party shall not have any
obligation or liability under any Accounts by reason of or arising out of this
Agreement, or the receipt by Secured Party of any payment relating to any
Account pursuant hereto, nor shall Secured Party be required or obligated in any
manner to perform or fulfill any of the obligations of Debtors under or pursuant
to any Account or to make any payment, or to make any inquiry as to the nature
or the sufficiency of any payment received by Secured Party or the sufficiency
of any performance by any party under any Account or to present or file any
claim, or to take any action to collect or enforce any performance or the
payment of any amounts which have been assigned to Secured Party or to which
Secured Party may be entitled at any time or times.
4.11 Collection of Accounts and Proceeds. Debtors shall cause all payments
-----------------------------------
from account debtors on any of the Accounts to be remitted directly to a
"lockbox" maintained with Secured Party. Until further notice from Secured
Party, any proceeds of Accounts remitted to the lockbox, whether consisting of
checks, notes, drafts, bills of exchange, money orders, commercial paper of any
kind whatsoever, or other documents received in payment of any Accounts or in
payment for any Inventory, shall be deposited by Secured Party in an operating
account maintained by Matrix with Secured Party (subject to Secured Party's
established policies on availability of uncollected funds). Such proceeds when
deposited shall continue to be collateral security for all of the Indebtedness
and shall not constitute payment thereof until applied as hereinafter provided.
Upon the occurrence and during the continuation of an Event of Default, Secured
Party may apply all or any part of the funds on deposit in said operating
account on account of the principal of and/or interest on any of the
Indebtedness, the order and method of any such application to be in the sole
discretion of Secured Party. If an Event of Default shall have occurred and be
continuing, at Secured Party's request Debtors shall deliver to Secured Party
all original and other documents evidencing and relating to the sale and
delivery of Inventory or the performance of labor or services which created the
Accounts, including, but not limited to, all original orders, invoices and
shipping receipts. Secured Party may, at any time after the occurrence and
during the continuation of any Event of Default, notify account debtors that the
Accounts have been assigned to Secured Party and that payment shall be made
directly to Secured Party, and Debtors will so notify such account debtors on
the request of Secured Party. Secured Party may in its own name or in the name
of others, at any time after the occurrence and during the continuation of any
Event of Default, communicate with account debtors in order to verify with them
the existence, amount, and terms of any Accounts.
4.12 Continuation of Security Interests. Debtors agree that the security
----------------------------------
interest granted herein is a renewal and continuation of the Existing Security
Agreements, and provides Secured Party priority with a continual uninterrupted
security interest in the Collateral, free from any gaps in the priority of the
security interests granted under the Existing Security Agreements.
-9-
<PAGE>
ARTICLE V
DEFAULT
-------
The term "Event of Default" for all purposes of this Agreement shall mean
the occurrence of an "Event of Default" as defined in the Credit Agreement.
ARTICLE VI
REMEDIES
--------
6.1 Acceleration of Indebtedness. Upon the occurrence of any Event of
----------------------------
Default, Secured Party may, at its option, without notice or demand, terminate
its obligations to Debtors (including the Revolving Commitment as defined in the
Credit Agreement) and declare the Indebtedness to be immediately due and
payable, whereupon the same shall become forthwith due and payable.
6.2 Other Remedies. Upon the occurrence and during the continuation of
--------------
any Event of Default, Secured Party shall be entitled to exercise all remedies
available to it under the Loan Documents (as defined in the Credit Agreement) or
otherwise under applicable law, including, without limitation, the following:
6.2.1 All Legal Remedies. Proceed to selectively and successively
------------------
enforce and exercise any and all rights and remedies which Secured Party
may have under this Agreement, any other applicable agreement or applicable
law, including, without limitation: (i) commencing one or more actions
against Debtors and reducing the claims of Secured Party against Debtors to
judgment, (ii) foreclosing, realizing upon, or otherwise enforcing Secured
Party's security interest in the Collateral, or any portion thereof, or
otherwise enforcing Secured Party's rights and remedies in respect of the
Collateral, through judicial action or otherwise, including all available
remedies under the applicable provisions of the UCC, and (iii) paying or
discharging of any claim or Lien, prior or subordinate, in respect of or
affecting the Collateral.
6.2.2 Cash Equivalent Items. As regards any portion of the
---------------------
Collateral consisting of cash equivalent items (i.e., checks, drafts or
----
other items convertible at face), immediately apply them against the
Indebtedness and for this purpose Debtors agree that such items will be
considered identical in character to cash proceeds.
6.2.3 Disposition. Sell, lease or otherwise dispose of the
-----------
Collateral at private or public sale, in bulk or in parcels and, where
permitted by law, without having the Collateral present at the place of
sale. Unless the Collateral is perishable or it appears that the value of
the Collateral will decline speedily or the collateral is a type
customarily sold on a recognized market, or unless Debtors have signed a
statement (after the occurrence of an Event of Default) renouncing or
modifying Debtors' right to notice, Secured Party will give Debtors
reasonable notice of the time and place of any public sale or other
disposition thereof
-10-
<PAGE>
or the time after which any private sale or other disposition thereof is to
be made. The requirements of reasonable notice shall be met if such notice
is given to Debtors at least ten (10) days before the time of any such sale
or disposition.
6.2.4 Costs and Expenses. Recover from Debtors an amount equal to
------------------
all costs, expenses and attorney's fees incurred by Secured Party in
connection with the exercise of the rights contained or referred to herein,
together with interest on such sums at the default rate applicable to the
Term Note from time to time.
6.2.5 Collections. Exercise any and all rights and remedies of
-----------
Debtors relating to the Collateral, including, but not by way of
limitation, the right to collect, demand, receive, settle, compromise,
adjust or sue for all amounts due thereon or thereunder and the right
either in Secured Party's own name or in the name of Debtors, to take such
legal or other action as Debtors might have taken except for this
Agreement.
6.3 Letters of Credit. Upon the acceleration of the Indebtedness after an
-----------------
Event of Default an amount equal to the aggregate stated amount of all
outstanding Letters of Credit issued by Secured Party for the account of the
Borrowers shall, at Secured Party's option and without demand upon or further
notice to Debtors, be deemed (as between Secured Party and the Debtors) to have
been paid or disbursed by Secured Party under the Letters of Credit
(notwithstanding that such amounts may not in fact have been so paid or
disbursed), and a loan to the Debtors in the amount of such Letters of Credit to
have been made and accepted, which loan shall be immediately due and payable and
shall bear interest at the post default rate provided in the Revolving Note. In
lieu of the foregoing, at the election of Secured Party, Debtors shall, upon
Secured Party's demand, deliver to Secured Party cash, or other collateral of a
type satisfactory to Secured Party, having a value, as determined by Secured
Party, equal to the aggregate outstanding Letters of Credit. Any such
collateral and/or any amounts received by Secured Party in payment of the loan
made pursuant to this Section shall be held by Secured Party in a separate
account appropriately designated as a cash collateral account in relation to
this Agreement and the Letters of Credit and retained by Secured Party as
collateral security for the Indebtedness and each of the Letters of Credit.
Such amounts shall not be used by Secured Party to pay any amounts drawn or paid
under or pursuant to any Letter of Credit, but may be applied to reimburse
Secured Party for drawings or payments under or pursuant to Letters of Credit
which Secured Party has paid or, if no such reimbursement is required, to
payment of such other Indebtedness as Secured Party shall determine. At the
option of Secured Party, proceeds of sale of the Collateral may be used to fund
the cash collateral account herein provided for. Any amounts remaining in any
cash collateral account established pursuant to this Section following payment
in full of the Indebtedness, which amounts are not (as determined by Secured
Party) to be applied to reimburse Secured Party for amounts actually paid by
Secured Party in respect of a Letter of Credit, shall be returned to the Debtors
(after deduction of Secured Party's reasonable and necessary expenses).
6.4 Selective Enforcement. In the event Secured Party shall elect to
---------------------
selectively and successively enforce its rights and remedies in respect of any
of the Collateral, pursuant to any applicable agreements or otherwise, such
action shall not be deemed a waiver or discharge of any
-11-
<PAGE>
other right, remedy, lien or encumbrance until such time as Secured Party shall
have been paid in full the Indebtedness.
6.5 Waiver of Default. Secured Party may, by an instrument in writing
-----------------
signed by Secured Party, waive any Event of Default which shall have occurred
and any of the consequences thereof and, in such event, Secured Party and
Debtors shall be restored to their respective former positions, rights and
obligations. Any Event of Default so waived shall, for all purposes of this
Agreement, be deemed to have been cured and not to be continuing, but no such
waiver shall extend to any subsequent or other default or impair any consequence
thereof.
6.6 Deposits; Setoff. Regardless of the adequacy of any other Collateral
----------------
held by Secured Party, any deposits or other sums credited by or due from
Secured Party to Debtors shall at all times constitute collateral security for
the Indebtedness and may be set off against the Indebtedness. The rights
granted in this subsection shall be in addition to the rights of Secured Party
under any statutory banker's lien or common law right of setoff.
6.7 Application of Payments. During the continuance of any Event of
-----------------------
Default, all payments received by Secured Party in respect of the Indebtedness,
whether from Debtors, any guarantor, recoveries upon any portion of the
Collateral or otherwise, may be applied by Secured Party to any liabilities,
obligations or indebtedness included in the Indebtedness selected by Secured
Party in its sole and exclusive discretion.
6.8 Secured Party's Satisfaction of Debtor's Obligations. Upon the
----------------------------------------------------
occurrence of any event which, but for the giving of notice or the passage of
time, would constitute an Event of Default, Secured Party may, but shall not be
obligated to, pay, satisfy or cure any liability or obligation of Debtors
arising out of or relating to this Agreement or the Notes, upon prior notice to
Debtors, and Debtors will from time to time within ten (10) days after a request
made by Secured Party, reimburse Secured Party for all amounts expended,
advanced or incurred by Secured Party in connection with such payment, cure or
satisfaction, together with interest on such sums at the default rate applicable
to the Term Note from time to time.
ARTICLE VII
MISCELLANEOUS
-------------
From and after the date of this Agreement and until the Indebtedness is
paid in full:
7.1 Power of Attorney. Debtors hereby irrevocably constitute and appoint
-----------------
Secured Party, with full power of substitution, as ifs full and lawful attorney-
in-fact with full irrevocable power and authority in the place and stead of
Debtors and in the name of Debtors or in its own name from time to time in
Secured Party's discretion, for the purposes of carrying out this Agreement, to
take any and all appropriate action and to execute any and all documents and
instruments which may be necessary or desirable to accomplish the purposes of
this Agreement and, without limiting the
-12-
<PAGE>
generality of the foregoing, Debtors hereby give Secured Party the power and
right on behalf of Debtors, without notice to or assent by Debtors to do the
following:
(a) At any time when any Event of Default shall have occurred and be
continuing, to take possession of and endorse and collect any checks,
drafts, notes, acceptances, or other instruments for the payment of money
due under or with respect to any Collateral and to file any claim or to
take any other action or proceeding in any court of law or equity or
otherwise deemed appropriate by Secured Party for the purpose of collecting
any and all such monies due or with respect to such Collateral whenever
payable;
(b) Upon the occurrence and during the continuance of any Event of
Default, (i) to direct any party liable for any payment under any of the
Collateral to make payment of any and all monies due or to become due
thereunder directly to Secured Party, or as Secured Party shall direct;
(ii) to ask for or demand, collect, receive payment of and receipt for, any
and all monies, claims and other amounts due or to become due at any time
in respect of or arising out of any Collateral; (iii) to assign and endorse
any invoices, freight or express bills, bills of lading, storage or
warehouse receipts, drafts against debtors, assignments, verifications,
notices and other documents in connection with any of the Collateral; (iv)
to commence and prosecute any suits, actions, or proceedings at law or in
equity in any court of competent jurisdiction to collect the Collateral or
any portion thereof and to enforce any other right in respect of any
Collateral; (v) to defend any suit, action, or proceeding brought against
such Debtors with respect to any Collateral; and (vi) to settle, compromise
or adjust any suit, action or proceeding described in the preceding clause
and, in connection therewith, to give such discharges or releases as
Secured Party may deem appropriate.
All acts of such attorney or designee are hereby ratified and approved and
such attorney or designee shall not be liable for any acts of omission or
commission nor for any error of judgment or mistake of fact or law. This power
of attorney being coupled with an interest is irrevocable while any of the
Indebtedness shall remain unpaid.
7.2 Amendment; Entire Agreement. This Agreement cannot be amended,
---------------------------
modified or supplemented, except by an agreement in writing signed by the party
or parties against whom enforcement of any waiver, change, amendment,
modification or discharge is sought. This Agreement constitutes the entire
agreement of the parties hereto with respect to the matters dealt with herein,
except as expressly indicated to the contrary herein.
7.3 Notices. All notices, requests and demands required or authorized
-------
hereunder shall be given in the manner set forth in Subsection 10.4 of the
Credit Agreement.
7.4 Waivers; Consents. Debtors hereby (i) consent to all extensions and
-----------------
renewals of the Indebtedness, (ii) consent to the addition, release or
substitution of any person other than Debtors liable on any portion of the
Indebtedness, (iii) waive all demands, notices and protests of any action taken
by Secured Party pursuant to this Agreement or in connection with the
Indebtedness, (iv)
-13-
<PAGE>
waive any indulgence by Secured Party, and (v) consent to any substitutions for,
exchanges of or releases of the Collateral or any portion thereof or of any
other property securing the Indebtedness.
7.5 Survival of Representations and Warranties. All representations and
------------------------------------------
warranties of Debtors contained herein or made in writing by Debtors in
connection herewith shall continue and shall survive the execution and delivery
of this Agreement.
7.6 Successors and Assigns. All covenants and agreements in this
----------------------
Agreement made by Debtors and Secured Party shall inure to the benefit of and
shall be binding upon Secured Party and Debtors and their respective successors
and assigns, whether so expressed or not.
7.7 Descriptive Headings. The descriptive headings of the Sections of
--------------------
this Agreement are inserted for convenience only and do not constitute a part of
the Agreement.
7.8 Governing Law. THIS AGREEMENT HAS BEEN DELIVERED TO AND ACCEPTED BY
-------------
SECURED PARTY IN THE STATE OF OKLAHOMA, IS TO BE PERFORMED IN THE STATE OF
OKLAHOMA, SHALL BE DEEMED A CONTRACT MADE UNDER THE LAWS OF THE STATE OF
OKLAHOMA, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS
OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS OF THE STATE OF OKLAHOMA.
7.9 Severability. In the event any one or more of the provisions
------------
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision hereof.
7.10 Indemnity and Expenses. Debtors agree to indemnify Secured Party from
----------------------
and against any and all claims, losses, liabilities or expenses (including
without limitation legal fees and expenses) (i) arising out of or resulting from
this Agreement (including, without limitation, enforcement of this Agreement),
(ii) resulting from any delay in paying excise, sales or other taxes in
connection with the Collateral, or (iii) with respect to or resulting from any
failure to comply with any requirement of law with respect to the Collateral,
except claims, losses or liabilities resulting from Secured Party's gross
negligence or willful misconduct. Debtors will, upon demand, pay to Secured
Party the amount of any and all expenses, including the fees and disbursements
of its counsel and of any experts and agents which Secured Party may reasonably
incur in connection with (I) the execution and delivery of this Agreement, (II)
any proposed amendment or modification of this Agreement, (III) the custody,
preservation, use or operation of, or the sale of, collection from, or other
realization upon any of the Collateral, (IV) the exercise or enforcement of any
of the rights of Secured Party hereunder, or (V) failure of Debtors to perform
or observe any of the provisions hereof.
7.11 Preservation of Collateral. Secured Party's sole duty with respect to
--------------------------
the custody, safekeeping and physical preservation of the Collateral in its
possession under Section 9-207 of the UCC, or otherwise, shall be to deal with
it in the same manner as Secured Party deals with similar property for its own
account. Neither Secured Party nor any of its directors, officers, employees,
or
-14-
<PAGE>
agents shall be liable for failure to demand, collect, or realize upon all or
any part of the Collateral, or for any delay in doing so, or shall be under any
obligation to sell or otherwise dispose of any Collateral upon the request of
Debtors, or otherwise.
7.12 No Waiver by Secured Party. Secured Party shall not by any act
--------------------------
(except by a written instrument pursuant to Subsection 7.2 hereof), delay,
indulgence, omission, or otherwise, be deemed to have waived any right or remedy
hereunder or to have acquiesced in any Event of Default, or in any breach of any
of the terms and conditions hereof. No failure to exercise, nor any delay in
exercising, on the part of Secured Party, any right, power, or privilege
hereunder, shall operate as a waiver thereof. No single or partial exercise of
any right, power or privilege hereunder shall preclude any other or further
exercise thereof, or the exercise of any other right, power or privilege. A
waiver by Secured Party of any right or remedy hereunder on any one occasion
shall not be construed as a bar to any right or remedy which Secured Party would
otherwise have on any future occasion.
7.13 Jurisdiction and Venue. All actions or proceedings with respect to
----------------------
this Agreement may be instituted in any state or federal court sitting in Tulsa
County, Oklahoma, as Secured Party may elect, and by execution and delivery of
this Agreement Debtors irrevocably and unconditionally (i) submit to the
nonexclusive jurisdiction (both subject matter and person) of each such court,
and (ii) waive (a) any objection that Debtors may now or hereafter have to the
laying of venue in any of such courts, and (b) any claim that any action or
proceeding brought in any such court has been brought in an inconvenient forum.
7.14 Financing Statements. A carbon, photographic or other reproduction of
--------------------
this instrument or any financing statement in connection herewith shall be
sufficient as a financing statement for any and all purposes.
IN WITNESS WHEREOF, Debtors have executed and delivered this Agreement to
and in favor of Secured Party as of the date first set forth above.
MATRIX SERVICE COMPANY,
a Delaware corporation
By:
---------------------------------------------------
Name: Michael J. Hall
Title: Secretary
MATRIX SERVICE, INC.,
an Oklahoma corporation
By:
---------------------------------------------------
Name: Michael J. Hall
Title: Secretary
-15-
<PAGE>
MIDWEST INDUSTRIAL CONTRACTORS, INC.,
a Delaware corporation
By:
---------------------------------------------------
Name:
Title: Secretary
MATRIX SERVICE MID-CONTINENT, INC.,
an Oklahoma corporation
By:
---------------------------------------------------
Name: Michael J. Hall
Title: Secretary
PETROTANK EQUIPMENT, INC.,
an Oklahoma corporation
By:
---------------------------------------------------
Name: Michael J. Hall
Title: Secretary
TANK SUPPLY, INC.,
an Oklahoma corporation
By:
---------------------------------------------------
Name: Michael J. Hall
Title: Secretary
SAN LUIS TANK PIPING CONSTRUCTION CO., INC.,
a Delaware corporation
By:
---------------------------------------------------
Name: Michael J. Hall
Title: Secretary
COLT CONSTRUCTION CO., INC.,
a Delaware corporation
By:
---------------------------------------------------
Name: Michael J. Hall
Title: Secretary
MIDWEST INTERNATIONAL, INC.,
-16-
<PAGE>
a Delaware corporation
By:
---------------------------------------------------
Name:
Title: Secretary
BROWN STEEL CONTRACTORS, INC.,
a Georgia corporation
By:
---------------------------------------------------
Name: Michael J. Hall
Title: Secretary
BROWN TANKS, INC.,
a Georgia corporation
By:
---------------------------------------------------
Name: Michael J. Hall
Title: Secretary
AQUA TANKS, INC.,
a Georgia corporation
By:
---------------------------------------------------
Name: Michael J. Hall
Title: Secretary
WEST COAST INDUSTRIAL COATINGS, INC.,
a California corporation
By:
---------------------------------------------------
Name: Michael J. Hall
Title: Secretary
MIDWEST SERVICE COMPANY,
a Delaware corporation
By:
---------------------------------------------------
Name: Michael J. Hall
Title: Secretary
MATRIX SERVICE, INC. (CANADA),
an Ontario corporation
-17-
<PAGE>
By:
---------------------------------------------------
Name: Michael J. Hall
Title: Secretary
MAYFLOWER VAPOR SEAL CORPORATION,
an Oklahoma corporation
By:
---------------------------------------------------
Name: Michael J. Hall
Title: Secretary
GENERAL SERVICE CORPORATION,
a Delaware corporation
By:
---------------------------------------------------
Name: Michael J. Hall
Title: Secretary
MAINSERV-ALLENTECH, INC.,
a Delaware corporation
By:
---------------------------------------------------
Name: Michael J. Hall
Title: Secretary
MAINTENANCE SERVICES, INC.,
a Delaware corporation
By:
---------------------------------------------------
Name: Michael J. Hall
Title: Secretary
-18-
<PAGE>
EXHIBIT 10.21
FIFTH AMENDMENT TO CREDIT AGREEMENT
-----
This Amendment ("Amendment") is made as of the 30/th/ day of April, 1999,
by and between MATRIX SERVICE COMPANY, a Delaware corporation, MATRIX SERVICE,
INC., an Oklahoma corporation, MIDWEST INDUSTRIAL CONTRACTORS, INC., a Delaware
corporation, MATRIX SERVICE MID-CONTINENT, INC., an Oklahoma corporation, SAN
LUIS TANK & PIPING CONSTRUCTION CO., INC., a Delaware corporation, WEST COAST
INDUSTRIAL COATINGS, INC. a California corporation, MATRIX SERVICE, INC.
(CANADA), an Ontario corporation, hereinafter collectively referred to as the
"Borrowers" and individually as "Borrower" and Bank One, Oklahoma, NA formerly
names Liberty Bank and Trust Company of Oklahoma City, N.A., assignee of Liberty
Bank and Trust Company of Tulsa, N.A. (the "Bank").
WHEREAS, the Borrowers and the Bank entered into a Credit Agreement dated
August 30, 1994, as amended by that certain First Amendment to Credit Agreement
dated June 19, 1997 (the "First Amendment"), as amended by that certain Second
Amendment to Credit Agreement dated September 15, 1997, as further amended by
that certain Third Amendment to Credit Agreement dated as of March 1, 1998, and
as further amended by the Fourth Amended and Restated Credit Agreement dated as
of October 22, 1998 (hereinafter collectively referred to as the "Existing
Credit Agreement"), pursuant to which the Bank has established certain credit
facilities in favor of the Borrowers, as more particularly described therein;
and
WHEREAS, Midwest International, Inc., a Delaware corporation, merged into
Midwest Service Company, a Delaware corporation, which further merged into and
is no longer independent but remains a part of Matrix Service, Inc., an Oklahoma
corporation; and
WHEREAS, Maintenance Services, Inc., a Delaware corporation, has merged
into and is no longer independent but remains a part of Matrix Service Mid-
Continent, Inc., and Oklahoma corporation; and
WHEREAS, Colt Construction Company, a Delaware corporation, Mainserve-
Allentech, Inc., a Delaware corporation, Tank Supply, Inc., an Oklahoma
corporation, General Service Corporation, a Delaware corporation, Mayflower
Vapor Seal Corp., an Oklahoma corporation, Petrotank Equipment, Inc., an
Oklahoma corporation, have merged into and are no longer independent but remain
a part of Matrix Service, Inc., an Oklahoma corporation; and
WHEREAS, the parties hereto desire to amend the Existing Credit Agreement
as set forth below:
NOW, THEREFORE, the parties hereto agree as follows:
1. Capitalized terms not defined herein shall have the meaning ascribed
in the Existing Credit Agreement.
2. (a) Section 7.2/ The Section bearing the heading Sale of Assets of the
Existing Credit Agreement is hereby amended and restated to read as follows:
None of the Borrowers will sell, transfer, convey or otherwise dispose of,
whether pursuant to a single transaction or a series of
<PAGE>
transaction: (i) the Collateral, or any portion thereof; or (ii) more than five
percent (5%) in value of its other Properties. Notwithstanding the foregoing:
(i) the Borrowers may sell their Inventory and collect their Accounts in the
ordinary course of business; (ii) the Borrowers may sell Properties not included
in the Collateral if (A) such Properties are no longer used or useful in their
respective business, (B) any such sale, transfer or other disposition is for a
price not less than the fair market value of any such Properties and is made
pursuant to commercially reasonable terms and condition, and (C) such sales,
transfers and dispositions do not create a Default or Event of Default under any
other provision of this Agreement; and (iii) the Borrowers may sell the stock
and other assets of Brown Steel Contractors, Inc. and subsidiaries.
(b) Section 7.9/ The Section bearing the heading Dividends and
Distributions of the Existing Credit Agreement is hereby amended and restated to
read as follows: None of the Borrowers will: (i) declare, make or pay any
dividends on shares of any class of its capital stock, or set apart any sum of
money or any assets for the payment of dividends, or make any other
distribution, by reduction of capital or otherwise, in respect of any class of
its capital stock; (ii) purchase, redeem, retire, or otherwise acquire, either
directly or indirectly, any shares of any class of its capital stock, or set
apart any sum of money or any of its assets therefor, or (iii) make any other
type of payment or distribution of cash, property or assets to or among any of
its shareholders (in their capacities as shareholder) with the exception of the
distribution of the assets of Brown Steel Contractors and its subsidiaries to
the Affiliates or borrowers. Notwithstanding the foregoing, any of the
Borrowers may purchase or redeem shares of its capital stock in each fiscal
year, provided that (A) no Default or Event of Default has occurred and is
continuing as of the date any such purchase or redemption is to be made, and (B)
the making of such purchase or redemption would not create or give rise to a
Default or Event of Default under any other provision of this Agreement
(including, without limitation, the financial covenants set forth in Subsection
7.11 hereof).
(c) Section 7.11.1/ The Section bearing the heading Tangible Net Worth
of the Existing Credit Agreement is hereby amended and restated to read as
follows: The Borrowers will not permit their consolidated tangible net worth
(determined in accordance with GAAP) to be less than an amount equal to the sum
of $42,500,000.00 plus (beginning with the fiscal year ending May 31, 2000)
fifty percent (50%) of the Borrowers' cumulative net income after tax, exclusive
of the Borrowers' losses and/or one hundred percent (100%) of the proceeds of
any public offering of the stock of any of the Borrowers.
3. The Borrowers represent and warrant that (a) the representations and
warranties contained in the Existing Credit Agreement are true and correct in
all material respects as of the date of this Amendment, except to the extent
necessary to reflect the mergers as defined in the preamble. (b) no condition,
act or event which would constitute and Event of Default under the Existing
Credit Agreement exists, and (c) no condition, event, act or omission has
occurred, which, with the giving of notice or passage of time, would constitute
and Event of Default under the Existing Credit Agreement.
-2-
<PAGE>
4. The Borrowers agree to pay all fees and out-of-pocket disbursements
incurred by the Bank in connection with this Amendment, including legal fees
incurred by the Bank in the preparation, consummation, administration and
enforcement of this Amendment.
5. This Amendment shall become effective only after it is fully executed
by the Borrowers and the Bank. Except as amended by this Amendment, the
Existing Credit Agreement shall remain in full force and effect in accordance
with its terms.
6. This Amendment is a modification only and not a novation. Except for
the above-quoted modification(s), the Existing Credit Agreement, any agreement
or security document, and all the terms and conditions thereof, shall be and
remain in full force and effect with the changes herein deemed to be
incorporated therein. This Amendment is to be considered attached to the
Existing Credit Agreement and made a part thereof. This Amendment shall not
release or affect the liability of any guarantor, surety or endorser of the
Existing Credit Agreement or release any owner of collateral securing the
Existing Credit Agreement with the exception of the release of Brown Steel
Contractors, Inc. and its subsidiaries from their liabilities under the Existing
Credit Agreement, the Revolving Credit Facility and the Term Loan Facility. The
validity, priority, and enforceability of the Existing Credit Agreement shall
not be impaired hereby. To the extent that any provision of this Amendment
conflicts with any term or condition set forth in the Existing Credit Agreement,
or any agreement or security document executed in conjunction therewith, the
provisions of this Amendment shall supersede and control. Borrowers acknowledge
that as of the date of this Amendment it has no offsets with respect to all
amounts owed by Borrowers to Bank and Borrowers waive and release all claims
which it may have against Bank arising under the Existing Credit Agreement on or
prior to the date of this Amendment.
7. The Borrowers acknowledge and agree that this Amendment is limited to
the terms outlined above, and shall not be construed as an amendment of any
other terms or provisions of the Existing Credit Agreement; The Borrowers hereby
specifically ratify and affirm the terms and provisions of the Existing Credit
Agreement. Borrowers release Bank from any and all claims which may have
arisen, known or unknown, in connection with the Existing Credit Agreement on or
prior to the date hereof. This Amendment shall not establish a course of
dealing or be construed as evidence of any willingness on the Bank's part to
grant other or future amendments, should any be requested.
IN WITNESS WHEREOF, the parties have entered into this Amendment as of the
day and year first above written.
BORROWERS:
MATRIX SERVICE COMPANY
By:
--------------------
Title:
-----------------
-3-
<PAGE>
MATRIX SERVICE, INC.
By:
--------------------
Title:
-----------------
MIDWEST INDUSTRIAL CONTRACTORS, INC.
By:
--------------------
Title:
-----------------
MATRIX SERVICE MID-CONTINENT, INC.
By:
--------------------
Title:
-----------------
SAN LUIS TANK PIPING CONSTRUCTION CO., INC.
By:
--------------------
Title:
-----------------
WEST COAST INDUSTRIAL COATINGS, INC.
By:
--------------------
Title:
-----------------
MATRIX SERVICE, INC. (CANADA)
By:
--------------------
Title:
-----------------
BANK ONE, OKLAHOMA, NA
By:
--------------------
Title:
-----------------
-4-
<PAGE>
EXHIBIT 10.22
================================================================================
STOCK PURCHASE AGREEMENT
BY AND AMONG
CALDWELL TANKS ALLIANCE, LLC,
CALDWELL TANKS, INC.,
BROWN STEEL CONTRACTORS, INC.,
GEORGIA STEEL ACQUISITION CORP.
AND
MATRIX SERVICE COMPANY
================================================================================
June 9, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
<S> <C>
1. Purchase and Sale of Stock....................................................................................2
2. Purchase Price................................................................................................2
2.1 Purchase Price......................................................................................2
2.2 Adjustments to Purchase Price.......................................................................3
2.3 Payment of Fees and Expenses of Arbitration and Audit Firm.........................................11
2.4 Effect of Adjustments; Interest....................................................................11
2.5 Assumption of Retained Obligations; 338 Election; Distribution of Certain Assets...................12
3. Closing......................................................................................................17
3.1 Closing............................................................................................17
3.2 Closing Date.......................................................................................17
4. Representations and Warranties of Brown, GSAC and Matrix.....................................................18
4.1 Authority; Consents; Enforcement; Noncontravention.................................................18
4.2 Qualification of Brown in Other States.............................................................19
4.3 Capitalization, Stock Ownership and Rights.........................................................20
4.4 Subsidiaries and Investments.......................................................................20
4.5 Financial Statements...............................................................................21
4.6 Absence of Undisclosed Liabilities.................................................................22
4.7 Absence of Certain Events..........................................................................22
4.8 Books of Account, Records and Minute Books.........................................................26
4.9 Certain Payments...................................................................................26
4.10 Compliance With Legal Requirements; Governmental Authorizations...................................27
4.11 Computer Systems; Software........................................................................29
4.12 Condition and Sufficiency of Assets...............................................................31
4.13 Contracts.........................................................................................32
4.14 Employee Benefits.................................................................................34
4.15 Employees and Independent Contractors.............................................................40
4.16 Environmental Matters.............................................................................42
4.17 Insurance.........................................................................................44
4.18 Intellectual Property.............................................................................45
4.19 Inventory.........................................................................................48
4.20 Labor Relations; Compliance.......................................................................49
4.21 Litigation; Compliance With Legal Requirements, Etc...............................................50
4.22 No Agent, Finder or Broker........................................................................51
4.23 Products..........................................................................................51
4.24 Real Property.....................................................................................52
4.25 Similar Business Ownership........................................................................54
4.26 Status of Contracts and Leases....................................................................55
4.27 Studies...........................................................................................56
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
<S> <C> <C>
4.28 Taxes; Tax Returns; Tax Elections.................................................................56
4.29 Title to Properties...............................................................................63
4.30 Contract Price; Billings; Customer Offsets........................................................64
4.31 Bank Accounts.....................................................................................64
4.32 Brown Family Claims; Dissolution of Georgia Steel Fabricators.....................................64
4.33 Completeness of Statement; Effect of Representations and Warranties...............................65
5. Representations and Warranties of Caldwell and Caldwell Tanks................................................66
5.1 Corporate Status...................................................................................66
5.2 Authority; Consents; Enforcement; Noncontravention.................................................66
5.3 No Agent, Finder or Broker.........................................................................67
5.4 Investment Intent..................................................................................67
5.5 Completeness of Statement; Effect of Representations and Warranties................................67
5.6 Litigation.........................................................................................68
6. Covenants of the Parties.....................................................................................68
6.1 No Negotiation.....................................................................................68
6.2 Operations of Brown Pending Closing................................................................69
6.3 Investigation of Brown by Caldwell and Caldwell Tanks..............................................71
6.4 Title Insurance; Surveys...........................................................................72
6.5 Lien and Litigation Searches.......................................................................74
6.6 Transition of Brown................................................................................74
6.7 Further Assurances.................................................................................74
6.8 Actions of the Parties.............................................................................75
6.9 Compliance With Conditions.........................................................................76
6.10 Consents; Actions.................................................................................76
6.11 Accounts Receivable...............................................................................76
6.12 Matrix's Guaranty.................................................................................77
6.13 Certain Employee Matters..........................................................................78
6.14 Books and Records.................................................................................83
6.15 Orion Contract....................................................................................83
6.16 Permits...........................................................................................84
6.17 [Intentionally Omitted]...........................................................................84
6.18 Caldwell Tanks' Guaranty..........................................................................84
7. Conditions To Closing........................................................................................85
7.1 Conditions to Obligations of Caldwell.............................................................85
7.2 Conditions to Obligations of Brown and Matrix......................................................90
8. Termination..................................................................................................92
8.1 Termination of Agreement...........................................................................92
8.2 Effect of Termination..............................................................................94
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Section Page
<S> <C> <C>
9. Deliveries and Actions To Be Taken At The Closing............................................................94
9.1 Deliveries by Brown, GSAC and Matrix...............................................................94
9.2 Deliveries by Caldwell.............................................................................96
9.3 Actions and Deliveries Simultaneous................................................................97
10. Indemnification; Remedies...................................................................................97
10.1 Survival; Right to Indemnification Not Affected by Knowledge......................................97
10.2 Indemnification and Payment of Damages By Matrix, GSAC and Brown..................................97
10.3 Limitation on Matrix's Indemnification............................................................99
10.4 Indemnification By Caldwell.......................................................................99
10.5 Procedure for Indemnification....................................................................100
10.6 No Liability of Brown Parties....................................................................102
11. Arbitration................................................................................................103
11.1 Referral.........................................................................................103
11.2 Demand...........................................................................................103
11.3 Discovery........................................................................................103
11.4 Binding Decision.................................................................................103
12. Miscellaneous Provisions...................................................................................104
12.1 Confidentiality of Agreement.....................................................................104
12.2 Consent to Jurisdiction..........................................................................104
12.3 Construction.....................................................................................105
12.4 Entire Agreement.................................................................................106
12.5 Exhibits and Schedules...........................................................................106
12.6 Expenses.........................................................................................106
12.7 Governing Law....................................................................................106
12.8 Headings.........................................................................................107
12.9 Invalidity of Provisions; Severability...........................................................107
12.10 No Public Announcement..........................................................................107
12.11 No Third Party Beneficiaries....................................................................108
12.12 Notices.........................................................................................108
12.13 Specific Performance............................................................................110
12.14 Successors and Assigns..........................................................................111
12.15 Time of Essence.................................................................................112
12.16 Waiver..........................................................................................112
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
Exhibit Description Section
<S> <C> <C>
A Certain Definitions.........................................................................Recital C
B WIP Contracts............................................................................2.2(a)(3)(B)
B-1 Other Work-in-Process Contracts..........................................................2.2(a)(3)(B)
C Excluded Assets...................................................................................2.5
D Allocation of Purchase Price......................................................................2.5
E Other Agreements.................................................................................4.26
F Orion Contract & June 2, 1999 Memorandum.........................................................6.15
SCHEDULES
Description Schedule
Articles of Incorporation and Bylaws of the Company..........................................................4.1(a)
Qualification as Foreign Corporation............................................................................4.2
Subsidiaries and Investments....................................................................................4.4
Financial Statements............................................................................................4.5
Absence of Undisclosed Liabilities..............................................................................4.6
Absence of Certain Events.......................................................................................4.7
Governmental Authorizations.................................................................................4.10(b)
Contracts......................................................................................................4.13
Employee Benefit Plans......................................................................................4.14(a)
Multi-Employer Plans........................................................................................4.14(d)
Post-Retirement Benefits....................................................................................4.14(e)
Officers and Employees of the Company.......................................................................4.15(a)
Agreements With Employees and Independent Contractors..........................................................4.15
Environmental Laws..........................................................................................4.16(a)
Insurance......................................................................................................4.17
Patents.....................................................................................................4.18(c)
Marks.......................................................................................................4.18(d)
Copyrights..................................................................................................4.18(e)
Royalties...................................................................................................4.18(g)
Employee Agreements.........................................................................................4.18(h)
Proceedings.................................................................................................4.21(a)
Orders......................................................................................................4.21(b)
Product Terms and Conditions................................................................................4.23(a)
Real Property - Owned.......................................................................................4.24(a)
Real Property - Encumbrances.............................................................................4.24(a)(1)
Real Property - Leased......................................................................................4.24(b)
Similar Business Ownership.....................................................................................4.25
Taxes..........................................................................................................4.28
Audited Returns.............................................................................................4.28(b)
Tax Basis, Etc..............................................................................................4.28(c)
Waivers.....................................................................................................4.28(f)
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
Tax Agreements..............................................................................................4.28(g)
Title to Properties............................................................................................4.29
Bank Accounts..................................................................................................4.31
Brown Family Claims............................................................................................4.32
</TABLE>
v
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement is made and entered into as of this 9th day of
June, 1999, by and among Caldwell Tanks Alliance, LLC, a Georgia limited
liability company ("Caldwell"), Caldwell Tanks, Inc., a Kentucky corporation
("Caldwell Tanks"), Brown Steel Contractors, Inc., a Georgia corporation
("Brown"), Georgia Steel Acquisition Corp., an Oklahoma corporation ("GSAC"),
and Matrix Service Company, a Delaware corporation ("Matrix") (collectively, the
"Parties").
Recitals:
A. Matrix owns all of the issued and outstanding capital stock of GSAC, and
GSAC owns all of the issued and outstanding capital stock of Brown.
B. Caldwell desires to purchase from GSAC, and GSAC desires to sell to
Caldwell, for the consideration and upon and subject to the terms, conditions
and covenants set forth in this Agreement, all of the issued and outstanding
capital stock of Brown.
C. Matrix has agreed to become a party to this Agreement, and to make its
representations, warranties, covenants and agreements set forth herein, as an
inducement for and condition to the execution and delivery of this Agreement by
Caldwell and Caldwell Tanks.
D. Caldwell Tanks, the sole member of Caldwell, has agreed to become a party
to this Agreement, and to make its representations, warranties, covenants and
agreements set forth herein, as an inducement for and condition to the execution
and delivery of this Agreement by Matrix, GSAC and Brown.
E. Capitalized terms used in this Agreement shall have the respective
meanings set forth in Exhibit A attached hereto.
---------
<PAGE>
Agreement:
Now, Therefore, in consideration of the premises and for other valuable
consideration, the receipt of which is hereby acknowledged, the Parties hereby
agree as follows:
1. Purchase and Sale of Stock. Upon the terms and subject to the
conditions set forth herein, GSAC agrees to sell, transfer, convey, assign and
deliver to Caldwell at the Closing, and Caldwell agrees to purchase and accept
from GSAC at the Closing, all of GSAC's rights, title and interests under, in
and to all of the issued and outstanding common capital stock, no par value, of
Brown owned of record or beneficially by GSAC (the "Shares"), consisting in the
aggregate of 12,000 Class A common Shares, and 8,000 Class B common Shares, free
and clear of all Encumbrances.
2. Purchase Price.
2.1 Purchase Price. Caldwell shall pay to GSAC at the Closing, for and
in consideration of the sale by GSAC to Caldwell of the Shares, a purchase price
equal to: (a) $6,000,000, subject to adjustment as contemplated in Section 22
(the "Base Price"); plus (b) an amount equal to the lesser of (i) the sum of
---- -------------
the costs (as reflected in Brown's and the Subsidiaries financial books and
records) incurred by Brown and the Subsidiaries (collectively, the "Brown
Parties") to purchase all items of steel plate, pipe, channel and angle
inventory of the Brown Parties on hand as of the Closing at the Brown Parties'
facilities in Newnan, Georgia, and which are unused and not allocated to a
particular WIP Contract (collectively, the "Inventory"), or (ii) the fair market
--
value of all such Inventory as of the Closing, but in either case exclusive of
obsolete Inventory (the "Inventory Price") (the Base Price and the Inventory
Price are hereinafter collectively referred to as the "Purchase Price"). The
Inventory and Inventory Price shall be determined pursuant to the procedures set
forth in Section 22. The Purchase Price shall be paid in immediately available
funds at the Closing, subject to any adjustment in the Base Price and/or the
Inventory Price prior to or following the Closing as contemplated in
Section 2.2.
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<PAGE>
2.2 Adjustments to Purchase Price.
(a) Adjustments to Base Price. The Base Price shall be subject to
adjustment prior to and following the Closing as follows:
(1) The Base Price shall be increased by an amount equal to the
amount (if any) by which (A) the aggregate of all Net Billings by the Brown
Parties pursuant to the WIP Contracts exceeds (B) the sum of (y) the amount
determined by dividing (i) the aggregate of all Completion Costs (exclusive of
--------
liquidated damages, penalties or other similar payments) to be incurred by the
Brown Parties in connection with the WIP Contracts following the Closing by
--
(ii) ninety-five percent (95%), plus (z) the aggregate of all liquidated
damages, penalties or other similar payments included within the definition of
Completion Costs to be incurred by the Brown Parties in connection with the
WIP Contracts following the Closing.
(2) The Base Price shall be decreased by an amount equal to the
amount (if any) by which (A) the aggregate of all Net Billings by the Brown
Parties pursuant to the WIP Contracts is less than (B) the sum of (y) the
amount determined by dividing (i) the aggregate of all Completion Costs
--------
(exclusive of liquidated damages, penalties or other similar payments) to be
incurred by the Brown Parties in connection with the WIP Contracts following
the Closing by (ii) ninety-five percent (95%), plus (z) the aggregate of all
--
liquidated damages, penalties or other similar payments included within the
definition of Completion Costs to be incurred by the Brown Parties in
connection with the WIP Contracts following the Closing.
(3) As used in this Agreement, the following terms shall have the
meanings set forth below:
(A) "Net Billings" shall mean the amount by which: (i) the aggregate
consideration payable by the relevant customer(s) to the Brown Parties (or any
of them) in accordance with a particular WIP Contract (whether paid before the
Closing or payable thereafter, and whether payable in cash or in any other
form of consideration (which other form of consideration shall be valued at
its fair market value on the date paid)), assuming performance
-3-
<PAGE>
owing by the relevant Brown Party(s) under that WIP Contract prior to and
following the Closing has been and will be completed in accordance with its
terms (the "Contract Price"); exceeds (ii) the aggregate sum of all amounts
-------
that have actually been billed for collection by the Brown Parties (or any of
them) to the relevant customer(s) as of and prior to the Closing under that
WIP Contract, whether or not collected prior to the Closing, including without
limitation, all retainage that has been included in any invoice delivered by
the Brown Parties to any customer that remains unpaid as of the Closing Date
(collectively, the "Billings"). The Parties' agreement as to the Contract
Price and Billings for each WIP Contract shall be reflected on the "Revised
Exhibit B" contemplated in Subpart (C) below, and shall not be subject to
adjustment or challenge by any Party following the Closing.
(B) "WIP Contracts" shall mean the contracts, agreements and work
orders entered into by the Brown Parties (or any of them) and identified on
Exhibit B attached hereto (but only to the extent such contract is identified
---------
under the "Percentage Completed" (Pct. Cmpt.) column on Exhibit B as not being
---------
100% completed as of the date hereof, and then only to the extent performance
by the relevant Brown Party(s) under the same (exclusive of warranty or other
similar undertakings) shall not have been fully completed by such Brown
Party(s) prior to the Closing), together with such other customer contracts,
agreements and work orders as shall be added to Exhibit B by mutual written
---------
agreement of the Parties prior to the Closing. "Other Work-in-Process
Contracts" shall mean the contracts and agreements entered into by the Brown
Parties (or any of them) and identified on Exhibit B-1 attached hereto, and
-----------
any bids identified on Exhibit B-1 where any of the Brown Parties have been
-----------
notified they are the low bidder.
(C) "Completion Costs" shall mean the amounts determined by the
mutual agreement of the Parties prior to the Closing (subject to adjustment
following the Closing as contemplated below), for each WIP Contract, as being
the sum of all direct and indirect costs and expenses that will be incurred by
the Brown Parties (or any of them) following the Closing in connection with
their performance and completion of all remaining obligations under that WIP
Contract in accordance with its terms (but exclusive of all Retained
Obligations in respect of that WIP Contract that are assumed and discharged by
GSAC as contemplated in Section 25), including without limitation, all costs
and expenses for (1) labor (whether employee or
-4-
<PAGE>
contractor) and related benefits, (2) inventories, materials, supplies, tools
and spare parts, (3) site procurement and site preparation, (4) permitting,
(5) performance and surety bonds (and replacements therefor), (6)
subcontractor compensation and expenses which are properly chargeable to any
Brown Party in accordance with the relevant subcontracts, and (7) any
liquidated damages, penalties or other similar payments that may become due
and owing by any Brown Party following the Closing, but excluding all
engineering, marketing, administrative and interest costs and expenses. The
Parties' determination as to the Completion Costs shall be set forth under the
heading "Estimated Cost to be Incurred" on a revised version of Exhibit B
---------
prior to the Closing, which shall be separately dated and executed by the
Parties to signify their agreement to the same ("Revised Exhibit B"). The
---------
amounts set forth under that heading on Exhibit B attached hereto as of the
---------
date hereof shall have no relevance for purposes of this Agreement. The
Parties acknowledge that the Completion Costs for each WIP Contract set forth
on Revised Exhibit B as of the Closing will reflect their agreement as to
---------
those costs as of a date prior to the Closing Date, which shall be specified
on the face of Revised Exhibit B (the "Preliminary Determination Date").
---------
Revised Exhibit B shall also set forth, on a separate spreadsheet labeled
---------
"Estimated Closing Date Numbers," the Parties' best estimates of those
Completion Costs as of the Closing, based upon the anticipated work to be
performed by the relevant Brown Party(s) during the period from the
Preliminary Determination Date through the Closing. The adjustment to the Base
Price paid at the Closing shall be determined based upon this best estimate of
the Completion Costs as of the Closing. However, the Parties acknowledge that
the estimates of the Completion Costs as of the Closing may not, by reason of
the timing for the Closing and the lack of available information prior
thereto, reflect the actual work performed by the relevant Brown Party(s), and
the actual costs of the goods, materials and services utilized and delivered
by the relevant Brown Party(s), between the Preliminary Determination Date and
the Closing. In light of the foregoing, Caldwell and GSAC agree to meet with
each other promptly following the Closing to (x) determine the percentage of
additional work completed by the relevant Brown Party(s), and the actual costs
incurred by that Brown Party, during the period between the Preliminary
Determination Date and the Closing, and (y) correspondingly adjust the
Completion Costs for the relevant WIP Contracts as of the Closing based upon
those determinations. In the event Caldwell and GSAC agree in writing on an
appropriate adjustment to the Completion Costs based upon the determination
contemplated above, the Completion
-5-
<PAGE>
Costs as so adjusted shall be deemed to be final and binding on the Parties.
In the event Caldwell and GSAC are not able to agree in writing on that
adjustment within fourteen (14) days after the Closing, either of those
Parties shall be entitled to refer the matter for resolution pursuant to the
arbitration procedures set forth in Section 11 of this Agreement; provided
that the sole determination made in that proceeding shall be the amount of the
adjustment in the Parties' estimate of the Completion Costs as of the Closing
that is required based upon the actual work performed and costs incurred by
the relevant Brown Party(s) in respect of the WIP Contracts from the
Preliminary Determination Date through the Closing. To the extent the
adjustment in the Completion Costs determined by agreement of the Parties (or
by the arbitration procedures described above) would have resulted in an
increase or decrease in the Base Price paid by Caldwell at the Closing had the
amount of that adjustment been known to the Parties prior to the Closing,
Caldwell agrees to pay to GSAC (in the case of an increase in the Base Price),
or GSAC agrees to reimburse Caldwell (in the case of a decrease in the Base
Price) an amount equal to the amount of that increase or decrease (as
applicable) within ten (10) days after the date on which GSAC and Caldwell
agree in writing on the adjustment or, as applicable, after the date on which
that adjustment is finally determined pursuant to Section 11. Any such payment
by Caldwell or GSAC shall be deemed to be an adjustment in the Base Price.
Following any adjustment as contemplated above, the Completion Costs shall not
be subject to further adjustment following the Closing based upon the actual
completion costs incurred by the Brown Parties in connection with those WIP
Contracts. In the event the Parties are unable to agree prior to the Closing
(pursuant to Revised Exhibit B) on the Completion Costs for a particular WIP
---------
Contract as of a Preliminary Determination Date, or on their best estimate of
those Completion Costs as of the Closing (each a "Disputed Contract"), then
Caldwell (for itself and as agent for Caldwell Tanks) shall be entitled, in
its discretion, to elect (such election to be made as soon as practicable
after Caldwell has determined the Parties are unable to so agree) to terminate
this Agreement upon ten (10) days prior written notice delivered to Matrix
(for itself and as agent for GSAC and Brown) at any time prior to the Closing,
and without further obligation on the part of any Party other than for any
breach or default by it occurring under this Agreement prior to such
termination. Notwithstanding the preceding sentence, any notice of termination
delivered by Caldwell to Matrix as contemplated therein shall be rendered of
no further force and effect, and shall be deemed to be withdrawn by Caldwell,
in the event Matrix
-6-
<PAGE>
shall deliver to Caldwell, during the above-described 10-day notice period, a
written election by Matrix to continue this Agreement in force and effect, and
to consummate the transactions contemplated herein irrespective of those
Disputed Contracts (but subject to the conditions precedent set forth in
Section 7). In the event Caldwell shall elect not to terminate this Agreement
as contemplated above, or Matrix shall elect to continue this Agreement as
contemplated in the immediately preceding sentence, and in the event the
Closing shall thereafter occur, then the Net Billings and Completion Costs
relating to the Disputed Contract(s) shall not be used in calculating any
adjustment to the Base Price pursuant to Section 2.21 or 2.22, and those
amounts shall be omitted from Revised Exhibit B. Thereafter the Brown Party
---------
which is a party thereto shall perform and discharge each Disputed Contract in
accordance with its terms (other than the obligations thereunder that are
Retained Obligations), and shall incur only customary and reasonable costs and
expenses in doing so, considering the nature of the project and the
location(s) in which the Disputed Contracts are being performed. Within 120
days following the completion of performance by the relevant Brown Party under
each Disputed Contract (exclusive of warranty obligations thereunder),
Caldwell shall be entitled, upon written election delivered to GSAC during
that 120-day period, to refer that Disputed Contract to arbitration pursuant
to Section 11, for the sole limited purposes of determining the Net Billings
by the relevant Brown Party(s) as of the Closing for that Disputed Contract
(absent the written agreement of the Parties regarding those Net Billings),
the aggregate direct and indirect costs and expenses incurred by the relevant
Brown Party(s) following the Closing in order to complete its performance
under that Disputed Contract in accordance with its terms, and whether and to
the extent those costs and expenses were customary and reasonable under the
circumstances. Upon a determination of the amounts described above pursuant to
Section 11, or upon any written agreement of the Parties as to those amounts
in lieu of arbitration, then the Base Price shall be further adjusted by the
difference between the Net Billings relating to that Disputed Contract and the
amount determined by dividing the customary and reasonable costs and expenses
--------
of completion of that Disputed Contract incurred by the relevant Brown
Party(s) by ninety-five percent (95%),with a corresponding payment by Caldwell
--
(in the case of a Base Price increase) or by GSAC (in the case of a Base Price
decrease) becoming immediately due and payable to the other of those Parties
within thirty (30) days after their written agreement or the final arbitration
decision, as applicable.
-7-
<PAGE>
(4) Notwithstanding anything contained in this Agreement to the
contrary, in the event the adjustment to the Base Price determined in
accordance with this Section 22 (exclusive of any adjustments relating to
Disputed Contracts) would result in an increase or decrease in the Base Price
of greater than $200,000, then Caldwell (in the case of an increase in the
Base Price) or GSAC (in the case of a decrease in the Base Price) shall be
entitled, at any time prior to the Closing (but not thereafter), to terminate
this Agreement upon written notice delivered to the other of those parties and
to Matrix and Brown, upon which termination the Parties hereto shall be
relieved of any further obligation or liability to the other Parties other
than for their breach or default under this Agreement occurring prior to such
termination.
(5) Notwithstanding anything contained in this Agreement to the
contrary, in the event there are one or more Disputed Contracts as
contemplated above, and in the event: (A) the cumulative difference between
-------
(y) the Completion Costs for all such Disputed Contracts, collectively,
believed by Caldwell to be correct as of the Preliminary Determination Date
specified in Revised Exhibit B, and (z) such Completion Costs believed by GSAC
--------- ---
to be correct as of that date, exceeds $100,000; or (B) the cumulative
difference between (y) Caldwell's best estimate of all Completion Costs for
-------
all Disputed Contracts, collectively, as of the Closing, and (z) GSAC's best
---
estimate of such Completion Costs as of the Closing, exceeds $100,000; then
either Caldwell or GSAC shall be entitled, at any time prior to the Closing
(but not thereafter), to terminate this Agreement upon written notice
delivered to the other of those Parties and to Caldwell Tanks, or Matrix and
Brown (as applicable), upon which termination the Parties hereto shall be
relieved of any further obligation or liability to the other Parties other
than for their breach or default under this Agreement occurring prior to such
termination.
(b) Determination of Inventory Price; Adjustment. A physical
inventory of all Inventory of the Brown Parties as of a mutually agreeable date
prior to the Closing Date shall be jointly conducted and completed by the
Parties prior to the Closing, at the joint expense of Caldwell and GSAC. Based
on that physical inventory, an estimate of the Inventory Price shall be assigned
by mutual agreement of GSAC and Caldwell prior to the Closing, which assigned
price (the "Assigned Inventory Price") shall be used for purposes of the
Purchase Price to be paid at the Closing. Notwithstanding the foregoing, in the
event, following the Closing, either GSAC or
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<PAGE>
Caldwell shall believe that the quantity of any one or more items of Inventory
on hand as of the Closing differed in any material respect from the quantity
that was on hand as of the date of their physical inventory prior to the Closing
(and that formed the basis for the Inventory Price paid at the Closing), or
shall believe that the Assigned Inventory Price was otherwise inaccurate in any
material respect, and in the event GSAC and Caldwell are not thereafter able to
agree in writing on an appropriate adjustment to the Inventory Price, then
either of those Parties may, by written notice delivered to the other of those
Parties not later than forty-five (45) days after the Closing, elect to cause an
independent, nationally recognized, certified public accounting firm reasonably
satisfactory to the other of those Parties (an "Audit Firm") to conduct an audit
of the quantity of Inventory of the Brown Parties as of the Closing and/or of
the costs incurred by the Brown Parties (as reflected in their financial books
and records) to purchase all items of Inventory (exclusive of obsolete items) on
hand as of the Closing, and to conduct an appraisal of the fair market value of
that Inventory as of the Closing (as applicable). The Audit Firm shall be free
to retain such appraisers and other consultants as it shall deem appropriate for
that audit and/or appraisal. Upon any such election, each Party shall reasonably
cooperate with the others and the Audit Firm (and its consultants) to facilitate
that audit and appraisal at the earliest practicable time, including without
limitation, by providing the Audit Firm (and its consultants) with reasonable
access to all books and records of the Brown Parties as shall be necessary for
the audit and appraisal. In the event the audit and appraisal shall determine
that the Assigned Inventory Price did not accurately reflect the actual
Inventory Price that should have been assigned (whether due to a discrepancy in
the quantity of Inventory assumed to exist as of the Closing or in the cost or
fair market value thereof), the Audit Firm shall notify GSAC and Caldwell of
that conclusion and of the amount by which it believes the Assigned Inventory
Price differed from the actual Inventory Price that should have been paid. In
the event the audit and appraisal shall determine that the Assigned Inventory
Price was correct, the Audit Firm shall likewise notify GSAC and Caldwell of
that conclusion. The determination of the Audit Firm shall be final and binding
on the Parties. In the event such a conclusion of inaccuracy is reached by the
Audit Firm, then Caldwell or GSAC (as the case may be) agrees to pay the other
Party, within 30 days after the Audit Firm's final determination, an amount
equal to the amount by which the Assigned Inventory Price was less than (in the
case of a payment by Caldwell) or was greater than (in the case of a payment by
GSAC) the actual Inventory Price that should have been paid. Any such payment
shall be deemed to be an increase or decrease (as the case may be) in the
Inventory Price.
-9-
<PAGE>
(c) Other Work-in-Process Contracts. Notwithstanding that the Other
Work-in-Process Contracts shall not constitute WIP Contracts and shall not be
the basis for an adjustment to the Base Price pursuant to Section 22, the
Parties agree that the Other Work-in-Process Contracts may be the basis for an
adjustment to the Base Price following the Closing under the following
circumstances: In the event any of the Brown Parties have actually incurred,
prior to the Closing, costs or expenses in connection with their performance of
any obligations under a particular Other Work-in-Process Contract and in
accordance with the provisions thereof (exclusive of allocations of general,
administrative and other overhead expenses), and in the event the amount of such
costs and expenses exceeds the aggregate sum of all amounts that have actually
been collected by that Brown Party as of and prior to the Closing under that
contract, then Caldwell shall pay to GSAC, within thirty (30) days after the
Closing Date and as an adjustment to the Base Price, an amount in immediately
available funds equal to the actual costs and expenses so incurred by that Brown
Party. To the extent the relevant Brown Party has actually billed for
collection to the relevant customer(s) such costs and expenses prior to or as of
the Closing, the account receivable represented by that billing shall not
constitute an Excluded Asset, and shall continue to be the asset and property of
that Brown Party following the Closing, notwithstanding the provisions of
Section 2.5(d) below. In the event GSAC or Matrix shall, at any time following
the Closing, receive from the relevant customer(s) any amounts on account of the
account receivable described above, GSAC or Matrix (as applicable) shall
promptly notify Caldwell Tanks of the same, and shall promptly remit and pay all
such amounts to Caldwell Tanks for the account of the relevant Brown Party.
Within fifteen (15) days after the Closing Date, GSAC shall provide to Caldwell
a Certificate duly executed by an officer of GSAC and certifying as to the costs
and expenses actually incurred, and the billings actually made, by each Brown
Party through the Closing under each Other Work-in-Process Contract (separated
by contract). In the event Caldwell shall dispute any amount(s) set forth in
that Certificate, the dispute may be referred by either GSAC or Caldwell for
resolution pursuant to Section 11, if it cannot otherwise be resolved by the
mutual agreement of those Parties. In the event of such a dispute, the relevant
Party shall pay to the other all amounts owing under this Section 22 that are
not in dispute as contemplated above.
2.3 Payment of Fees and Expenses of Arbitration and Audit Firm. In the
event either Caldwell or GSAC shall submit the Inventory Price to an Audit Firm
for determination as provided
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<PAGE>
in Section 2.2(b), Caldwell and GSAC shall each be responsible for their own
costs and expenses and for one-half of all fees and expenses of the Audit Firm
and its consultants. In the event either Caldwell or GSAC shall submit the
resolution of Completion Costs, of the matters relating to the Disputed
Contracts, or of the matters referred to in Section 2.2(c), to arbitration as
provided in Section 2.2(a)3(c) or 2.2(c), Caldwell and GSAC shall each be
responsible for their own costs and expenses and for one-half of the expenses of
the arbitrator(s).
2.4 Effect of Adjustments; Interest. Any adjustments to the Base Price
or the Inventory Price pursuant to Section 2.2(a), 2.2(b) or 2.2(c) above shall
be deemed to be an adjustment to the Purchase Price for all purposes. Any
amounts payable by Caldwell or GSAC to the other of those Parties as an
adjustment to the Purchase Price shall bear interest at a rate per annum of ten
percent (10%) from the Closing Date until paid to the relevant Party, all of
which interest amounts shall become immediately due and payable together with
the adjustment amount(s) on which they have accrued.
2.5 Assumption of Retained Obligations; 338 Election; Distribution of
Certain Assets. The Parties acknowledge and agree that Caldwell is willing to
acquire the Shares of Brown from GSAC, in lieu of acquiring all of the assets
and properties of Brown directly from it, on the condition (a) that Caldwell
will be entitled to make an election with respect to Brown and each of its
Subsidiaries, pursuant to Section 338 of the Internal Revenue Code of 1986, as
amended (the "Code") (other than pursuant to Section 338(h)(10)), to treat that
acquisition of Shares as a sale and purchase by Brown and each of the
Subsidiaries of all of their respective assets and properties for tax purposes
(collectively, the "338 Election"), (b) that GSAC agree to assume and undertake
to pay and discharge any and all Taxes that may be assessed against Brown or the
Subsidiaries, or Caldwell, by reason of that 338 Election or the deemed sales of
assets resulting therefrom (collectively, "338 Taxes"), (c) that GSAC agree to
assume and undertake to pay, perform and discharge all "Retained Obligations"
(as defined below), (d) that GSAC agree to contribute (and to cause its relevant
Affiliates to assign to GSAC so that it may contribute) to Brown or its
Subsidiaries, as applicable, prior to the Closing and as a contribution to
capital, any and all "Contributed Obligations" (as defined below), and (e) that
GSAC agree to cause each Brown Party, prior to the Closing, to distribute as a
dividend to GSAC all Accounts Receivable, prepaid assets and tax related assets
of
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<PAGE>
the Brown Parties set forth or identified on Exhibit C attached hereto or
---------
generated in the Ordinary Course of Business of the Brown Parties from the date
hereof through the Closing, and all cash on hand or in bank accounts of the
Brown Parties as of the Closing (such Accounts Receivable, prepaid assets, tax
related assets, and cash being hereinafter collectively referred to as the
"Excluded Assets"). In light of the foregoing, the Parties agree as follows:
(a) 338 Election. At the Closing, Caldwell shall elect, pursuant to
Section 338 of the Code (but not Section 338(h)(10)) with respect to Brown and
each of its Subsidiaries, to cause the purchase and sale of the Shares hereunder
to be treated for Tax purposes as a sale and purchase by Brown and such
Subsidiaries of all of their respective assets and properties, tangible and
intangible (other than the Excluded Assets which shall have been conveyed and
dividended to GSAC prior to the Closing and the time of the 338 Election),
thereby resulting in a "step up" of Brown's and such Subsidiaries' basis for Tax
purposes in those assets and properties following the Closing. The Parties each
agree to execute, deliver and file all such elections and other documents, and
to take all such other actions, whether at or after the Closing, to effect the
338 Election. The Parties further agree that, for purposes of that election,
the Purchase Price shall be deemed to be allocated among Brown's and the
Subsidiaries' assets and properties in the manner to be set forth on Exhibit D
---------
to this Agreement, which shall be mutually agreed upon by the Parties and
attached to this Agreement prior to the Closing.
(b) Retained Obligations. At or prior to the Closing, GSAC, Brown
and each of the Subsidiaries shall each execute and deliver to the others and to
Caldwell an Assignment & Assumption Agreement in a form reasonably satisfactory
to the Parties (the "Assignment & Assumption Agreement"), pursuant to which
Brown and the Subsidiaries shall convey, assign and transfer to GSAC, and GSAC
shall assume and undertake to pay, perform and discharge, any and all Retained
Obligations (as defined below) effective as of the Closing. As used in this
Agreement, the "Retained Obligations" shall mean any and all debts, obligations
and liabilities of any nature of Brown or any Subsidiary (or of any predecessor
in interest of them) on and as of the Closing on the Closing Date, whether
fixed, absolute, accrued, contingent or otherwise, whether known or unknown,
whether arising out of the business, assets, properties, employees or operations
of the Brown Parties or otherwise, whether or not the subject of a
representation or warranty set forth in
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<PAGE>
Section 4, and whether owing to GSAC,Matrix or any of its other Affiliates
(other than Contributed Obligations, which are being released and discharged as
of the Closing), to any Governmental Body, to any employee of any Brown Party,
or to any other Person; but excluding from such Retained Obligations (i) any and
--------------------------------------------
all executory payment and performance obligations which first arise or accrue
following the Closing under the WIP Contracts, under the agreements identified
on Exhibit E, under the bid proposalsBrown identified on Exhibit E that have
--------- ---------
been accepted by customers but which are not yet the subject of definitive
contracts, under any contracts or agreements that may be entered into prior to
the Closing by Brown arising out of any of the bid proposals referred to in the
immediately preceding clause, or under such other agreements or bid proposals of
Brown as shall be added to Exhibit B or E by mutual agreement of the Parties
--------------
prior to the Closing (collectively, the "Other Agreements") (other than warranty
or other similar obligations, or breach or default obligations, in either case
arising out of work performed or not performed, or materials, goods or services
delivered or not delivered, by any Brown Party prior to the Closing, all of
which shall be Retained Obligations); (ii) any and all obligations of Brown to
Matrix or GSAC arising under this Agreement which relate to periods after the
Closing and are to be performed after the Closing Date; and (iii) any and all
obligations that are expressly referred to in Clauses (A) through (L) below as
Excluded Obligations (the obligations described in (i), (ii) and (iii) above
being hereinafter collectively referred to as the "Excluded Obligations"). The
Retained Obligations being assumed and undertaken by GSAC shall include, without
limitation, any claims, demands, actions, causes of action, Proceedings,
liabilities, damages, fines, penalties, costs and expenses previously incurred
or accrued or now or hereafter incurred or accrued by or against Brown, any
Subsidiary, Matrix, GSAC, Caldwell, any Governmental Body or any other Person,
resulting from, arising out of or relating to: (A) any contract, agreement,
arrangement or commitment to which any Brown Party is a party or by which any of
its assets or properties are bound or subject to, in each case, as of the
Closing, other than the Excluded Obligations; (B) any warranties (whether
express or implied), guarantees or other similar commitments made by any Brown
Party to any other Person prior to the Closing (other than the warranties
expressly made by a Brown Party in the WIP Contracts and relating to the
services to be performed and goods and materials to be delivered by that Brown
Party thereunder following the Closing, all of which shall constitute Excluded
Obligations), regardless of whether the relevant warranty or guaranty claims are
asserted following the Closing; (C) any indebtedness of the Brown Parties for
borrowed money to any Person as of the Closing; (D) any Encumbrances on or
affecting
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<PAGE>
any of the assets or properties of any Brown Party prior to the Closing (other
than the Permitted Encumbrances referred to in clauses (i), (v), (vi) and (vii)
of the definition of Permitted Encumbrances in Exhibit A, which shall constitute
---------
Excluded Obligations; provided, that such an inclusion of a Permitted
Encumbrance as an Excluded Obligation shall not relieve GSAC of its obligation
to pay, perform, satisfy and discharge in full all debts, obligations and
liabilities which are secured by such Permitted Encumbrances, to the extent that
such debts, obligations or liabilities themselves constitute Retained
Obligations), all of which GSAC and Matrix agree, shall be fully released prior
to the Closing at no cost or expense to the Brown Parties, Caldwell or Caldwell
Tanks; (E) except for the debts, obligations and liabilities specifically
retained by or allocated to Brown, Caldwell or Caldwell Tanks pursuant to
Section 6.13 (all of which shall be deemed to be Excluded Obligations), the
employment of any of the Brown Parties' employees, officers or other agents at
any time prior to the Closing, any injuries to such employees, officers or other
agents incurred at any time prior to the Closing, any compensation or other
benefits accruing to the account of such employees, officers or other agents
under any Benefit Plans prior to the Closing (whether or not vested prior to the
Closing), or accruing to their account following the Closing but based on their
service to any Brown Party or their Affiliate prior to the Closing, any other
acts, omissions, state of facts or circumstances occurring or existing prior to
the Closing and relating to any "Benefit Plans" (as defined in Section 4.14) of
the Brown Parties or in which they are or were a participant, and any other
obligations or liabilities to or relating to such Benefit Plans as of the
Closing or arising following the Closing and relating to the period prior to the
Closing; (F) any of the matters identified on any disclosure Schedules delivered
by Brown, Matrix or GSAC to Caldwell or Caldwell Tanks and attached to or made a
part of this Agreement, or on any supplemental or amended disclosure Schedules
delivered by them to Caldwell or Caldwell Tanks following the date hereof and
prior to the Closing, in either case except to the extent such matters
constitute Excluded Obligations; (G) any debts, obligations or liabilities of
the Brown Parties set forth or reflected on the "Acquisition Balance Sheet" or
the "Interim Balance Sheet" (each as defined in Section 4.5) (except to the
extent the same are Excluded Obligations); (H) any of the Excluded Assets; (I)
any failure by any Brown Party or any of its assets or properties to comply with
any Environmental Laws as of or at any time prior to the Closing, and any
Environmental, Health and Safety Liabilities of or relating to any Brown Party
or any of its assets or properties as of or at any time prior to the Closing;
(J) any obligation or liability to any surety, guarantor or other lender
(including without limitation, any reimbursement obligation)
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on account of or by reason of any payment or distribution of funds to any
customer of any Brown Party or other Person under any payment or performance
bond or other similar surety commitment, resulting from or arising out of any
breach of performance or failure or delay in performance by any Brown Party
occurring prior to the Closing under any contract, agreement, arrangement or
commitment to which such Brown Party is or was a Party, whether or not such
payment or distribution of funds occurs prior to the Closing; (K) any 338 Taxes;
and (L) the termination by any Brown Party of any of their employees that are
identified by Caldwell Tanks as employees to whom offers of employment will not
be made following the Closing, as contemplated in Section 613, or any failure or
refusal by any Brown Party or Caldwell to re-hire or re-employ any of those
terminated employees following the Closing. Notwithstanding the foregoing, the
Retained Obligations shall not include the representations and warranties
contained in Sections 4.11, 4.12, 4.18, 4.19, 4.24(a) and 4.29, and Caldwell and
Caldwell Tanks shall look solely to the provisions of Section 10.2(a) of this
Agreement for indemnification by Matrix with respect thereto. Except as
otherwise provided in Section 6.13, prior to any dividend of the Excluded Assets
as contemplated in (d), below, GSAC agrees to cause Brown to fully fund and
contribute to each relevant Benefit Plan all matching contributions and other
funding requirements normally funded by Matrix, GSAC, Brown or any Subsidiary,
and required to fund all benefits to which the employees of the Brown Parties
have or shall become vested or otherwise entitled by reason of their service for
the relevant Brown Party prior to the Closing, or otherwise by reason of their
own contributions to such Benefit Plans prior to the Closing.
(c) Contribution of Indebtedness; Release. Prior to the Closing,
GSAC agrees to (A) cause all of its Affiliates (other than the Brown Parties) to
assign and transfer to GSAC, free and clear of all Encumbrances, any and all
accounts receivable, notes receivable and other forms or kinds of indebtedness
of any of Brown Parties to such Affiliates (whether or not in writing) and all
of their respective rights therein, and (B) assign and transfer to Brown, as an
additional contribution to capital (and not as a relinquishment or cancellation
of indebtedness of a kind that could give rise to cancellation of indebtedness
or other similar income (or related Tax liability) attributable to the Brown
Parties), all such accounts receivable, notes receivable and other forms or
kinds of indebtedness, together with any and all other accounts receivable,
notes receivable and other forms or kind of indebtedness of the Brown Parties
(or any of them) to GSAC as of the Closing
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(collectively, the "Contributed Obligations"). Except for encumbrances under the
Bank Agreement (which shall be released by Matrix and GSAC, at their expense,
prior to the Closing), GSAC and Matrix jointly and severally represent and
warrant to Caldwell and Caldwell Tanks that neither of GSAC or Matrix has, nor
have they caused or permitted any of their Affiliates to, assign or transfer to
any other Person at any time prior to the date hereof, any of their respective
rights or interests in or to any such accounts receivable, notes receivable or
other forms or kinds of indebtedness of the Brown Parties to them (or any of
them), and Matrix and GSAC each agrees that it shall not, and shall not cause or
permit any of its Affiliates to, so assign or transfer any of those rights or
interests prior to the Closing, other than to GSAC and Brown as contemplated
above. At the Closing, GSAC agrees to deliver to Caldwell written evidence
reasonably satisfactory to Caldwell that the foregoing assignments, transfers
and contributions to capital have been made prior to the Closing, and further
agrees, together with Matrix, to execute and deliver to each Brown Party and
Caldwell a General Release of Claims in a form reasonably satisfactory to the
Parties, releasing the Brown Parties and their successors and assigns from any
and all claims, obligations and the like owing to Matrix, GSAC and their
successors and assigns (the "Release of Claims").
(d) Assignment of Excluded Assets. Prior to the Closing, Brown and,
as applicable, each Subsidiary shall execute and deliver to GSAC a Bill of Sale
and Assignment in a form reasonably satisfactory to the Parties (the "Bill of
Sale"), pursuant to which the Brown Parties will assign and transfer to GSAC
(directly or indirectly through Brown) as a dividend, for no additional
consideration, all of their Excluded Assets effective as of a time immediately
prior to the Closing and the making of the 338 Election.
3. Closing.
3.1 Closing. The closing of the transactions contemplated in this
Agreement ("Closing") shall take place at the offices of Greenebaum Doll &
McDonald PLLC, 3300 National City Tower, Louisville, Kentucky 40202, at 10:00
A.M., local time.
3.2 Closing Date. The Closing shall occur on May 28, 1999 if all of
the conditions set forth in Section 7 have been fulfilled by such date. If all
of such conditions have not been fulfilled
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by such date, and subject to the termination rights provided for in Section 8.1,
then the Closing shall take place (a) on such other date which is two business
days after the Party obligated to fulfill such conditions shall have notified
the other Parties that the last of such conditions has been satisfied or waived
or (b) on such other date as the Parties may agree, provided that the Closing
shall in no event occur prior to the earlier of (i) the expiration of the
statutory waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act") (or such later date on which any extended
waiting period expires) or (ii) receipt of early termination of such statutory
waiting period from the Federal Trade Commission or the Antitrust Division of
the Department of Justice thereunder (the "Closing Date").
4. Representations and Warranties of Brown, GSAC and Matrix. Brown,
GSAC and Matrix, jointly and severally, hereby represent and warrant to Caldwell
and Caldwell Tanks as follows:
4.1 Authority; Consents; Enforcement; Noncontravention.
(a) Authority of Brown, GSAC and Matrix; Binding Effect. This
Agreement has been duly executed and delivered by Brown, GSAC and Matrix and
constitutes, and each and every agreement and instrument executed by Brown, GSAC
and Matrix in connection herewith, including without limitation, the Lost
Records Affidavit contemplated in Section 7.1 and the Environmental Work Plan
contemplated in Section 7.1 (collectively, the "Ancillary Documents") will
constitute, the legal, valid and binding obligation of Brown, GSAC and Matrix,
enforceable against them in accordance with their respective terms. Brown, GSAC
and Matrix have the absolute and unrestricted right, power, authority and
capacity, corporate or otherwise, to execute and deliver this Agreement and the
Ancillary Documents, and to perform their respective obligations under this
Agreement and the Ancillary Documents. Brown is a corporation duly organized,
validly existing and in good standing under the laws of the State of Georgia.
Matrix is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. GSAC is a corporation duly organized,
validly existing and in good standing under the laws of the State of Oklahoma.
Neither Brown, GSAC nor Matrix needs to give any notice to, make any filing
with, or obtain any authorization, declaration, consent or approval of any
Governmental Body in order to consummate
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the transactions contemplated herein and in the Ancillary Documents, other than
the HSR Act filing described in Section 7.1, and the filing of any releases
under the UCC to the extent required to effect the transactions contemplated in
this Agreement. Brown has, and at all times has had, full corporate power and
authority to own and lease its assets and properties as and where such assets
and properties are now owned and leased, and to conduct its businesses as and
where such businesses have been and are now being conducted. Set forth on
Schedule 4.1 are true and complete copies of the Articles or Certificate of
Incorporation and Bylaws of each Brown Party, as amended through the date
hereof.
(b) Noncontravention. Neither the execution and delivery of this
Agreement or the Ancillary Documents by Brown, GSAC or Matrix, nor their
compliance with or fulfillment of the terms, conditions and provisions hereof or
thereof, will (i) violate any Legal Requirement or Order applicable to Brown,
GSAC, any Subsidiary or Matrix (or their respective businesses), or any
provision of their Articles or Certificate of Incorporation or Bylaws; or (ii)
with notice, the passage of time or both, conflict with, result in a breach of,
constitute a default under, result in the acceleration of, or create in any
Person the right to accelerate, terminate, modify or cancel, any contract,
agreement, lease, license, Governmental Authorization, instrument, arrangement
or commitment to which Brown, GSAC, any Subsidiary or Matrix is a party or by
which it or any of their respective assets or properties are bound, or (iii)
result in the imposition or creation of any Encumbrance upon or with respect to
any of the assets or properties owned or used by any Brown Party (except for the
Excluded Assets, which shall become subject to the lien of the Bank Agreement
after the Closing), or (iv) require any notice under any contract, agreement,
lease, Order, license, instrument, arrangement or commitment to which Brown,
GSAC, any Subsidiary or Matrix is a party or by which it or they are bound or to
which any of its or their respective assets or properties are subject (other
than the consent required under the Bank Agreement, which shall be obtained by
Matrix at its expense prior to the Closing); or (v) require the approval,
consent, authorization or act of, or the making by any Brown Party, GSAC or
Matrix of any declaration, filing or registration with, any Person, other than
the HSR Act filing described in Section 7.1, the releases of UCC Financing
Statements referred to above and the consent required under the Bank Agreement.
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4.2 Qualification of Brown in Other States. Each Brown Party is duly
qualified to transact business as a foreign corporation, and is in good
standing, in the jurisdictions set forth on Schedule 4.2. Neither the nature of
the business of, nor the character and location of the assets and properties
owned or leased by, any Brown Party makes qualification of it as a foreign
corporation necessary under the laws of any jurisdiction other than as set forth
on Schedule 4.2.
4.3 Capitalization, Stock Ownership and Rights.
(a) Ownership of Shares. GSAC holds of record and owns beneficially,
and will transfer and deliver to Caldwell at the Closing, 20,000 issued and
outstanding shares of the common capital stock, no par value, of Brown,
representing 100% of the issued and outstanding capital stock of Brown, free and
clear of all Encumbrances. GSAC has good and marketable title to the Shares,
and the sole right and authority to sell the Shares and to receive the Purchase
Price therefor.
(b) Capitalization. The authorized capital stock of Brown consists
of 12,000 Class A shares of no par value voting common stock, and 8,000 Class B
shares of no par value voting common stock (collectively, the "Common Stock").
There are 12,000 Class A shares of Common Stock and 8,000 Class B shares of
Common Stock issued and outstanding. All of the Shares are duly authorized,
validly issued, fully-paid and non-assessable, and no personal liability
attaches to the ownership thereof.
(c) No Outstanding Rights. There are no, nor is there any agreement,
commitment or arrangement not yet fully performed which would result in any,
outstanding agreements, arrangements, subscriptions, options, warrants, calls,
rights or other commitments of any character relating to the issuance, sale,
purchase or redemption of Common Stock. There are no outstanding securities of
Brown other than the Shares.
(d) Stock Issued in Compliance With Laws. None of the Common Stock
has been issued in violation of any Legal Requirement pertaining to the issuance
of securities, or in violation of any rights, pre-emptive or otherwise, of any
present or past stockholder of Brown.
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4.4 Subsidiaries and Investments. Brown does not, directly or
indirectly, (a) own, of record or beneficially, any outstanding voting
securities or other equity interests in any Person other than the Subsidiaries,
or (b) "Control" any Person which is involved in or relates to Brown or its
businesses other than the Subsidiaries. As used in this Agreement, "Control" of
a Person means the power, direct or indirect, to direct or cause the direction
of the management and policies of such Person, whether by ownership of
securities, contract, law or otherwise. Schedule 4.4 sets forth the authorized
capital stock of the Subsidiaries, and indicates the number of issued and
outstanding shares of capital stock, the number of issued shares of capital
stock held as treasury shares and the number of shares of capital stock unissued
and not reserved for any purpose for each Subsidiary. There are no agreements,
arrangements, subscriptions, options, warrants, calls, rights or commitments of
any character relating to the issuance, sale, purchase or redemption of any
shares of capital stock of any of the Subsidiaries. All of the outstanding
shares of capital stock of each of the Subsidiaries are validly issued, fully
paid and nonassessable. All of the outstanding shares of capital stock of each
of the Subsidiaries are owned by Brown of record and beneficially, and are free
from all Encumbrances. Each Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, with full corporate power and authority to own and lease its
properties as such properties are now owned and leased and to conduct its
business as and where such business has been and is now being conducted.
4.5 Financial Statements. Attached as Schedule 4.5 are the
consolidated balance sheet, statement of income and statement of EBITDA as at
February 28, 1998 and for each of the fiscal quarters then ended commencing with
the fiscal quarter ended May 31, 1994, of Brown and its Subsidiaries prepared in
accordance with GAAP as included in the consolidated and consolidating financial
statements of Matrix which were audited by Ernst & Young LLP (the "Financial
Statements"). The balance sheet included in the Financial Statements as of
February 28, 1999, is hereinafter referred to as the "Interim Balance Sheet."
The Financial Statements (including the notes thereto, if any) represent actual,
bona fide transactions, were prepared in accordance with GAAP, present fairly
the consolidated financial condition of Brown and the Subsidiaries as of the
respective dates of the Financial Statements, and the consolidated results of
operations and changes in EBITDA of Brown and the Subsidiaries for such periods,
and are consistent with the books and records of Brown and the Subsidiaries: (i)
subject in the case of any period ended prior to May 31, 1998, to
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normal year-end adjustments (all of which are reflected in the Financial
Statements for the year ended May 31, 1994, 1995, 1996, 1997 and 1998), and (ii)
in the case of the Financial Statements as of February 28, 1999, subject to
normal year-end adjustments, in each case which shall not be material,
individually or in the aggregate, and lack footnotes and other presentation
items that, if presented, would not differ materially from those included in the
balance sheet included in the Financial Statements for the fiscal year ended May
31, 1998 (the "Acquisition Balance Sheet"). No financial statement of any Person
other than Brown and the Subsidiaries is required by GAAP to be included in the
Financial Statements.
4.6 Absence of Undisclosed Liabilities. None of the Brown Parties has
any debts, obligations, duties or liabilities of any nature, whether known or
unknown, whether fixed, absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, whether matured or unmatured, whether
asserted or unasserted and whether due or to become due (collectively,
"Liability"), except as shown (and in the amounts shown) on the face of the
Interim Balance Sheet (rather than the notes thereto) or on Schedule 4.6. From
the date of the Interim Balance Sheet through the date hereof, except as shown
on Schedule 4.6, the Brown Parties have not incurred or become subject to any
Liability, other than Liabilities incurred in the Ordinary Course of Business of
such Brown Parties, all of which have been paid in full in the Ordinary Course
of Business or are reflected on the regular books of account of the Brown
Parties, and none of which is inconsistent with the representations, warranties
and covenants of Brown, GSAC and Matrix contained in this Agreement or with any
other provisions of this Agreement.
4.7 Absence of Certain Events. Since May 31, 1998, no Brown Party has,
except as set forth on the Schedules referred to in this Section 4.7:
(a) issued, sold, purchased or redeemed any stock, bonds, debentures,
notes or other corporate securities, or issued, sold or granted any option,
warrant or right to acquire any thereof;
(b) waived or released any debts, claims, rights of value or suffered
any extraordinary loss or written down the value of any inventories or other
assets or written down or
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off any receivable in excess of $25,000 for any single transaction or series of
related transactions, or in excess of $50,000 in the aggregate;
(c) except as set forth on Schedule 4.7(c), made any capital
expenditures or capital commitments in excess of $25,000 for any single
transaction or series of related transactions, or in excess of $50,000 in the
aggregate;
(d) made any change in the business or operations or the manner of
conducting the business or operations of that Brown Party, other than changes in
the Ordinary Course of Business of that Brown Party;
(e) except as set forth on Schedule 4.7(e), terminated, placed on
probation, disciplined, warned, or experienced any material dissatisfaction
with, any officer or supervisory employee of that Brown Party;
(f) except as set forth on Schedule 4.7(f), experienced any
resignations of, or had any disputes involving the employment or agency
relationship with any of, the employees or agents of that Brown Party;
(g) suffered any casualty, damage, destruction or loss to any of its
properties in excess of $25,000 for any one event or in excess of $50,000 in the
aggregate;
(h) declared, set aside or paid any dividends or distributions in
respect of shares of its capital stock;
(i) except as set forth on Schedule 4.7(i), paid or obligated itself
to pay any bonuses or extraordinary compensation to, or made any increase
(except increases in the Ordinary Course of Business of that Brown Party) in the
compensation payable (or to become payable by it) to, any of the directors,
officers, employees, agents or other representatives of that Brown Party;
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(j) terminated or amended or suffered the termination or amendment of
any material contract, lease, agreement, license or other instrument to which it
is or was a party;
(k) except as set forth on Schedule 4.7(k), adopted, modified or
amended any plan or agreement listed on Schedule 414 so as to increase the
benefits due the employees of any Brown Party under any such plan or agreement;
(l) made any loan or advance to any Person (except a normal travel or
other reasonable expense advance to its officers and employees);
(m) except as set forth on Schedule 4.7(m), suffered any material
adverse change in such Brown Party's business, financial condition, results of
operations, assets or properties from that reflected in the Acquisition Balance
Sheet;
(n) except as set forth on Schedule 4.7(n), subjected or agreed to
subject any of its assets or properties to any Encumbrances (other than
Permitted Encumbrances) or to any other similar charge of any nature whatsoever;
(o) except as set forth on Schedule 4.7(o), paid any funds to any of
its officers or directors, or to any family member of any of them, or any Person
in which any of the foregoing have any direct or indirect interest, except for
the payment of installments of annual salaries and the bonuses accrued in the
Ordinary Course of Business of that Brown Party through the date hereof;
(p) disposed of or agreed to dispose of any of its properties or
assets other than in the Ordinary Course of Business of that Brown Party, and
except as contemplated in this Agreement;
(q) except as set forth on Schedule 4.7(q), entered into any
transactions other than in the Ordinary Course of Business of that Brown Party
(except for the transactions contemplated in this Agreement);
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(r) made any change in such Brown Party's accounting principles,
methods or practices;
(s) except as set forth on Schedule 4.7(s), entered into any
agreement, contract, lease or license (or series of related agreements,
contracts, leases or licenses) involving consideration or goods and/or services
having a value in excess of $25,000, or having a term greater than one (1) year
in length;
(t) delayed or postponed the payment of any accounts payable or
other Liabilities outside the Ordinary Course of Business of such Brown Party;
(u) been a party to any other occurrence, event, incident, action,
failure to act, or transaction outside the Ordinary Course of Business of that
Brown Party, except where the same would not subject any of the Brown Parties to
a penalty, fine or judgment in excess of $5,000 in any one case of $20,000 in
the aggregate or render any of the Brown Agreements void or unenforceable,
result in any forfeiture of title to any of its properties or assets or
otherwise have a material adverse effect on the business of any of the Brown
Parties; or
(v) not granted credit to any material customer or other Person on
terms more favorable than the terms on which credit has been extended to such
customer or other Person in the past, nor materially changed the terms of any
credit previously extended;
(w) except as set forth on Schedule 4.7(w), entered into any
agreement or commitment (whether or not in writing) to do any of the foregoing;
and each Brown Party has:
(x) used its best efforts to preserve its business and
organization, and to keep available, without entering into any binding
agreement, the services of its employees, and to preserve the goodwill of its
customers and others having business relationships with it; and
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(y) continued its business and maintained its assets, properties,
operations, books of account, and other books, records and files in the Ordinary
Course of Business.
4.8 Books of Account, Records and Minute Books. Prior to the execution
of this Agreement, Brown made available to Caldwell and Caldwell Tanks for their
examination the books of account, records (including without limitation,
computer data and records) and minute books of each Brown Party. Such books of
account and records are true and complete in all respects, have been maintained
in accordance with sound business practices and the requisite requirements of
section 13(b)(2) of the Exchange Act (regardless of whether or not that Brown
Party is subject to such section) including the maintenance of an adequate
system of internal controls. The minute books of the Brown Parties contain
accurate and complete records of all meetings held of, and corporate action
taken by, the stockholders, the board of directors and the committees of the
board of directors of the Brown Parties, and no meeting of any such
stockholders, board of directors or committee has been held for which minutes
have not been prepared and are not contained in such minute books. There has
been duly and completely entered in the books and records of each Brown Party
all monies due or to become due from or to or owing by that Brown Party, and all
Liabilities of that Brown Party by reason of any transaction, matter, or cause
whatsoever. No changes or additions to the books and records of any Brown Party
have been made as of or for the period prior to the date such books and records
were first made available to Caldwell and Caldwell Tanks, and nothing which
should be set forth in said books and records, if prepared in the usual and
customary manner of that Brown Party, has occurred from the date such books and
records were first made available to Caldwell and Caldwell Tanks, except for
such changes, additions or events which have been made or have occurred, as the
case may be, in the Ordinary Course of Business of that Brown Party, or as
permitted or disclosed in Section 4.7 and Section 6.2 hereof. At the Closing all
books and records shall be in the possession of that Brown Party.
4.9 Certain Payments. Neither Brown, GSAC, any Subsidiary nor Matrix,
nor to the knowledge of Brown, GSAC, any Subsidiary and Matrix any other Person
associated with or acting on behalf of Brown, GSAC, any Subsidiary or Matrix,
has directly or indirectly made any contribution or paid or delivered, or
committed itself or himself to pay or deliver, any fee, commission, gift, bribe,
rebate, payoff, influence payment or kickback, regardless of form, whether in
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money, property or services, or any other payment of money or items of property
or services, however characterized, to any Person that in any manner is related
to the business or operations of any Brown Party, and which Brown, GSAC, any
Subsidiary, Matrix or such other Person, or any of them, knows, or has reason to
believe, were or are illegal under any Legal Requirement.
4.10 Compliance With Legal Requirements; Governmental Authorizations.
(a) Compliance With Legal Requirements. Except as set forth in a
Schedule referred to in this Section 4.10, and except (in the case of (1) and
(2) below) with respect to (v) the Benefit Plans and related trust agreements
and annuity contracts of the Brown Parties, and all "group health plans" (as
defined in section 4980B(g)(2) of the Code) of the Brown Parties (which are the
subject of Section 4.14 and Section 4.14, respectively), (w) environmental
matters (which are the subject of Section 4.16), (x) labor matters (which are
the subject of Section 4.20), (y) Orders (which are the subject of Section
4.21), and (z) Tax matters (which are the subject of Section 4.28):
(1) Each Brown Party is, and at all times has been, in full
compliance with each Legal Requirement that is or was applicable to it or to
the conduct or operation of its business or the ownership or use of any of its
assets, except where the failure to be in such compliance would not subject
that Brown Party to a penalty, fine or judgment in excess of $5,000 in any one
case of $20,000 in the aggregate or render any of the Brown Agreements void or
unenforceable, result in any forfeiture of title to any of its properties or
assets or otherwise have a material adverse effect on the business of that
Brown Party;
(2) No event has occurred, nor does any circumstance exist, that
(with or without notice or lapse of time) (A) may constitute or result in a
violation by any Brown Party of, or a failure on the part of any Brown Party
to comply with, any Legal Requirement, or (B) may give rise to any obligation
on the part of any Brown Party to undertake, or to bear all or any portion of
the cost of, any remedial action of any nature, except for such violations or
obligations, if any, that would not subject that Brown Party to a penalty,
fine or judgment in excess of $5,000 in any one case of $20,000 in the
aggregate or render any of the Brown
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Agreements void or unenforceable, result in any such forfeiture of title to
any of its properties or assets or otherwise have a material adverse effect on
the business of that Brown Party; and
(3) No Brown Party has received any notice or other communication
(whether oral or written) from any Person regarding (A) any actual, alleged,
possible or potential violation of, or failure to comply with, any Legal
Requirement, or (B) any actual, alleged, possible or potential obligation on
the part of that or any other Brown Party to undertake, or to bear all or any
portion of the cost of, any remedial action of any nature.
(b) Governmental Authorizations. Schedule 4.10(b) contains a
complete and accurate list of each Governmental Authorization that is held by
any Brown Party or that otherwise relates to the business of, or to any of the
assets owned or used by, any Brown Party. The Governmental Authorizations listed
in Schedule 4.10(b) collectively constitute all of the Governmental
Authorizations necessary to permit the Brown Parties to lawfully conduct and
operate their businesses in the manner currently conducted and operated, and to
permit the Brown Parties to own and use their assets in the manner in which they
currently own and use such assets. There will not be a material adverse effect
on or with respect to such Governmental Authorizations or the Brown Parties'
maintenance of the same as a result of the consummation of the transactions
contemplated in this Agreement or in the Ancillary Documents. Each Governmental
Authorization listed or required to be listed in Schedule 4.10(b) is valid and
in full force and effect. Except as set forth in Schedule 4.10(b):
(1) Each Brown Party is, and at all times has been, in full
compliance with all of the terms and requirements of each Governmental
Authorization identified or required to be identified in Schedule 4.10(b),
except where the failure to be in such compliance would not subject that Brown
Party to a penalty, fine or judgment in excess of $5,000 in any one case or
$20,000 in the aggregate or render any of the Brown Agreements void or
unenforceable, result in any forfeiture of title to any of its properties or
assets or otherwise have a material adverse effect on the business of that
Brown Party;
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(2) No event has occurred, nor does any circumstance exist, that
may (with or without notice or lapse of time) (A) constitutes or could result
directly or indirectly in a violation of or a failure to comply with any term
or requirement of any Governmental Authorization listed or required to be
listed in Schedule 4.10(b), or (B) could result directly or indirectly in the
revocation, withdrawal, suspension, cancellation, or termination of, or any
modification to, any Governmental Authorization listed or required to be
listed in Schedule 4.10(b);
(3) No Brown Party has received any notice or other communication
(whether oral or written) from any Governmental Body or any other Person
regarding (A) any actual, alleged, possible or potential violation of or
failure to comply with any term or requirement of any Governmental
Authorization, or (B) any actual, proposed, possible, or potential revocation,
withdrawal, suspension, cancellation, termination of, or modification to any
Governmental Authorization; and
(4) All applications required to have been filed for the renewal of
the Governmental Authorizations listed or required to be listed in Schedule
4.10(b) have been duly filed on a timely basis with the appropriate
Governmental Bodies, and all other filings required to have been made with
respect to such Governmental Authorizations have been duly made on a timely
basis with the appropriate Governmental Bodies.
4.11 Computer Systems; Software.
(a) Condition of Computers. All computers and computer systems
owned, leased or used by the Brown Parties (including, software, communication
links and storage media) (collectively, "Computers") comply with and are used in
accordance with all Legal Requirements, and to the Knowledge of Brown, GSAC and
Matrix: (1) are in operating order and fulfill the purposes for which they were
acquired, established and are currently used; (2) have adequate capacity for the
present needs of the Brown Parties and (taking into account the extent to which
the computer systems are expandable, but without considering the future plans
for the Brown Parties by Caldwell following the Closing other than the operation
of their respective businesses in the
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Ordinary Course of Business, consistent with past practices) foreseeable future
needs; (3) have adequate security, back-ups, duplication, hardware and software
support and maintenance (including emergency cover) and trained personnel to
ensure: (A) that breaches of security, errors and breakdowns are kept to a
minimum; and (B) that no material disruption will be caused to the Brown Parties
or any material part thereof in the event of a breach of security, error or
breakdown; (4) are properly established and documented by written technical
descriptions and manuals so as to enable them to be used and operated by any
reasonably qualified personnel; and (5) are under the sole control of the Brown
Parties, are located at branch locations of the Brown Parties, are not shared
with, used by or on behalf of or accessible by any other Person and, except for
software properly licensed to the Brown Parties, are owned by the Brown Parties.
(b) Condition of Software. All software used on or stored or
resident in the Computers ("Software"): (1) performs in accordance with its
specifications and does not contain any defect or feature which may materially
adversely affect its performance or the performance of any other software in the
future (providing such future software is otherwise compatible); (2)(A) in the
case of Software that is necessary for the businesses or operations of the Brown
Parties or is otherwise material to those businesses or operations
(collectively, "Core Software"), is lawfully held and used and does not infringe
the intellectual property rights of any Person and all copies held have been
lawfully made, and (B) in the case of Software that is not Core Software, is
lawfully held and used and does not infringe the intellectual property rights of
any Person and all copies held have been lawfully made, except where such
unlawful holding or use, such infringement or such unlawful copying would not,
individually or in the aggregate, have a material adverse affect on any of the
Brown Parties; and (3) as to copyrights in connection with the Core Software:
(A) such Core Software written or commissioned by any Brown Party is owned
exclusively by that Brown Party, no other person has the rights therein or
rights to the use or copies of the Core Software or source codes, and complete
written listings and written copies of the source codes for the Core Software
are in the possession of the Brown Parties; (B) standard packaged software, is
licensed to the Brown Parties on an express or implied license which does not
require the Brown Parties to make any further payments, is not terminable
without the consent of the relevant Brown Party and which imposes no material
restrictions except as to copying or the use or transfer of the Core Software;
and (C) all other Core Software is licensed to the Brown Parties on the terms of
written licenses which
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require payment by the Brown Parties of a fixed annual license fee at a rate not
exceeding that paid in calendar 1998, except for reasonable fees for software
support, require the Brown Parties to make no further or other payments, are not
terminable, except for failure to pay the license fee, without the consent of
the Brown Parties, and impose no material restrictions except as to copying or
the use or transfer of the Core Software.
(c) Ownership of Software. No Software owned by or licensed to any
Brown Party is used by or licensed or sublicensed by that Brown Party to any
other Person.
(d) Operation of Computers. No person is in a position, by virtue of
its or his rights in, knowledge of or access to the Computers, to prevent or
impair the proper and efficient functioning of the Computers or to demand any
payment in excess of any current license fee or in excess of reasonable
remuneration for services rendered, or to impose any onerous condition, in order
to preserve the proper and efficient functioning of the Computers in the future.
The employees of the Brown Parties are adequately trained to enable them to use
and operate the Computers to perform the functions for which they were hired.
All data and records stored by electronic means are capable of ready access
through the Computers. The transactions contemplated in this Agreement will not
cause any license agreements as referred to in this Section 4.11 to be
terminated or the terms varied or any rates or royalties payable to be
increased.
4.12 Condition and Sufficiency of Assets. With due consideration for
their age, the buildings, plants, facilities, structures and equipment of the
Brown Parties are structurally sound, are free from defects (patent and latent),
have been maintained in accordance with normal industry practice, are in good
operating condition and repair (subject to normal wear and tear), and are
suitable for the purposes for which they presently are used and presently
proposed to be used, and none of such buildings, plants, facilities, structures
or equipment is in need of maintenance or repairs except for ordinary, routine
maintenance and repairs that are not material in nature or cost. The buildings,
plants, structures, and equipment of the Brown Parties are sufficient for the
continued conduct of their businesses after the Closing in substantially the
same manner as conducted prior to the Closing. The Brown Parties own or lease
all buildings, machinery, equipment, and other tangible
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property necessary for the conduct of the business of the Brown Parties as
presently conducted and as presently proposed to be conducted.
4.13 Contracts. Schedule 4.13 (or other Schedules that refer to
particular subsections of this Section 4.13) contains a complete and accurate
list of the following types and forms of contracts and other agreements to which
any of Brown Parties is a party or by which any of its assets or properties are
bound:
(a) any agreement (or group of related agreements), written or oral,
for the lease of personal property to or from any Person providing for lease
payments in excess of $25,000 per annum or which may not be terminated by the
relevant Brown Party without penalty or payment on 30 days, or less, notice;
(b) any agreement (or group of related agreements) for the purchase
or sale of real property, improvements, raw materials, commodities, equipment,
supplies, products, or other real or personal property, or for the furnishing or
receipt of services, the performance of which shall (i) extend over a period of
more than one year, (ii) result in a material loss to any Brown Party, or (iii)
involve consideration in excess of $250,000;
(c) any agreement concerning a partnership or limited partnership,
joint venture, limited liability company or limited liability partnership,
including any agreement with or involving such an organization which provides
for a sharing of profits, losses, costs or liabilities of the Brown Parties (or
any of them) or such organization with any other Person;
(d) any agreement granting a power of attorney to any Person;
(e) any contract, arrangement or commitment with a labor union or
association or other employee group;
(f) any easements, right-of-way agreements or other similar
agreements or rights;
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(g) any agreements, commitments or pledges for civic or charitable
donations;
(h) any agreement involving a warranty, guaranty or other similar
understanding with respect to contractual performance extended by any Brown
Party;
(i) any agreement (or group of related agreements) under which any
Brown Party has created, incurred, assumed or guaranteed any indebtedness for
borrowed money, or any capitalized lease obligation, in excess of $25,000 or
under which it has imposed an Encumbrance on any of its assets or properties,
tangible or intangible;
(j) any agreement containing covenants by any Brown Party not-to-
compete in any line of business with any Person, or restricting the customers
from whom, or the area in which, any Brown Party may solicit or conduct
business, or any contract, arrangement or commitment involving a covenant of
confidentiality;
(k) any agreement under which it has advanced, lent or borrowed any
amount of money or property to or from any of its directors, officers,
shareholders or employees (other than advances to employees for expenses in the
Ordinary Course of Business);
(l) any agreement under which the consequences of a default or
termination could have a material adverse effect on the business, financial
condition, results of operations, assets or properties of any Brown Party;
(m) any agreement not made in the Ordinary Course of Business of
any Brown Party; or
(n) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $50,000 or has a term
in excess of one year.
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Brown has delivered to Caldwell a correct and complete copy of each WIP Contract
and of each other written agreement listed in Schedule 4.13, and a written
summary setting forth the terms and conditions of each oral agreement referred
to in Schedule 4.13.
4.14 Employee Benefits.
(a) Benefit Plans. Except as set forth on Schedule 4.14(a), no Brown
Party is a "Plan Sponsor" (as defined in section 3(16)(B) of ERISA) or an "ERISA
Affiliate" (which shall mean, with respect to any Brown Party, any other Person
that, together with such Brown Party, would be treated as a single employer
under section 414 of the Code), and no Brown Party nor an ERISA Affiliate
contributes or is obligated to contribute to any "employee pension benefit
plans" ("Pension Plans") or "employee welfare benefit plans" ("Welfare Plans")
(as described in section 3(2) and (1), respectively, of ERISA), or to any
"multiemployer plan" ("Multiemployer Plans") (as defined in either section 3(37)
of ERISA or section 414(f) of the Code). Except as set forth on Schedule
4.14(a), no Brown Party nor an ERISA Affiliate has any obligation, arrangement,
practice, plan or agreement to provide present or future benefits, other than
salary, as compensation for services rendered, to any of its present or former
employees, officers, direc tors, agents or representatives, nor any voluntary
employees' beneficiary association under section 501(c)(9) of the Code ("VEBA")
whose members include employees or former employees of any Brown Party or an
ERISA Affiliate, nor any obligation, arrangement, practice, plan or agreement
providing stock options, stock purchase, deferred compensation, bonus,
severance, "fringe benefits" (as described in section 132 of the Code), or any
other employee benefits of any nature whatsoever ("Compensation Plans"). Welfare
Plans, Pension Plans and Compensation Plans are collectively referred to as
"Benefit Plans." The consummation of the transactions contemplated in this
Agreement shall not result in the payment, vesting or acceleration of any
benefit or right under any Benefit Plan.
(b) Funding Method for Pension Plans. The funding method used in
each of the Pension Plans subject to Title I, Subtitle B, Part 3 of ERISA ("DB
Plan") is acceptable under ERISA, there is no accumulated funding deficiency,
whether or not waived, with respect to any DB Plan, and no event has occurred or
circumstance exists that may result in any accumulated funding deficiency as of
the last day of the current plan year of any DB Plan. The Brown Parties and
each ERISA
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Affiliate has met the minimum funding standard, and has made all contributions
required, under section 302 of ERISA and section 412 of the Code. Brown has
delivered to Caldwell a true and complete copy of the most recent actuarial
report with respect to each DB Plan identified on Schedule 4.14(a) and such
report fairly presents the financial condition and the results of operations of
each such DB Plan in accordance with GAAP. Since the last valuation date of each
DB Plan no event has occurred or circumstance exists that would increase the
amount of benefits under any DB Plan or that would cause the excess of plan
assets over benefit liabilities (as defined in section 4001 of ERISA) to
decrease, or the amount by which benefit liabilities exceed assets to increase.
If each DB Plan identified on Schedule 4.14(a) were terminated as of the Closing
Date, it would have sufficient assets so as to be terminated in a "standard
termination" (as described in section 4041(b) of ERISA). No Brown Party is
liable for any contributions or excise taxes due and unpaid under any Pension
Plans as of the date hereof. There is no Liability, and there are no
circumstances which may arise which would give rise to any such Liability, of
any Brown Party or Caldwell to the Pension Benefit Guaranty Corporation ("PBGC")
under Title IV of ERISA.
(c) Compliance of Benefit Plans With ERISA and Code. Each Brown
Party has performed all of its obligations under all Benefit Plans and has made
appropriate entries in its financial records and statements for all Liabilities
under all Benefit Plans that have accrued but are not due. All of the Benefit
Plans and any related trust agreements or annuity contracts (or any funding
instrument) comply currently, and have complied in the past, with the provisions
of ERISA and the Code, where required in order to be a qualified plan under
section 401(a) of the Code and tax exempt under section 501 of the Code, and all
other Legal Requirements, and any applicable collective bargaining agreements.
No event has occurred or circumstance exists that will or could give rise to
disqualification or loss of tax exempt status of any such Plan or trust, or
result in any Tax, excise Tax, fines or penalties, or amounts required to be
paid under any settlement with the U.S. Department of Labor, the IRS or the
PBGC. Neither the Brown Parties, nor any Person who is a fiduciary or otherwise
has a trust relationship with a Benefit Plan, has any liability to the Benefit
Plan, the IRS, the Department of Labor, or the PBGC with respect to a Benefit
Plan, or any Liability under sections 502 or 4071 of ERISA. All contributions
and payments made or accrued with respect to all Benefit Plans are deductible
under the Code. No amount, or any asset of any Benefit Plan, is subject to Tax
as unrelated business taxable income. All filings required by ERISA and the Code
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as to each Benefit Plan have been timely filed, and all notices and disclosures
to participants required by either ERISA or the Code have been timely provided.
Other than routine Claims for benefits submitted by participants or
beneficiaries in the ordinary course, no Claim against, or Proceeding involving
any Benefit Plan is pending or Threatened. No payment that is owed or may
become due to any director, officer, employee or agent of any Brown Party will
be non-deductible to such Brown Party or subject to Tax under sections 280G or
4999 of the Code, nor shall such Brown Party be required to "gross-up" or
otherwise compensate any such person because of the imposition of any Tax or
excise Tax on a payment to such person.
(d) Multiemployer Plans. Schedule 4.14(d) contains, for each
Multiemployer Plan, as of its last valuation date, the amount of potential
withdrawal liability of each Brown Party, calculated according to information
made available pursuant to section 4221(e) of ERISA. Neither the Brown Parties
nor an ERISA Affiliate has received any notice from any Multiemployer Plan that
it is in reorganization or is insolvent, that increased contributions may be
required to avoid a reduction in plan benefits or the imposition of any Tax,
excise Tax, or that such plan intends to terminate or has terminated. None of
the Brown Parties nor an ERISA Affiliate has withdrawn from any Multi-Employer
Plan with respect to which there is any outstanding Liability as of the date
hereof. No event has occurred or circumstance exists that presents a risk of
the occurrence of any withdrawal from, or the participation, termination,
reorganization or insolvency of, any Multi-Employer Plan that could result in
any Liability of any Brown Party or Caldwell to a Multi-Employer Plan. No
Multiemployer Plan to which any Brown Party or an ERISA Affiliate contributes or
has contributed is a party to any pending merger or asset or liability transfer
or is subject to any Proceeding brought by the PBGC.
(e) Post-Retirement Benefits. Schedule 4.14(e) contains a
calculation of the Liability of each Brown Party for post-retirement benefits
for its past and present officers, employees and directors (or their dependents
or beneficiaries) other than pensions, made in accordance with Financial
Accounting Statement 106 of the Financial Accounting Standards Board, regardless
of whether such Brown Party is required by this Statement to disclose such
information. Except as set forth on Schedule 4.14(e) or as required by section
601 et seq. of ERISA and section 4980B of the Code, no Brown Party provides, or
is obligated to provide, health or welfare benefits
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(including without limitation, retiree medical insurance coverage or retiree
life insurance coverage), or pension benefits, for any retired or former
officer, employee or director, or any dependents or beneficiaries of the same,
nor is it obligated to provide any health or welfare benefits to any active
employee following such employee's retirement or other termination of service.
Each Brown Party has the right to modify and terminate benefits to retirees or
their dependents or beneficiaries (other than Pension Plan benefits) with
respect to both retired and active officers, employees and directors. To the
extent of such health, welfare or pension benefits to retirees (or their
dependents or beneficiaries), Schedule 4.14(e) sets forth the name, pension
benefit, pension option election, medical insurance coverage, and life insurance
coverage for such retirees, dependents or beneficiaries.
(f) Administration and Cost of Plans. Each of the Welfare Plans and
Pension Plans has been administered in compliance with the requirements of the
Code and ERISA and all reports required by any governmental agency with respect
to each such Plan have been timely filed. No statement, either written or oral,
has been made by any Brown Party or an ERISA Affiliate to any Person with regard
to any Benefit Plan that was not in accordance with the Benefit Plan and that
could have an adverse economic consequence to the Brown Parties or Caldwell.
Each Benefit Plan, and the participation by the Brown Parties in each Benefit
Plan, other than a DB Plan, can be terminated within 30 days without payment of
any additional contribution or amount and without the vesting or acceleration of
any benefits promised by such Plan. No event has occurred or circumstance
exists that could result in a material increase in premium costs of Benefit
Plans that are insured, or a material increase in benefit costs of such Plans
that are self-insured. None of the Brown Parties nor an ERISA Affiliate has
filed a notice of intent to terminate any current Plan or has adopted any
amendment to treat a Plan as terminated. The PBGC has not instituted
Proceedings to treat any DB Plan or Multiemployer Plan as terminated. No event
has occurred or circumstance exists that may constitute grounds under section
4041 of ERISA for the termination of, or the appointment of a trustee to
administer, any DB Plan or Multiemployer Plan. No amendment has been made, or
is reasonably expected to be made, to any DB Plan that has required or could
require the provision of security under section 307 of ERISA or section
401(a)(29) of the Code.
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(g) No Prohibited Transactions. None of the Brown Parties, nor any
of their respective directors, officers or employees who are fiduciaries, nor
any other fiduciary of any of the Pension Plans or Welfare Plans, has engaged in
any transaction in violation of section 406 of ERISA (for which no exemption
exists under section 408 of ERISA) or any "prohibited transaction" (as defined
in section 4975(c)(1) of the Code) for which no exemption exists under sections
4975(c)(2) or 4975(d) of the Code.
(h) Compliance of Health Plans. Each "group health plan" (as defined
in section 4980B(g)(2) of the Code) maintained by any of the Brown Parties, or
in which any of them participated, has been administered in compliance with the
continuation coverage and notice requirements of section 601 et seq. of ERISA,
section 4980B of the Code (and the regulations thereunder) and all other Legal
Requirements.
(i) PBGC Premiums. Each Brown Party, and each ERISA Affiliate, has
paid all premiums (and interest charges and penalties for late payment if
applicable) due to the PBGC with respect to each of the DB Plans described in
Schedule 4.14(a) in each plan year thereof for which such premiums are required.
There has been no "reportable event" (as defined in section 4043 of ERISA and
the regulations of the PBGC thereunder) with respect to any of the DB Plans
described in Schedule 414(a).
(j) Copies of Documents. Brown has furnished to Caldwell and
Caldwell Tanks a true and complete copy of all documents that set forth the
terms of each Benefit Plan described on Schedule 4.14(a) and the summary plan
description which any Brown Party or an ERISA Affiliate is obligated to prepare
for such plans, and all summaries and descriptions furnished to participants and
beneficiaries regarding Benefit Plans for which a summary plan description is
not required. In addition, Brown has furnished to Caldwell:
(1) a written description of any Benefit Plan, program or practice
that is not otherwise in writing;
(2) all personnel, payroll, and employment manuals and policies;
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(3) all collective bargaining agreements pursuant to which
contributions have been made or obligations incurred (including both pension
and welfare benefits) by any Brown Party and all collective bargaining
agreements pursuant to which contributions are being made or obligations are
owed by any Brown Party;
(4) all registration statements filed with respect to any Benefit
Plan;
(5) all insurance policies purchased by or to provide benefits
under any Benefit Plan;
(6) all contracts with third party administrators, actuaries,
investment managers, consultants, and other independent contractors that
relate to any Benefit Plan;
(7) [Intentionally Omitted];
(8) a favorable determination letter as to the qualification under
the Code of each of the Pension Plans and each amendment thereto that has been
issued by the IRS and a true and correct copy of each such determination
letter has been delivered to Caldwell;
(9) all notifications to employees of their rights under section
601 et seq. of ERISA and section 4980B of the Code; provided, in the case of
notices to multiple employees that are substantially identical, Brown has only
furnished to Caldwell and Caldwell Tanks a sample of such notifications;
(10) the annual return (Form 5500 or Form 990 series) filed in each
of the most recent three plan years with respect to each Benefit Plan,
including all schedules thereto and the opinions of independent accountants;
(11) all notices that were given by any Brown Party, an ERISA
Affiliate or any Benefit Plan to the IRS, the PBGC, the Department of Labor or
any participant or
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beneficiary, pursuant to Legal Requirements, within the four years preceding
the date of this Agreement, including notices that are expressly mentioned
elsewhere in this Section 4.14;
(12) all notices that were given by the IRS, the PBGC or the
Department of Labor to any Brown Party, an ERISA Affiliate or any Benefit Plan
within the four years preceding the date of this Agreement;
(13) with respect to each Pension Plan and VEBA, the most recent
determination letter for each Plan; and
(14) with respect to each DB Plan, the Form PBGC-1 filed for each
of the three most recent plan years.
(k) Termination. Each Brown Party can unilaterally terminate, or
terminate its participation in, each of the Benefit Plans identified on Schedule
4.14(a) without incurring any material Liabilities.
4.1 Employees and Independent Contractors.
(a) List of Employees. Included as Schedule 4.15(a) is a true and
complete list of all officers and employees of the Brown Parties on the date
hereof along with the amount of the current annual salaries or hourly rate, job
title and vacation accrued, along with a full and complete description of any
commitments to such officers and employees with respect to compensation payable
hereafter. No Brown Party has, because of past practices or previous
commitments with respect to its officers or employees, established any rights or
expectations on the part of such officers or employees to receive additional
compensation inconsistent with past practices with respect to any period after
the date hereof. None of the officers or employees of the Brown Parties has
given notice to the Brown Parties that he or she intends to leave their
employment. Except as set forth in Schedule 4.15, no Brown Party has reason to
believe that any of its officers or employees shall leave such employment. Set
forth on Schedule 4.15 is a description of all claims made against the Brown
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Parties by their officers or employees within the last 24 months. No officer or
employee of the Brown Parties is employed outside the United States of America.
(b) Agreements With Employees and Independent Contractors. Except as
set forth on Schedule 4.15, no Brown Party is a party to or bound by any oral or
written:
(1) employee collective bargaining agreement, employment or
independent contractor agreement (other than agreements terminable by that
Brown Party without premium or penalty on notice of 30 days or less under
which the only monetary obligation of that Brown Party is to make current wage
or salary payments and provide current employee benefits), consulting,
advisory or service agreement, deferred compensation agreement,
confidentiality agreement or covenant not to compete; or
(2) contract or agreement with any officer or employee (other than
employment agreements disclosed in response to clause (1) or excluded from the
scope of clause (1)), agent, or attorney-in-fact of that Brown Party.
(c) Confidentiality and Noncompetition Agreements. No officer,
employee or director of any Brown Party is a party to, or is otherwise bound by,
any agreement or arrangement, including any confidentiality, noncompetition, or
proprietary rights agreement, between such officer, employee or director and any
other Person that in any way materially adversely affects or will materially
adversely affect (1) the performance of his or her duties as an officer,
employee or director of that Brown Party, or (ii) the ability of that Brown
Party to conduct its business, including any such agreement or arrangement with
Matrix, GSAC or Brown.
4.1 Environmental Matters.
(a) Compliance with Environmental Laws. Except as set forth on
Schedule 4.16(a), each Brown Party is, and at all times has been, in full
compliance with, and has not been and is not in violation of or liable under,
any Environmental Law, except for such violations or non-compliance (each an
"Immaterial Violation"), if any, that would (i) not subject any Brown Party to,
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or cause any Brown Party to suffer or incur, any penalty, fine, judgment,
remediation, cost or other Damage in excess of $5,000 for any one violation or
event of non-compliance or $20,000 in the aggregate, (ii) not render any of the
Brown Agreements void or unenforceable, (iii) not result in any forfeiture of
title to any of the properties or assets of any Brown Party, and (iv) not
otherwise have a material adverse effect on the business or operations of any
Brown Party. To the knowledge of GSAC, Matrix and Brown, there has not occurred
nor does there now exist any Immaterial Violations of any Environmental Laws by
any Brown Party, except to the extent set forth on Schedule 4.16(a). Neither
Brown, GSAC, any Subsidiary nor Matrix has any basis to expect, nor has any of
them or any other Person for whose conduct they are or may be held to be
responsible received, any actual or Threatened Order, notice, or other
communication from any Governmental Body or private citizen acting in the public
interest, or from the current or prior owner or operator of any Facilities, of
any actual or potential violation or failure to comply with any Environmental
Law, or of any actual or Threatened obligation to undertake or bear the cost of
any Environmental, Health, and Safety Liabilities with respect to any of the
Facilities or any other properties or assets (whether real, personal, or mixed)
in which any Brown Party now has or has had an interest, or with respect to any
property or Facility at or to which Hazardous Materials were generated,
manufactured, refined, transferred, imported, used, or processed by Brown, GSAC,
any Subsidiary or Matrix, or any other Person for whose conduct they are or may
be held responsible, or from which Hazardous Materials have been transported,
treated, stored, handled, transferred, disposed, recycled or received.
(b) No Claims. Except as set forth on Schedule 4.16(a), there are no
pending or, to the knowledge of Brown, GSAC, any Subsidiary and Matrix,
Threatened Claims, Encumbrances, Proceedings or other restrictions of any
nature, resulting from any Environmental, Health, and Safety Liabilities or
arising under or pursuant to any Environmental Law, with respect to or affecting
any of the Facilities or any other properties or assets (whether real, personal,
or mixed) in which any Brown Party has or has had an interest.
(c) No Orders. Except as set forth on Schedule 4.16(a), neither
Brown, GSAC, any Subsidiary nor Matrix has any basis to expect, nor has either
of them or any other Person for whose conduct they are or may be held
responsible, received, any citation, directive, inquiry, notice, order, summons,
warning, or other communication that relates to Hazardous Activity, Hazardous
Materials,
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or any alleged, actual, or potential violation or failure to comply with any
Environmental Law, or of any alleged, actual, or potential obligation to
undertake or bear the cost of any Environmental, Health, and Safety Liabilities
with respect to any of the Facilities or any other properties or assets (whether
real, personal, or mixed) in which any Brown Party now has or has had an
interest, or with respect to any property or Facility to which Hazardous
Materials generated, manufactured, refined, transferred, imported, used or
processed by Brown, GSAC, any Subsidiary or Matrix, or any other Person for
whose conduct they are or may be held responsible, have been transported,
treated, stored, handled, transferred, disposed, recycled or received.
(d) No Environmental Liabilities. Except as set forth on Schedule
416, neither Brown, GSAC, any Subsidiary nor Matrix, or any other Person for
whose conduct they are or may be held responsible, has any Environmental,
Health, and Safety Liabilities with respect to the Facilities or with respect to
any other properties and assets (whether real, personal, or mixed) in which any
Brown Party (or any of its predecessors) now has or has had an interest, or at
any property geologically or hydrologically adjoining the Facilities or any such
other property or assets, except for such liabilities (each an "Immaterial
Liability"), if any, that would not result in any of the events or circumstances
described in Subclauses (i) through (iv) inclusive of Section 4.16(a), above. To
the knowledge of GSAC, Matrix and Brown, there has not occurred nor does there
now exist any Immaterially Liabilities of any Brown Party, except to the extent
set forth on Schedule 4.16(a).
(e) No Hazardous Materials. Except as set forth on Schedule 4.16(a),
there are no Hazardous Materials present on or in the Environment at the
Facilities or at any geologically or hydrologically adjoining property,
including any Hazardous Materials contained in barrels, above or underground
storage tanks, landfills, land deposits, dumps, equipment (whether moveable or
fixed) or other containers, either temporary or permanent, and deposited or
located in land, water, sumps, or any other part of the Facilities or such
adjoining property, or incorporated into any structure therein or thereon.
Neither Brown, GSAC, any Subsidiary nor Matrix, or any other Person for whose
conduct they are or may be held responsible, or to the knowledge of Brown, GSAC,
any Subsidiary and Matrix, any other Person, has permitted or conducted, or is
aware of, any Hazardous Activity conducted with respect to the Facilities or any
other properties or assets (whether real,
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personal, or mixed) in which any Brown Party now has or has had an interest,
except such activities as are and were in full compliance with all applicable
Environmental Laws.
(f) No Release. Except as set forth on Schedule 4.16(a), there has
been no Release or, to the knowledge of Brown, GSAC, any Subsidiary or Matrix,
Threat of Release, of any Hazardous Materials at or from the Facilities or at
any other locations where any Hazardous Materials were generated, manufactured,
refined, transferred, produced, imported, used or processed from or by the
Facilities, or from or by any other properties and assets (whether real,
personal, or mixed) in which any Brown Party now has or has had an interest, or
any geologically or hydrologically adjoining property, whether by Brown, GSAC,
any Subsidiary, Matrix or any other Person.
(g) Delivery of Reports, etc. GSAC has delivered to Caldwell true
and complete copies and results of all reports, studies, analyses, tests or
monitoring possessed or initiated by Brown, GSAC, any Subsidiary or Matrix
pertaining to Hazardous Materials or Hazardous Activities in, or under, the
Facilities, or concerning compliance by Brown, GSAC, any Subsidiary and Matrix
or any other Person for whose conduct they are or may be held responsible with
Environmental Laws.
4.17 Insurance. Schedule 4.17 sets forth the following information
with respect to each insurance policy (including policies providing property,
casualty, liability, and workers' compensation coverage and bond and surety
arrangements) to which any Brown Party has been a party, a named insured, or
otherwise the beneficiary of coverage at any time within the past five (5)
years: (a) the name, address, and telephone number of the agent; (b) the name of
the insurer, the name of the policyholder, and the name of each covered insured;
(c) the policy number and the period of coverage; (d) the scope (including an
indication of whether the coverage was on a claims made, occurrence, or other
basis) and amount (including a description of how deductibles and ceilings are
calculated and operate) of coverage; and (e) a description of any retroactive
premium adjustments or other loss-sharing arrangements. To the extent any such
insurance policy includes "occurrence" based coverages: (1) the policy is legal,
valid, binding, enforceable and in full force and effect; (2) the consummation
of the transactions contemplated in this Agreement shall not cause
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a loss of any coverage or other rights (if any) of the Brown Parties thereunder
and relating to losses, events or other circumstances occurring or existing
prior to the Closing or which are otherwise Retained Obligations; (3) the policy
has been issued by an insurer that is financially sound and reputable; (4) no
Brown Party is in breach or default (including with respect to the payment of
premiums or the giving of notices), and no event has occurred which, with notice
or the lapse of time, would constitute such a breach or default, or permit
termination, modification, or acceleration, under the policy; (5) the policy
does not provide for any retrospective premium adjustment or other experience-
based liability on the part of any Brown Party; (6) taken together, the policies
provide adequate insurance coverage for the assets and the operations of the
Brown Parties for all risks normally insured against by a Person carrying on the
same business or businesses as the Brown Parties; and (7) no party to the policy
has repudiated any provision thereof. Each Brown Party has been covered during
the past five (5) years by insurance in scope and amount customary and
reasonable for the businesses in which it has engaged during the aforementioned
period. Schedule 4.17 describes any self-insurance arrangements affecting the
Brown Parties. Schedule 4.17 further lists and describes all claims for payment
made by any Brown Party within the previous five (5) years under any such
insurance policy listed on that Schedule. Brown has furnished to Caldwell copies
of each insurance policy listed on Schedule 4.17.
4.18 Intellectual Property.
(a) Definition of Intellectual Property. The term "Intellectual
Property" as used in this Agreement shall mean and include all of the following:
(1) the names Brown Steel Contractors, Inc., Brown Tanks, Inc., Aqua Tanks,
Inc., Brown Steel Services, Inc., all fictional business names, trading names,
registered and unregistered trademarks, service marks and applications
(collectively, "Marks"); (2) all patents, patent applications and inventions and
discoveries that may be patentable (collectively, "Patents"); (3) all original
works of authorship fixed in any tangible medium protected by the Copyright Act,
17 U.S.C. (S)101 et seq. (collectively, "Copyrights"); (4) all rights in mask
works (collectively, "Rights in Mask Works"); and (5) all know-how, trade
secrets, confidential information, customer lists, technical information, data,
process technology, plans, forecasts, drawings and blue prints (collectively,
"Trade Secrets").
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(b) Ownership of Intellectual Property. The Brown Parties own or have
the right to use all of the Intellectual Property necessary or desirable for the
operation of their businesses as they are currently conducted. Except for the
Intellectual Property licensed by the Brown Parties as a licensee, the Brown
Parties own all right, title, and interest in and to all of the Intellectual
Property, free and clear of all liens, security interests, charges,
encumbrances, equities, and other adverse claims, and have the right to use all
of such Intellectual Property without payment to a third party.
(c) Patents. Set forth on Schedule 4.18(c), is a complete and
accurate list and summary description of all Patents owned or used by the Brown
Parties. Except as disclosed on Schedule 4.18(c): (1) all of the issued Patents
are currently in compliance with all applicable laws and regulations (including
payment of filing, examination, and maintenance fees and proofs of working or
use), are valid and enforceable, and are not subject to any maintenance fees or
taxes or actions falling due within 90 days after the Closing Date; (2) no
Patent has been or is now involved in any interference, reissue, reexamination,
or opposition proceeding and, to the knowledge of the Brown Parties, GSAC and
Matrix, there is no potentially interfering patent or patent application of any
third party; (3) no Patent is infringed or, to the knowledge of Brown, GSAC, the
Subsidiaries and Matrix, has been challenged or threatened in any way; (4) none
of the products manufactured and sold, nor any process or know-how used, by the
Brown Parties infringes or is alleged to infringe any patent or other
proprietary right of any other Person; and (5) all products made, used, or sold
under the Patents have been marked with the proper patent notice.
(d) Marks. Set forth on Schedule 4.18(d) is a complete and accurate
list and summary description of all Marks. Except as disclosed on Schedule
4.18(d): (1) The Brown Parties are the owners of all right, title, and interest
in and to each of the Marks, free and clear of all liens, security interests,
charges, encumbrances, equities, and other adverse claims; (2) all Marks that
have been registered with the United States Patent and Trademark Office are
currently in compliance with all formal laws and regulations (including the
timely post-registration filing of affidavits of use and incontestability and
renewal applications), are valid and enforceable, and are not subject to actions
falling due within 90 days after the Closing Date; (3) no Mark has been or is
now involved in any opposition, invalidation, cancellation or infringement
action and, to the knowledge of Brown, GSAC, the Subsidiaries and Matrix, no
such action is threatened against any of the Marks; (4) none of the
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Marks used by the Brown Parties infringes or is alleged to infringe any trade
name, trademark or service mark of any third party, nor, to the knowledge of
Brown, GSAC, the Subsidiaries and Matrix, is there any potentially interfering
trademark or trademark application of any other Person; and (5) all products and
materials containing a Mark bear the proper federal registration notice where
permitted by law.
(e) Copyrights. Set forth on Schedule 4.18(e) is a complete and
accurate list and summary description of all Copyrights. Except as disclosed on
Schedule 4.18(e): (1) Each Brown Party is the owner of all right, title, and
interest in and to each of the Copyrights, free and clear of all Encumbrances
and other adverse claims; (2) all the Copyrights have been registered and are
currently in compliance with formal legal requirements, are valid and
enforceable, and are not subject to any taxes or actions falling due within 90
days after the date of Closing; (3) no Copyright is infringed or to the
knowledge of Brown, GSAC, the Subsidiaries and Matrix, has been challenged or
threatened in any way; (4) none of the subject matter of any of the Copyrights
infringes or is alleged to infringe any copyright of any third party or is a
derivative work based on the work of a third party.
(f) Trade Secrets. To the knowledge of GSAC, Matrix and Brown, (i)
each Trade Secret, and the documentation relating to such Trade Secret is
current, accurate, and sufficient in detail and content to identify and explain
it and to allow its full and proper use without reliance on the knowledge or
memory of any individual, (ii) Matrix, GSAC, Brown and the Subsidiaries have
taken all reasonable precautions to protect the secrecy, confidentiality, and
value of the Trade Secrets, (iii) the Brown Parties have good title and an
absolute and exclusive right to use the Trade Secrets, (iv) the Trade Secrets
are not part of the public knowledge or literature, and have not been used,
divulged or appropriated either for the benefit of any other person or to the
detriment of the Brown Parties, and (v) no Trade Secret is subject to any
adverse claim has been challenged or threatened in any way.
(g) Royalties. Schedule 4.18(g) contains a complete and accurate list
and summary description, including any royalties paid or received by the Brown
Parties, of all agreements or contracts relating to any of the Intellectual
Property to which any of Brown Parties is a party or by
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which it is bound, except for any license implied by the sale of a product and
perpetual, paid-up licenses for commonly available programs with a value of less
than $10,000 under which such Brown Party is the licensee. There are no
outstanding and to the knowledge of Brown, GSAC, the Subsidiaries and Matrix, no
threatened disputes or disagreements relating to any such agreement.
(h) Employee Agreements. Except as set forth in Schedule 4.18(h), all
former and current employees of the Brown Parties have executed written
agreements with such Brown Parties that assign to such Brown Parties all rights
to any inventions, improvements, discoveries, or information relating to the
business of such Brown Parties. No employee of any Brown Party has entered into
any agreement that restricts or limits in any way the scope or type of work in
which the employee may be engaged or requires the employee to transfer, assign,
or disclose information concerning his work to anyone other than Brown.
4.19 Inventory. All Inventory of the Brown Parties, consists of a
quality and quantity usable and salable in the Ordinary Course of Business of
the Brown Parties, except for obsolete items and items of below-standard
quality, all of which have been written off or written down to net realizable
value on the accounting records of the Brown Parties as of the date hereof, as
the case may be. All Inventories not written off have been priced at the lower
of cost or market on a first in, first out basis. The quantities of each item
of Inventory (whether raw materials, work-in-process, or finished goods) are not
excessive, but are reasonable in the present circumstances of the Brown Parties.
The Inventory obsolescence policies of the Brown Parties are appropriate for the
nature of the products sold and the marketing methods used by the Brown Parties,
the reserve for Inventory obsolescence contained in the financial books and
records of the Brown Parties as of the date hereof fairly reflects the amount of
obsolete Inventory as of the date hereof, and the reserve for Inventory
obsolescence to be contained in the books and records of the Brown Parties as of
the Closing Date will fairly reflect the amount of obsolete Inventory as of the
Closing Date. No items included in the Inventories are pledged as collateral or
held by the Brown Parties on consignment from another Person.
4.20 Labor Relations; Compliance. No Brown Party has been nor is it
now a party to any collective bargaining or other labor contract. There has not
been, there is not presently pending
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or existing, and to the knowledge of Brown, GSAC, the Subsidiaries and Matrix
there is not Threatened, (a) any strike, slowdown, picketing, work stoppage or
employee grievance process, (b) any Proceeding against or affecting any Brown
Party relating to the alleged violation of any Legal Requirement pertaining to
labor relations or employment matters, including any charge or complaint filed
by an employee or union with the National Labor Relations Board, the Equal
Employment Opportunity Commission, or any comparable Governmental Body,
organizational activity, or other labor or employment dispute against or
affecting any Brown Party or its premises, or (c) any application for
certification of a collective bargaining agent. No event has occurred or
circumstance exists that could provide the basis for any work stoppage or other
labor dispute. There is no lockout of any employees by any Brown Party, and no
such action is contemplated by any Brown Party. Each Brown Party has complied in
all material respects with all Legal Requirements relating to employment, equal
employment opportunity, nondiscrimination, immigration, wages, hours, benefits,
collective bargaining, the payment of social security and similar taxes,
occupational safety and health, and plant closing. No Brown Party is liable for
the payment of any compensation, damages, taxes, fines, penalties, or other
amounts, however designated, for failure to comply with any of the foregoing
Legal Requirements.
4.21 Litigation; Compliance With Legal Requirements, Etc.
(a) Proceedings. Except as set forth on Schedule 4.21(a), and except
for (i) Claims or Proceedings against or involving any of the Benefit Plans of
the Brown Parties (which are the subject of Section 4.14(c)), (ii) Claims or
Proceedings resulting from any Environmental, Health and Safety Liabilities or
arising under or pursuant to any Environmental Law (which are the subject of
Section 4.16(b)), (iii) Proceedings against or affecting any Brown Party
relating to the alleged violation of any Legal Requirement pertaining to labor
relations or employment matters (which are the subject of Section 4.20(b)), and
(iv) Claims or Proceedings pending or proposed against any Brown Party relating
to any Taxes or assessments or any Claims or deficiencies with respect thereto
(which are the subject of Section 4.28(b)), there is no Claim or Proceeding
pending or, to the knowledge of Brown, GSAC, the Subsidiaries or Matrix,
Threatened, against or relating to any Brown Parties or its properties or
assets. Brown, GSAC, the Subsidiaries and Matrix do not know or have any
reasonable grounds to know of any basis or alleged basis for any such Claim or
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Proceedings or of any governmental investigation relative to the Brown Parties,
its properties or assets, and no event has occurred, nor does any circumstance
exist, that may give rise to or serve as a basis for the commencement of any
such Claim or Proceedings. No event or condition of any nature which might have
a material adverse effect on the business, financial condition, results of
operations or assets or properties of any Brown Party has occurred, exists or,
to the knowledge of Brown, GSAC, any Subsidiary or Matrix, is anticipated. To
the knowledge of Brown, GSAC, any Subsidiary and Matrix, no legislative or
regulatory proposal has been adopted or is pending which could have a material
adverse effect on the business, financial condition, results of operations or
assets or properties of any Brown Party. The Proceedings listed on Schedule
4.21(a)shall not have a material adverse effect on the business, financial
condition, results of operations or assets or properties of any Brown Party.
(b) Orders. Except as set forth in Schedule 4.21(b),(1) there is no
Order to which any Brown Party, or any of the assets owned or used by any Brown
Party, is subject; (2) Matrix and GSAC are not subject to any Order that relates
to the business of, or any of the assets owned or used by any Brown Party; and
(3) to the knowledge of Brown, GSAC, any Subsidiary and Matrix no officer,
director, agent, or employee of any Brown Party is subject to any Order that
prohibits such officer, director, agent, or employee from engaging in or
continuing any conduct, activity or practice relating to the business of any
Brown Party. Except as set forth in Schedule 4.2(b)1: (A) each Brown Party is,
and at all times has been, in full compliance with all of the terms and
requirements of each Order to which it, or any of the assets owned or used by
it, is or has been subject; (B) no event has occurred, nor does any circumstance
exist that may constitute or result in (with or without notice or lapse of time)
a violation of or failure to comply with any term or requirement of any Order to
which any Brown Party, or any of the assets owned or used by any Brown Party, is
subject; and (C) no Brown Party has received any notice or other communication
(whether oral or written) from any Governmental Body or any other Person
regarding any actual, alleged, possible, or potential violation of, or failure
to comply with, any term or requirement of any Order to which such Brown Party,
or any of the assets owned or used by such Brown Party, is or has been subject.
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4.22 No Agent, Finder or Broker. No Brown Party has any Liability or
obligation, contingent or otherwise, to pay any fees or commissions to any
agent, broker or finder with respect to the transactions contemplated in this
Agreement or the Ancillary Documents.
4.23 Products.
(a) Product Warranties. Each product manufactured, sold, leased or
delivered by the Brown Parties (or any of them) has been in conformity with all
applicable contractual commitments and all express and implied warranties, and
no Brown Party has Liability (nor is there any basis for any present or future
Proceedings against it giving rise to any Liability) for replacement or repair
thereof or other damages in connection therewith, subject only to the reserve
for product warranty claims set forth on the face of the Interim Balance Sheet
(rather than in any notes thereto) as adjusted for the passage of time through
the Closing Date in the Ordinary Course of Business of the Brown Parties. No
product manufactured, sold, leased or delivered by the Brown Parties is subject
to any guaranty, warranty, or other indemnity beyond the applicable standard
terms and conditions of sale or lease. Schedule 4.23(a) includes copies of the
standard terms and conditions of sale or lease for the Brown Parties (containing
applicable guaranty, warranty, and indemnity provisions).
(b) Product Liability. No Brown Party has Liability (nor is there
any basis for any present or future Proceedings against it giving rise to any
Liability) arising out of any injury to individuals or property as a result of
the ownership, possession or use of any product manufactured, sold, leased or
delivered by any of the Brown Parties.
4.24 Real Property.
(a) Owned Real Property. Schedule 4.24(a) lists and describes
briefly all real property that any Brown Party owns. With respect to each such
parcel of owned real property:
(1) the relevant Brown Party has good and marketable title to the
parcel of real property, free and clear of any Encumbrances (other than
Permitted Encumbrances), except as set forth on Schedule 4.24(a)(1);
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(2) there are no pending, or to the knowledge of Brown, GSAC, the
Subsidiaries and Matrix, Threatened condemnation Proceedings relating to the
property or other matters affecting materially and adversely the current use,
occupancy or value thereof;
(3) the legal description for the parcel contained in the deed
thereof describes such parcel fully and adequately, the buildings and
improvements are located within the boundary lines of the described parcels of
land, are not in violation of applicable setback requirements, zoning laws and
ordinances (and none of the properties or buildings or improvements thereon
are subject to "permitted non-conforming use" or "permitted non-conforming
structure" classifications), and do not encroach on any easement which may
burden the land, and the land does not serve any adjoining property for any
purpose inconsistent with the use of the land, and the property is not located
within any flood plain or subject to any similar type restriction for which
any permits or licenses necessary to the use thereof have not been obtained;
(4) all facilities have received all Governmental Authorizations
required in connection with the ownership or operation thereof and have been
operated and maintained in accordance with all applicable Legal Requirements;
(5) there are no leases, subleases, licenses, concessions or other
agreements, written or oral, granting to any other Person the right of use or
occupancy of any portion of the parcel of real property;
(6) there are no outstanding options or rights of first refusal to
purchase the parcel of real property, or any portion thereof or interest
therein;
(7) there are no Persons (other than Brown) or Governmental Bodies
in possession of the parcel of real property, other than tenants under any
leases disclosed in Schedule 424 who are in possession of space to which they
are entitled;
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(8) all facilities located on the parcel of real property are
supplied with utilities and other services necessary for the operation of such
facilities, including gas, electricity, water, telephone, sanitary sewer, and
storm sewer, all of which services are adequate in accordance with all
applicable Legal Requirements and are provided via public roads or via
permanent, irrevocable, appurtenant easements benefitting the parcel of real
property; and
(9) each parcel of real property abuts on and has direct vehicular
access to a public road, or has access to a public road via a permanent,
irrevocable, appurtenant easement benefitting the parcel of real property, and
access to the property is provided by paved public right-of-way with adequate
curb cuts available.
(b) Leased Real Property. Schedule 4.24(b) lists and describes
briefly all real property leased or subleased to any Brown Party (and all
related lease and sublease agreements), and also identifies the leased or
subleased properties for which title insurance policies are to be procured in
accordance with Section 6.4. Brown has delivered to Caldwell correct and
complete copies of the leases and subleases listed in Schedule 4.24(b), as
amended. With respect to each lease and sublease agreement listed in Schedule
4.24(b):
(1) there are no disputes, oral agreements, or forbearance programs
in effect as to the lease or sublease;
(2) the relevant Brown Party has not assigned, transferred,
conveyed, mortgaged, deeded in trust or encumbered any interest in the
leasehold or subleasehold;
(3) all facilities leased or subleased thereunder have received all
approvals of Governmental Authorities (including licenses and permits)
required in connection with the operation thereof and have been operated and
maintained in accordance with all Legal Requirements;
(4) all facilities leased or subleased thereunder are supplied with
utilities and other services necessary for the operation of said facilities;
and
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(5) to the knowledge of Brown, GSAC, the Subsidiaries and Matrix,
the owner of the facility leased or subleased has good and marketable title to
the parcel of real property, free and clear of any Encumbrance, except for
installments of special assessments not yet delinquent and recorded easements,
covenants, and other restrictions which do not materially impair the current
use, occupancy, or value, or the marketability of title, of the property
subject thereto.
4.25 Similar Business Ownership. Except as set on Schedule 4.25,
neither GSAC, Matrix, any of its Affiliates other than Brown, nor any officer,
director or employee of Brown, GSAC, Matrix or such Affiliates, nor any family
member of any of them, (a) owns, directly or indirectly, any interest in, or is
an officer, director or principal of, any corporation, partnership,
proprietorship, association or other entity which is engaged in a business
similar to that of any Brown Party, which has conducted any business of any type
whatsoever with any Brown Party, or which is a party to any contract or
agreement to which any Brown Party is a party or to which it may be bound, (b)
has directly or indirectly engaged in any transaction with any Brown Party,
except transactions inherent in the capacity of such person as an officer,
director or employee, or (c) owns, directly or indirectly, in whole or in part,
any property, assets or rights, real, personal or mixed, tangible or intangible,
which are associated with or necessary for the use, operation or conduct of any
of the businesses, assets or operations of any Brown Party.
4.26 Status of Contracts and Leases. Each of the WIP Contracts, the
Other Agreements and the other contracts and agreements listed on Schedule 4.13
(collectively, the "Brown Agreements"), constitutes a legal, valid, binding and
enforceable obligation of the parties thereto and is in full force and effect,
and except for those Brown Agreements which by their terms shall expire prior to
the Closing Date or are, with the prior written consent of Caldwell, otherwise
terminated prior to the Closing Date in accordance with the provisions thereof,
the transactions contemplated in this Agreement shall not have a material
adverse effect on the Brown Agreements, and they shall continue in full force
and effect thereafter, in each case without breaching the terms thereof or
resulting in the forfeiture or impairment of any rights thereunder, and without
the consent, approval or act of, or the making of any filing with, any other
party. Each Brown Party has fulfilled and performed in all material respects its
obligations under each of Brown Agreements, and the Brown
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Parties are not in, or alleged to be in, breach or default under, nor is there
or is there alleged to be any basis for termination of, any of the Brown
Agreements and, to the knowledge of Brown, GSAC, the Subsidiaries and Matrix, no
other party to any of the Brown Agreements has breached or defaulted thereunder,
and no event has occurred and no condition or state of facts exists which, with
the passage of time or the giving of notice or both, would constitute such a
default or breach by Brown or, to the knowledge of Brown, GSAC, the Subsidiaries
and Matrix, by any such other party. No Brown Party is currently renegotiating
any of the Brown Agreements or paying liquidated damages in lieu of performance
thereunder. None of the Brown Agreements contains terms unduly burdensome or
harmful to any Brown Party. True and complete copies of each of the Brown
Agreements have heretofore been delivered to Caldwell and Caldwell Tanks by
Brown. No party has repudiated any provision of any Brown Agreement, and there
are no existing disputes between Brown and the other parties thereto.
4.27 Studies. Brown has delivered to Caldwell and Caldwell Tanks
copies of all engineering studies, environmental impact reports or assessments
and other reports and studies that are material to the businesses of the Brown
Parties.
4.28 Taxes; Tax Returns; Tax Elections.
(a) Definition of Tax and Tax Return. The term "Tax" as used herein
shall mean any taxes, however denominated, including income tax, capital gains
tax, value-added tax, sales tax, property tax, gift tax, estate tax, capital
stock, franchise, profits, withholding, social security (or similar),
unemployment, disability, sales, use, transfer, registration, alternative or
add-on minimum, estimated, or other tax of any kind whatsoever and any related
charge or amount (including any fine, penalty, interest or addition to tax),
imposed, assessed or collected by or under the authority of any Governmental
Body or payable pursuant to any tax-sharing agreement or any other arrangement
relating to the sharing or payment of any such tax, levy, assessment, tariff,
duty, deficiency or fee, including any interest, penalty, or addition thereto,
whether disputed or not. The term "Tax Returns" as used herein shall mean any
return (including any information return), report, declaration of estimated
Taxes, statement, schedule, notice, form, or other document or information filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with
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the determination, assessment, collection, or payment of any Tax or in
connection with the administration, implementation, or enforcement of or
compliance with any Legal Requirement relating to any Tax.
(b) Tax Returns. Each Brown Party has prepared, signed and filed all
Tax Returns required to be filed prior to the date hereof. Included in Schedule
4.28 are copies of all Tax Returns relating to income and franchise Taxes filed
by the Brown Parties since 1994. All Tax Returns were correct and complete in
all respects, and the Brown Parties have timely paid or accrued all Taxes or
installments thereof of every kind and nature whatsoever which were due and
owing on Tax Returns or which were or are otherwise due and owing under all
applicable laws and regulations for any periods for which Tax Returns were due,
whether or not reflected on the Tax Returns. The provision for Taxes in the
Acquisition Balance Sheet is sufficient for the payment of all Taxes
attributable to all periods ended on or before May 31, 1998, and ade quate
accruals have been made by the Brown Parties for all liabilities for Taxes
accruing since the date of the Acquisition Balance Sheet. There are no
Proceedings, investigations or Claims now pending, nor, to the knowledge of
Brown, GSAC, the Subsidiaries and Matrix, proposed against any Brown Party, nor
are there any matters under discussion with the IRS, or any other Governmental
Body, relating to any Taxes or assessments, or any Claims or deficiencies with
respect thereto. The federal income Tax Returns of the Brown Parties have not
been audited by the IRS or relevant state authorities, except as set forth on
Schedule 4.28(b).
(c) Tax Basis and Tax Attributes. Schedule 4.28(c) contains accurate
and complete description of the Brown Parties' respective basis in their assets.
The current and accumulated earnings and profits of the Brown Parties, its tax
carryovers and tax elections are described in Schedule 4.28(c). Except as set
forth on Schedule 428, the Brown Parties have no net operating losses, or other
tax attributes presently subject to limitation under sections 382, 383 or 384 of
the Code.
(d) Tax Elections. The Brown Parties are not United States real
property holding corporations within the meaning of section 897(c)(2) of the
Code during the applicable period specified in section 897(c)(1)(A)(ii) of the
Code, and Caldwell is not required to withhold tax on the
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purchase of the Shares by reason of section 1445 of the Code. Neither GSAC nor
Matrix is a "foreign person" within the meaning of section 1445 of the Code. The
Brown Parties are not "consenting corporations" under section 341(f) of the
Code. The Brown Parties have not agreed, nor are they required to make, any
adjustment under section 481(a) of the Code by reason of a change in accounting
method or otherwise.
(e) Withholdings. Each Brown Party has withheld proper and accurate
amounts from its employees in full and complete compliance with the Tax
withholding provisions of the Code and other applicable Legal Requirements, and
has filed proper and accurate federal, foreign, state and local Tax Returns and
reports for all years and periods (and portions thereof) for which any Tax
Returns were due with respect to employee income, income Tax withholding,
withholding Taxes, social security taxes and unemployment Taxes. All payments
due from any Brown Party on account of employee Tax withholdings, including
income Tax withholdings, social security Taxes or unemployment Taxes in respect
to years and periods (and portions thereof) ended on or prior to the date hereof
were paid prior to such date on or before their due date.
(f) Waivers of Statute of Limitations. Except as set forth on
Schedule 4.28(f), the Brown Parties have not waived any statute of limitations
in respect of Taxes or agreed to any extension of time with respect to any Tax
assessment or deficiency.
(g) Tax Agreements. Except as set forth on Schedule 4.28(g), the
Brown Parties are not, nor have they ever been, a party to any tax allocation or
sharing agreement. No Brown Party has any liability for the Taxes of any
corporation or other entity under Treas. Reg. (S)1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or successor, by
contract, or otherwise.
(h) Preparation of Tax Returns; Payment of Taxes. Matrix (i) shall
cause Brown and each Subsidiary, for all taxable periods of Brown and each
Subsidiary ending (or the portion of any taxable period ending) on or prior to
the Closing Date, to be included in, and shall prepare and file or cause to be
filed, the United States consolidated federal income Tax Returns of Matrix or
its Affiliates and, where applicable, all other consolidated, combined or
unitary Tax Returns of Matrix
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or its Affiliates, and (ii) shall prepare and file or cause to be filed all
other Tax Returns of or which include Brown and each Subsidiary, that are
required to be filed (taking into account any extensions) on or prior to the
Closing Date and shall pay any and all Taxes due with respect to the Tax Returns
referred to in clauses (i) and (ii) of this subparagraph, including, but not
limited to, any liability due with respect to any 338 Election. All Tax Returns
described in this subsection (h) shall be prepared in a manner consistent with
prior practice unless otherwise required by applicable Legal Requirements
relating to Taxes.
(i) Filings By Caldwell Tanks. Following the Closing, Caldwell Tanks
shall prepare or cause to be prepared and file or cause to be filed all Tax
Returns required of Brown and each Subsidiary for periods ending after the
Closing Date and shall report on such returns (including any consolidated United
States federal income Tax Return filed by Caldwell Tanks) any transactions by or
relating to Brown and each Subsidiary occurring after the Closing Date. To the
extent any Taxes shown as due on such Tax Returns are the responsibility of
Matrix or GSAC as contemplated in this Agreement or in any Ancillary Document,
(i) such Tax Returns shall be prepared in a manner consistent with prior
practice unless otherwise required by applicable Legal Requirements relating to
Taxes, (ii) Caldwell Tanks shall provide Matrix with copies of each such Tax
Return at least 20 days prior to the due date for filing such return, and (iii)
Matrix shall have the right to review and approve (which approval shall not be
unreasonably withheld) such Tax Returns for 10 days following receipt thereof.
Matrix and Caldwell Tanks shall attempt in good faith to mutually resolve any
disagreements regarding such Tax Returns prior to the due date for filing
thereof. Any disagreements regarding such Tax Returns which are not resolved
prior to the filing thereof shall be promptly resolved by arbitration as
provided in Section 11; provided, that such arbitration proceeding shall not
prevent Caldwell or Caldwell Tanks from filing all such disputed Tax Returns on
a timely basis with the appropriate taxing authorities. The fees and expenses
of the arbitrator(s) shall be borne equally by Matrix and Caldwell Tanks.
Caldwell or Caldwell Tanks shall file or cause to be filed all such Tax Returns
and shall, subject to receiving the payments from Matrix referred to in
subsection (j) below, pay or cause to be paid the Taxes shown as due thereon;
provided, however, that nothing contained in the foregoing shall in any manner
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terminate, limit or adversely affect any right of Caldwell, Caldwell Tanks or
Brown to receive indemnification pursuant to any provision in this Agreement.
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(j) Payment By Matrix. Not later than five days before the
due date for payment of Taxes with respect to any Tax Returns which Caldwell or
Caldwell Tanks has the responsibility to file, Matrix shall pay to Caldwell an
amount equal to that portion of the Taxes shown on such return for which GSAC
has an obligation to pay and discharge as contemplated in Section 2.5(b) and
Matrix and GSAC have an obligation to indemnify the Caldwell Indemnitees (or any
of them) pursuant to the provisions of Section 10.2 hereof.
(k) Closure of Taxable Year. For federal income Tax
purposes, the taxable year of the Brown Parties shall end as of the close of the
Closing Date and, with respect to all other Taxes, Matrix and Caldwell Tanks
will, unless prohibited by applicable Legal Requirements, close the taxable
period of Brown and each Subsidiary as of the Closing on the Closing Date.
Neither Matrix nor Caldwell Tanks shall take any position inconsistent with the
preceding sentence on any Tax Return, except as otherwise required by Legal
Requirements. In any case where Legal Requirements do not permit Brown and each
Subsidiary to close its taxable year on the Closing Date or in any case in which
a Tax is assessed with respect to a taxable period which includes the Closing
Date (but does not begin or end on that day), then Taxes, if any, attributable
to the taxable period of Brown or the relevant Subsidiary, as the case may be,
beginning before and ending after the Closing Date shall be allocated (i) to
Matrix for the period up to and including the Closing Date, and (ii) to Caldwell
Tanks, Caldwell or Brown (as applicable) for the period subsequent to the
Closing Date. Any allocation of income or deductions required to determine any
Taxes attributable to any period beginning before and ending after the Closing
Date shall be made by means of a closing of the books and records of the Brown
Parties as of the close of the Closing Date, provided that exemptions,
allowances or deductions that are calculated on an annual basis (including, but
not limited to, depreciation and amortization deductions) shall be allocated
between the period ending on the Closing Date and the period after the Closing
Date in proportion to the number of days in each such period. The foregoing
allocation of responsibility for Taxes as between Matrix, on the one hand, and
Caldwell Tanks, Caldwell or Brown (as applicable), on the other hand, shall
include without limitation, any property Taxes assessed on or with respect to
the assets or properties of the Brown Parties at any time prior to or following
the Closing, and attributable to any taxing period in which the Closing Date
falls, whether or not such Taxes are due and payable as of the Closing or in
that taxing period.
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(l) Cooperation. Caldwell Tanks and Matrix agree to furnish
or cause to be furnished to each other, and each at their own expense, as
promptly as practicable, such information (including access to books and
records) and assistance, including making employees available on a mutually
convenient basis to provide additional information and explanations of any
material provided, relating to Brown and each Subsidiary as is reasonably
necessary for the filing of any Tax Return, for the preparation for any audit,
and for the prosecution or defense of any claim, suit or proceeding relating to
any adjustment or proposed adjustment with respect to Taxes. Matrix shall retain
in its possession all Tax Returns and Tax records relating to the Brown Parties
that are or might reasonably be expected to become relevant to any computations
or payments required after the Closing Date with respect to Tax matters relating
to any taxable period (or portions thereof) ending on or prior to the Closing
Date until the relevant statute of limitations has expired, and shall afford
Caldwell, Caldwell Tanks and Brown reasonable access to all such Tax Returns and
Tax records, from time-to-time, upon their request. After such time, Matrix may
dispose of such materials, provided that prior to such disposition Matrix shall
give Caldwell Tanks a reasonable opportunity to take possession of such
materials. Caldwell, Caldwell Tanks, Brown and each Subsidiary shall retain in
their possession, and shall provide Matrix reasonable access to (including the
right to make copies of), such supporting Tax books and records relating to
Brown and each Subsidiary that are or might reasonably be expected to become
relevant to computations or payments with respect to material Tax matters
relating to any taxable period (or portions thereof) ending after the Closing
Date, until the relevant statute of limitations has expired (or prior thereto
with Matrix's consent).
(m) Notices. Each of Caldwell Tanks and Matrix shall
promptly notify the other in writing of its receipt of notice of any pending or
threatened federal, state, local or foreign Tax audits, assessments or other
dispute affecting the Tax reporting positions of Brown or any Subsidiary for
taxable periods (or portions thereof) ending on or prior to the Closing Date.
The failure of Caldwell Tanks or Matrix to timely forward such notification in
accordance with the immediately preceding sentence shall not relieve the other
Party or its Affiliate of its obligation to pay such liability for Taxes except
and to the extent that the failure to timely forward such notification actually
prejudices the ability of the other Party or such Affiliate to contest such
liability for Taxes or increases the amount of such Taxes.
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(n) Matrix Representation. Matrix shall have the right to
represent the interests of Brown and each Subsidiary in any Tax audit or
administrative or court proceeding relating to taxable periods ending on or
prior to the Closing Date and to employ counsel of its choice at its expense,
and Caldwell Tanks shall have the right to consult with Matrix during such
proceedings at its own expense. Caldwell Tanks agrees that it shall cooperate
fully, and cause Brown and each Subsidiary to cooperate fully, with Matrix and
its counsel in the defense against or compromise of any claim in said
proceeding, and Matrix agrees that it shall pay any reasonable third party out
of pocket expenses incurred by Caldwell Tanks, Brown or any Subsidiary in
connection therewith. Notwithstanding the foregoing, if the results of such Tax
audit or proceeding reasonably could be expected to have a material adverse
effect on the assets, business, operations, Tax position or financial condition
of Caldwell Tanks, Caldwell or Brown or any of their Affiliates for taxable
periods ending after the Closing Date, then there shall be no settlement or
closing or other agreement with respect thereto without the written consent of
Caldwell Tanks (which consent shall not be unreasonably withheld or delayed).
(o) Joint Representation. Matrix and Caldwell Tanks jointly
shall represent the interests of Brown and each Subsidiary in any Tax audit or
administrative or court proceeding relating to any taxable period of Brown or
such Subsidiary which includes (but does not begin or end on) the Closing Date.
Any disputes regarding the conduct or resolution of an such audit or proceeding
shall be resolved by arbitration as provided in Section 11. The fees and
expenses of the arbitrator(s) shall be borne equally by Matrix and Caldwell
Tanks. All other costs, fees and expenses paid to third parties in the course of
such audit or proceeding shall be borne by Matrix and Caldwell Tanks in the same
ratio as the ratio in which, pursuant to the terms of this Agreement, Matrix and
Caldwell Tanks would share the responsibility for payment of the Taxes asserted
by the taxing authority in such claim or assessment if such claim or assessment
were sustained in its entirety.
(p) Caldwell Tanks' Representation. Caldwell Tanks shall
have the sole right to represent the interests of Brown and each Subsidiary in
all other Tax audits or administrative or court proceedings except in the event
and to the extent they involve Taxes for which Matrix or GSAC has agreed to be
responsible pursuant to this Agreement or any Ancillary Document, in which event
the provisions of subsection (n) shall apply.
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(q) Refunds, Etc. Matrix shall be entitled to retain any Tax
refund (including, without limitation, refunds arising by reason of amended
returns filed after the Closing Date) or credit of federal, state, local or
foreign Taxes (plus any interest thereon received with respect thereto from the
applicable taxing authority) relating to Brown and each Subsidiary that is paid
after the Closing Date with respect to (i) any period ending on or prior to the
Closing Date, (ii) the 338 Election or (iii) any period which includes the
Closing Date but does not begin or end on that day, provided that in the case of
any Tax refund described in clause (iii) of this subsection (q), the portion of
such Tax refund that shall belong to Matrix shall be that portion that is
attributable to the portion of that period which ends on the Closing Date
(determined on the basis of an interim closing of the books as of the Closing
Date), and Brown, Caldwell Tanks or Caldwell shall pay any such refund, and the
interest actually received thereon, to Matrix promptly upon receipt thereof.
Caldwell Tanks shall be entitled to the benefit of any and all other refunds or
credits of federal, state, local or foreign Taxes relating to the Brown Parties.
Matrix and Caldwell Tanks agree to cooperate, and Caldwell Tanks agrees to cause
Caldwell, Brown and each Subsidiary and their Affiliates to cooperate with
Matrix, after the Closing Date, with respect to claiming any refund referred to
in this subsection (q), including notifying Matrix or Caldwell Tanks, as the
case may be, of the existence of any facts known to them that would constitute a
reasonable basis for claiming such a refund, providing all relevant information
available to and known to Matrix or Caldwell Tanks (through Brown or otherwise),
as the case may be, with respect to any such claim, filing and diligently
pursuing such claim, and in the case of the Party filing such a claim,
consulting with the other Party prior to agreeing to any disposition of such
claim.
(r) Payment of Certain Tax Assessments. Matrix and GSAC
jointly and severally agree to pay and discharge, as and when due, any and all
Taxes assessed against any of the Brown Parties, or their respective assets or
properties, by virtue of their being members of the consolidated reporting group
of Matrix for the tax year in which the Closing occurs, whether attributable to
the income, assets or operations of members of that reporting group prior to the
Closing or during the remainder of that tax year following the Closing.
(s) Effectiveness; Not Representations or Warranties. The
Parties agree that their respective covenants and agreements set forth in
Subsections (h) through (r), inclusive, above shall
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be effective and binding on the relevant Parties only to the extent the Closing
shall occur, and shall not constitute representations or warranties by any
Party, notwithstanding that they are contained in this Section 4.
4.29 Title to Properties. Except for real property (which is the
subject of Section 4.24), the Brown Parties have good and marketable title to
all of their properties, interests in properties and assets, tangible and
intangible, owned or used by them in the business of the Brown Parties
(excluding leased properties) including all of their vehicles, equipment,
furniture and fixtures. Except as set forth in Schedule 4.29, all such
properties, interest in properties and assets of the Brown Parties are free and
clear of all Encumbrances (other than Permitted Encumbrances).
4.30 Contract Price; Billings; Customer Offsets. Exhibit B
---------
attached hereto sets forth a correct and complete listing, by WIP Contract, of
the respective Contract Price and Billings through the date hereof with respect
to all of the WIP Contracts. No customer under any WIP Contract has notified any
Brown Party that it intends to withhold or otherwise deduct any amounts that are
or may be owing by that customer to that Brown Party following the Closing, on
account of or as a set off against any damages incurred by, or indebtedness of
that Brown Party owing to, that customer prior to the Closing. Except as set
forth on Exhibit B, no such customer has prepaid any Brown Party prior to the
---------
Closing for goods or services to be delivered or performed by any Brown Party
following the Closing.
4.31 Bank Accounts. Included as Schedule 4.31 is a true and
complete list of the name of each bank, brokerage firm and other financial
institution with which the Brown Parties have a depositary, trading, margin,
purchase, lending, borrowing or similar account, a line of credit, or from which
the Brown Parties are authorized to effect loans, or any safe deposit boxes, and
the names of all persons authorized to draw on such accounts, effect such loans
or who have access to such safe deposit boxes.
4.32 Brown Family Claims; Dissolution of Georgia Steel
Fabricators. Except as set forth on Schedule 4.32, none of the Brown Parties is
currently indebted or otherwise obligated to Sample D. Brown, Patricia W. Brown,
Alan S. Brown, Mark A. Brown, Leslie C. Binion,
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Matthew K. Brown or Patricia W. Brown, as trustee of the Sample D. Brown
12-30-76 Trusts B, C and D (collectively, the "Browns"), or to any of their
respective personal representatives, heirs, successors or assigns, or any of
them, for any debts, obligations or liabilities of any nature, including without
limitation, any debts, obligations or liabilities arising under or pursuant to
(a) the Stock Purchase Agreement dated as of February 22, 1994, among Matrix,
GSAC, Georgia Steel Fabricators, Inc. and the Browns, or (b) the two Employment
and Non-Competition Agreements of even date therewith between Brown and Mark A.
Brown and Sample D. Brown, respectively (collectively, the "Employment
Agreements"). The terms of the Employment Agreements have expired, and the only
provisions thereof which remain in effect and enforceable are Sections 4 through
16 inclusive. Georgia Steel Fabricators Inc. was dissolved by GSAC prior to the
date hereof in accordance with applicable Georgia Legal Requirements, and no
Brown Party is currently indebted or otherwise obligated to any Person for any
debts, obligations or liabilities previously owing by Georgia Steel Contractors,
Inc.
4.33 Completeness of Statement; Effect of Representations and
Warranties. No representation or warranty of Brown, GSAC or Matrix in this
Agreement contains any untrue statement of a material fact, omits any material
fact necessary to make such representation or war ranty, under the circumstances
which it was made, not misleading, or contains any misstatement of a material
fact. Brown, GSAC and Matrix have disclosed all adverse facts known to them
relating to the representations and warranties. All representations and
warranties contained in this Section 4 are correct and complete as of the date
hereof and shall be correct and complete in all material respects (or, with
respect to representations and warranties that are expressly subject to
materiality or that include a specific dollar threshold, in all respects) as of
the Closing Date as though made then with the Closing Date being substituted for
the date hereof throughout this Section 4. Reference to a document, agreement,
matter or other information in one Exhibit or Schedule shall be deemed a
reference to such document, agreement, matter or information in all other
Exhibits or Schedules, but only to the extent the information or facts required
to be disclosed with respect to such other Exhibits or Schedules are manifest
from a reading of the Exhibit or Schedule itself and not from a reading of the
agreements or other documents annexed thereto, referenced therein or that
constitute a part thereof. Nothing in any auditor's report to Brown, GSAC or
Matrix shall be deemed adequate to disclose an exception to a representation or
warranty made herein. Without limiting the generality
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of the foregoing, the mere listing (or inclusion of a copy) of a document or
other item shall not be deemed adequate to disclose an exception to a
representation or warranty made in this Agreement (unless the representation or
warranty has to do with the existence of the document or other item itself). All
of the representations and warranties made by Brown, GSAC and Matrix are made
with the knowledge, expectation, understanding and desire that Caldwell places
complete reliance there on. Neither the representations and warranties of Brown,
GSAC and Matrix, nor the indemnification obligations of Brown, GSAC and Matrix,
shall be affected, qualified, modified or deemed waived by reason of the fact
that Caldwell knew or should have known that any representation or warranty is
or might be inaccurate in any respect.
5. REPRESENTATIONS AND WARRANTIES OF CALDWELL AND CALDWELL TANKS. Caldwell
and Caldwell Tanks, jointly and severally, hereby represent and warrant to
Matrix and GSAC as follows:
5.1 Corporate Status. Caldwell Tanks is a corporation duly
incorporated and existing under the laws of the Commonwealth of Kentucky, is in
good standing with the Department of State of the Commonwealth of Kentucky, and
is authorized to transact business in such Commonwealth. Caldwell is a limited
liability company duly organized and existing under the laws of the State of
Georgia, is in good standing with the Department of State (or its equivalent) to
the State of Georgia, and is authorized to transact business in that State. They
each have, and at all times have had, full corporate power and authority to own
and lease their properties as such properties are now owned and leased and to
conduct their businesses as and where such businesses have and are now being
conducted.
5.2 Authority; Consents; Enforcement; Noncontravention.
(a) Authority of Caldwell and Caldwell Tanks; Binding
Effect. This Agreement has been duly executed and delivered by Caldwell and
Caldwell Tanks, and constitutes the legal, valid and binding obligation of them,
enforceable against them in accordance with its terms. Caldwell and Caldwell
Tanks have the absolute and unrestricted right, power, authority and capacity to
execute and deliver this Agreement and to perform their obligations under this
Agreement.
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Caldwell and Caldwell Tanks do not need to give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any Governmental Body
in order to consummate the transactions contemplated in this Agreement, other
than the HSR Act filing contemplated in Sections 7.1(g) and 7.2(d).
(b) Noncontravention. Neither the execution and the delivery
of this Agreement or the Ancillary Documents by Caldwell or Caldwell Tanks, nor
their compliance with or the fulfillment of the terms, conditions and provisions
hereof or thereof, will (i) violate any Legal Requirement applicable to them,
any provision of their Articles of Incorporation or Bylaws; or (ii) with notice,
the passage of time or both, conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, any contract, agreement, lease,
license, instrument, arrangement or commitment to which Caldwell or Caldwell
Tanks is a party or by which any of its assets or properties are bound, or (iii)
result in the imposition of or creation of any Encumbrance upon or with respect
to any of the assets or properties owned or used by Caldwell or Caldwell Tanks
(other than such Encumbrances (if any) on the Shares as may be created pursuant
to Caldwell's or Caldwell Tanks' financing of the Purchase Price), or (iv)
require any notice under any agreement, contract, lease, license, instrument, or
other arrangement to which Caldwell or Caldwell Tanks is a party or by which it
is bound or to which any of its assets or properties are subject; or (v) require
the approval, consent, authorization or act of, or the making by Caldwell or
Caldwell Tanks of any declaration, filing or registration with, any Person.
5.3 No Agent, Finder or Broker. Caldwell and Caldwell Tanks have
no Liability or obligation, contingent or otherwise, to pay any fees or
commissions to any agent, broker or finder with respect to the transactions
contemplated in this Agreement.
5.4 Investment Intent. Caldwell is acquiring the Shares solely for
its own account for investment purposes, and not with a view to the distribution
thereof.
5.5 Completeness of Statement; Effect of Representations and
Warranties. No representation or warranty of Caldwell or Caldwell Tanks in this
Agreement contains any untrue
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statement of a material fact, omits any material fact necessary to make such
representation or warranty, under the circumstances which it was made, not
misleading, or contains any misstatement of a material fact. Caldwell and
Caldwell Tanks have disclosed all adverse facts known to them relating to the
representations and warranties. The representations and warranties of Caldwell
and Caldwell Tanks contained in this Section 5 are correct and complete as of
the date hereof and shall be correct and complete in all material respects as of
the Closing Date as though made then with the Closing Date being substituted for
the date hereof throughout this Section 5. All of the representa tions and
warranties made by Caldwell and Caldwell Tanks are made with the knowledge,
expectation, understanding and desire that Matrix and GSAC place complete
reliance thereon. Neither the representations and warranties of Caldwell or
Caldwell Tanks, nor the indemnification obligations of Caldwell or Caldwell
Tanks, shall be affected, qualified, modified or deemed waived by reason of the
fact that Matrix or GSAC knew or should have known that any representation and
warranty is or might be inaccurate in any respect.
5.6 Litigation. There is no action, suit, inquiry, proceeding or
investigation by or before any Governmental Body or by or on behalf of any other
Person pending or, to Caldwell's or Caldwell Tanks' knowledge, Threatened,
against or involving Caldwell or Caldwell Tanks or any of their Affiliates (i)
which alone or in the aggregate would, if adversely, determined have a material
adverse effect on the ability of Caldwell or Caldwell Tanks to perform its
obligations to Matrix and GSAC under this Agreement and the transactions
contemplated hereby, or (ii) which questions or challenges the validity of this
Agreement or any action taken or to be taken by Caldwell or Caldwell Tanks
pursuant to this Agreement or in connection with the transactions contemplated
hereby.
6. COVENANTS OF THE PARTIES.
6.1 No Negotiation. Until such time, if any, as this Agreement is
terminated pursuant to Section 8, neither Brown, GSAC nor Matrix, nor any
representative of Brown, GSAC or Matrix, shall, nor shall they permit any of
their Affiliates to, (a) directly or indirectly, entertain, solicit, initiate,
accept or encourage any inquiries, offers or proposals from, discuss or
negotiate with, provide any non-public information to, or consider the merits of
any unsolicited inquiries or proposals from, any Person (other than Caldwell or
Caldwell Tanks) relating to any transaction
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involving the sale or lease of the business or assets (other than in the
Ordinary Course of Business of the Brown Parties) of the Brown Parties, or any
of the capital stock of the Brown Parties, or any merger, consolidation,
business combination, or similar transaction involving the Brown Parties, or (b)
participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt by any Person to do or seek, any of the
foregoing. Brown, GSAC and Matrix will notify Caldwell Tanks immediately if any
Person makes any proposal, offer, inquiry, or contact with respect to any of the
foregoing.
6.2 Operations of Brown Pending Closing. Brown, GSAC and Matrix
covenant and agree that from the date hereof through the Closing Date, without
the prior written consent of Caldwell (which consent will not be unreasonably
withheld), the Brown Parties shall:
(a) continue the business and operations of the Brown
Parties substantially in the same manner as heretofore, not change any of the
accounting principles followed, not submit to any customer, any primary
contractor or any other Person any binding bid or offer committing to, and not
otherwise undertake any transactions or enter into any contracts, commitments or
arrangements for, the design, engineering, fabrication, construction,
installation or sale of any elevated tanks to or for the benefit of any Person
other than pursuant to the WIP Contracts identified on Exhibit B, and other than
---------
fabrication services for the account of Matrix and for which the Brown Parties
are reimbursed for all of its costs and expenses, not undertake any other
transactions or enter into any other contracts, commitments or arrangements
other than in the Ordinary Course of Business of the Brown Parties, use their
reasonable best efforts to preserve the present business and organization of the
Brown Parties and to keep available for the benefit of Caldwell (without
entering into any binding agreement) the services of their employees, and to
preserve for the benefit of Caldwell the goodwill of their customers, suppliers
and others having business relationships with them;
(b) not renew, extend, modify, terminate or waive any right
under any of the WIP Contracts identified on Exhibit B or any of the Other
---------
Agreements, and not enter into, renew, extend, modify, terminate or waive any
right under any other material lease, contract or other instrument, except in
the Ordinary Course of Business of the Brown Parties;
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(c) not increase the rate or change the nature of the
compensation payable to any of their employees, except in the Ordinary Course of
Business of the Brown Parties;
(d) not allow any of their assets and properties to be
subject to any Encumbrance (other than Permitted Encumbrances), or to be
disposed of outside the Ordinary Course of Business of the Brown Parties;
(e) except as otherwise provided in Section 4.17, maintain
their existing insurance coverages, subject to variations in amounts required by
the Ordinary Course of Businesses of the Brown Parties;
(f) confer with Caldwell concerning operational matters of a
material nature;
(g) otherwise report periodically to Caldwell concerning the
status of the business, operations and finances of the Brown Parties;
(h) not amend or modify their articles or certificate of
incorporation or bylaws;
(i) maintain their corporate existence and good standing in
their respective state of incorporation and their qualifications as foreign
corporations in the jurisdictions set forth on Schedule 4.2;
(j) maintain their licenses, permits and franchises, and not
take any action, or refrain from taking any action, which could cause any
license, permit or franchise to be revoked, restricted or suspended;
(k) not authorize for issue or issue additional shares of
capital stock, nor grant any option, warrant or right to purchase or acquire
capital stock of itself;
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(l) not declare or pay any dividend, nor, directly or
indirectly, redeem, purchase or otherwise acquire any of its securities (except
for the dividend of the Excluded Assets as contemplated in this Agreement);
(m) not make any investment in any other corporation,
association, partnership, joint venture or other business organization;
(n) not make any capital expenditures in excess of $150,000
for any single item of equipment or other property;
(o) not incur or agree to incur any indebtedness for
borrowed money;
(p) maintain all of its properties in good working order and
repair (ordinary wear and tear excepted) and take all steps reasonably necessary
to maintain its assets (other than Excluded Assets) for Caldwell's use and
benefit;
(q) not enter into any contract, commitment or arrangement
to merge, combine or consolidate with or into any other corporation or entity,
or enter into any other contract, commitment or arrangement to sell, transfer,
or dispose of any of its assets to any person or entity other than in the
Ordinary Course of Business;
(r) not increase the quantities of inventories, raw
materials or spare parts maintained by the Brown Parties to levels that are
materially greater than the levels historically maintained by the Brown Parties
in the Ordinary Course of Business;
(s) operate their businesses in compliance in all material
respects with all Legal Requirements, Governmental Authorizations and Orders
applicable to them; and
(t) not enter into any agreement or commitment to do any of
the foregoing.
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6.3 Investigation of Brown by Caldwell and Caldwell Tanks. From
the date hereof through the Closing, Matrix, GSAC and Brown shall afford to the
officers, employees and authorized representatives of Caldwell and Caldwell
Tanks (including independent public accountants and attorneys) complete access
to the offices, properties, employees and business and financial records
(including computer files, retrieval programs and similar documentation and such
access and infor mation that may be necessary in connection with an
environmental audit) of the Brown Parties to the extent Caldwell or Caldwell
Tanks shall deem necessary or desirable, and shall furnish to Caldwell and
Caldwell Tanks or their authorized representatives such additional information
concerning the assets, properties and operations of the Brown Parties as shall
be reasonably requested, including all such information as shall be reasonably
necessary or appropriate to enable Caldwell, Caldwell Tanks or their
representatives to verify the accuracy of the representations and warranties
contained in this Agreement, to verify that the covenants of Brown, GSAC and
Matrix contained in this Agreement have been complied with, and to determine
whether the conditions set forth in Section 7.1 have been satisfied. Caldwell
and Caldwell Tanks agree that such investigation shall be conducted in such a
manner as will not interfere unreasonably with the operations of Brown, GSAC or
Matrix. No investigation made by Caldwell, Caldwell Tanks or their
representatives hereunder shall affect the representations and warranties of
Brown, GSAC and Matrix made in this Agreement.
6.4 Title Insurance; Surveys. GSAC will obtain, at its cost and
expense, and deliver to Caldwell within five business days after the date of
this Agreement, commitments to issue the following title insurance, meeting the
following requirements, at the Closing:
(a) Parcels of Real Estate. With respect to each parcel of
real estate that the Brown Parties own (each, a "Parcel"), a commitment to issue
an ALTA Owner's Policy of Title Insurance (Form 10/17/92 or its nearest
equivalent if a Parcel is located in a jurisdiction in which Form 10/17/92 is
not available) (each a "Commitment"), which Commitments shall be issued by a
title insurer reasonably satisfactory to Caldwell, committing to insure the
interest of the respective Brown Party in each Parcel for such amount as
Caldwell shall reasonably determine to be the fair market value of the interest
in such Parcel (including in all improvements).
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(b) State of Title. Within ten business days after the
receipt by Caldwell of a Commitment and of the Survey (as defined below) for a
Parcel, Caldwell shall notify GSAC of any exceptions to title contained in that
Commitment or shown on that Survey which Caldwell finds, in its reasonable
discretion, to be unacceptable to Caldwell. Thereafter, GSAC shall, within five
business days notify Caldwell of its intention to take such action as may be
necessary to remove the exceptions objected to from the Commitment or the
Survey, as applicable, and an endorsement to that Commitment shall be issued or
the Survey amended, at least five business days prior to the Closing deleting
the exceptions so objected to from that Commitment or correcting the Survey
items objected to. All exceptions to title or survey issues as to each Parcel as
to which Caldwell shall not object (or shall subsequently withdraw its
objection) shall be deemed to be "Permitted Exceptions."
(c) Further Commitment Requirements. In addition to the
matters set forth in (a) and (b) above, each Commitment shall further commit (i)
to insure title to all recorded easements benefitting that Parcel, (ii) to issue
an ALTA Endorsement 3.1 (or equivalent) as to that Parcel, and (iii) to issue a
standard "non-imputation" endorsement.
(d) Surveys. With respect to each Parcel, Matrix and GSAC
will at their expense, within five business days after the date of this
Agreement, obtain and deliver to Caldwell a survey by a licensed surveyor
reasonably acceptable to Caldwell, certified to Caldwell and to the title
company insuring that Parcel and conforming to the Minimum Detail Requirements
for ALTA/ACSM Land Surveys (Class A Survey) including all items contained in
items 1, 2, 3, 4, 6, 8 and 10 (each a "Survey"). All Surveys shall be updated to
conform to the deletion or correction of survey issues as described in Section
6.4(b).
(e) Title at Closing. At the Closing, the state of title to
each Parcel shall be such that the title company issuing the Commitment for that
Parcel shall be prepared to and shall issue a title policy on the form mandated
by Section 6.4(a), insuring the interest of the Brown Party(ies) having an
interest in that Parcel as a valid fee simple interest, (i) subject only to the
Permitted Exceptions, (ii) having deleted therefrom the standard exceptions for
parties in possession, survey, rights of way and easements not of record and
mechanics and materialmans liens (iii) insuring that the Parcel as described in
the policy is the same property as is described in the Survey for that Parcel,
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(iv) insuring the contiguity of the Parcel if the Parcel consists of more than
one tract or lot and (v) insuring direct and unencumbered pedestrian and
vehicular access to the Parcel from each street or roadway adjacent to the
Parcel.
6.5 Lien and Litigation Searches. Caldwell or Caldwell Tanks may
(in their discretion) obtain, at their cost and expense, a Uniform Commercial
Code security interest search report, a tax lien search report and a litigation
search report, all dated within five days of the date of delivery thereof, with
an update within three days of the Closing Date, showing that there are no
Encumbrances against the assets, properties or rights of the Brown Parties,
other than those disclosed on Schedules 4.24(a)(1) and 4.29, and no litigation,
except as disclosed on Schedule 4.21.
6.6 Transition of Brown. Brown, GSAC and Matrix covenant with
Caldwell and Caldwell Tanks to cooperate with Caldwell and Caldwell Tanks to
effect the smooth transition of the control and operation of the Brown Parties
from Matrix to Caldwell, as contemplated herein, including the retention of the
customers of the Brown Parties, by such means that Caldwell or Caldwell Tanks
may reasonably request. Brown, GSAC and Matrix covenant to cooperate with
Caldwell and Caldwell Tanks in providing all information required hereunder and
access thereto and whatever is required to carry out the purposes and intent of
the transactions contemplated in this Agreement.
6.7 Further Assurances. Each of the Parties hereto shall, at any
time, and from time to time, either before or after the Closing Date, upon the
request of the appropriate Party, do, execute, acknowledge and deliver, or will
cause to be done, executed, acknowledged and delivered, all such further acts,
assignments, transfers, conveyances, and assurances as may be reasonably
required to complete the transactions contemplated in this Agreement. After the
Closing Date Matrix and GSAC shall, and shall use their reasonable best efforts
to assure that any necessary third party shall, execute such documents and do
such other acts and things as Caldwell or Caldwell Tanks may rea sonably require
for the purpose of giving to Caldwell, Caldwell Tanks and the Brown Parties the
full benefit of all the provisions of this Agreement and as may be reasonably
required to complete the transactions contemplated in this Agreement.
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6.8 Actions of the Parties.
(a) No Actions Constituting a Breach. From the date hereof
through the Closing Date, neither Brown, GSAC, Matrix, Caldwell Tanks nor
Caldwell will take or knowingly permit to be done anything in the conduct of the
business of the Brown Parties or Caldwell, as the case may be, or otherwise,
which would be in or represent a misrepresentation, breach of warranty or non-
fulfillment of any covenant or agreement on the part of that Party under this
Agreement, and each of the Parties hereto shall cause the deliveries for which
such Party is responsible at the Closing to be duly and timely made.
(b) Notification of Breaches. From the date hereof through
the Closing Date, each Party agrees to promptly notify the other Parties in
writing if such Party becomes aware of any fact or condition that causes or
constitutes a breach by that Party of any of its representations or warranties
as of the date of this Agreement, or if such Party becomes aware of the
occurrence after the date of this Agreement of any fact or condition that would
(except as expressly contemplated by this Agreement) cause or constitute such a
breach by that Party had its representations and warranties been made as of the
time of the occurrence or discovery of such fact or condition. Should any such
fact or condition require any change in the Schedules if the Schedules were
dated the date of the occurrence or discovery of any such fact or condition,
Matrix, GSAC and Brown will promptly deliver to Caldwell and Caldwell Tanks a
supplement to the Schedules specifying such change. During the same period, each
Party agrees to promptly notify the other parties of the occurrence of any
breach of any covenant of that Party in this Agreement or of the occurrence of
any event that may make the satisfaction of the conditions in Section 7
impossible or unlikely. No disclosure by any Party pursuant to this Section
6.8(b), nor any supplement of the Schedules by Matrix, GSAC or Brown as
contemplated above, however, shall be deemed to amend or supplement the
Schedules for purposes of the conditions to Closing provided in Section 7, to
prevent or cure any misrepresentation or breach of a warranty or covenant, or to
otherwise amend or supplement any of the conditions to Closing provided in
Section 7.
6.9 Compliance With Conditions. Each Party hereto agrees to
cooperate fully with the other Parties, and shall use its reasonable best
efforts to cause the conditions precedent for which
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such Party is responsible to be fulfilled. Each Party hereto further agrees to
use its reasonable best efforts, and act in good faith, to consummate this
Agreement and the transactions contemplated herein as promptly as possible.
6.10 Consents; Actions. Subject to the terms and conditions of
this Agreement, the Parties hereto undertake and agree to (a) in good faith,
take all steps that are within their power to cause to be fulfilled those of the
conditions precedent to each Party's obligations to consummate the transactions
contemplated herein as are dependent upon their actions; and (b) use their
reasonable best efforts to take, or cause to be taken, all action and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws to consummate and make effective the transactions contemplated and not to
take any actions that would be inimical to such result. Matrix, GSAC, Caldwell
Tanks and Caldwell shall prepare and file with the United States Department of
Justice and the Federal Trade Commission the notification and report form with
respect to the transactions contemplated in this Agreement as required pursuant
to the HSR Act. Matrix, Brown, Caldwell Tanks and Caldwell shall each cooperate
with the other in the preparation of such filings and shall promptly comply with
any reasonable requests by the Department of Justice and of the Federal Trade
Commission for supplemental information, and shall use their commercially
reasonably efforts to obtain early termination of the waiting period under the
HSR Act.
6.11 Accounts Receivable. Following the Closing, Brown agrees to
reasonably cooperate with GSAC, at GSAC's expense, in its efforts to collect all
amounts owing by third- Persons under the Accounts Receivable that are included
in the Excluded Assets to be assigned to GSAC. To the extent Brown receives any
amounts from third-Persons on account of any of those Accounts Receivable at any
time after the Closing, Brown agrees to promptly remit the same to GSAC. For the
avoidance of doubt, the Parties agree that in the event any amounts are received
by Brown following the Closing on account of any one or more WIP Contracts under
which those Accounts Receivable remain owing to GSAC, such amounts shall first
be deemed to be a payment by the relevant customer on such accounts receivable
owing to GSAC, with any excess amounts being deemed to be a payment on amounts
then owing to the relevant Brown Party, in each case unless and to the extent
the relevant customer notifies any Brown Party in writing that it is disputing
the indebtedness to GSAC, or that the amounts remitted by that customer are
specifically intended
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as a payment of amounts owing to any Brown Party for services performed or
products delivered following the Closing. Brown shall have no further obligation
to assist GSAC in the collection of any Account Receivable which is disputed by
the relevant customer or that has otherwise become more than 90 days past due.
Notwithstanding the foregoing, GSAC shall be solely responsible for the
collection or non-collection of any Accounts Receivable that are included in the
Excluded Assets.
6.12 Matrix's Guaranty. Matrix hereby guarantees unconditionally
and absolutely to Caldwell and Caldwell Tanks: (a) the due and punctual payment
and performance by Brown of all obligations of Brown provided for in this
Agreement that are to be paid or performed by Brown on or prior to the Closing
Date; and (b) the due and punctual payment and performance by GSAC of all
obligations of GSAC provided for in this Agreement or in any other Ancillary
Document, whether such payment or performance is required before or after the
Closing, including without limitation, GSAC's obligations pursuant to the
Assignment & Assumption Agreement to assume and undertake to pay, perform and
discharge all of the Retained Obligations. This is a guarantee of payment and
performance and not of collection, and this guarantee shall survive any
termination of this Agreement to the extent of any continuing obligations of
Brown or GSAC hereunder or under any Ancillary Document. The obligations of
Matrix hereunder shall remain in full force and effect without regard to, and
shall not be affected or impaired by, any of the following, any of which may be
taken without the consent of, or notice to, Matrix: (a) any exercise,
non-exercise or waiver by Caldwell or Caldwell Tanks of any right or privilege
under this Agreement (provided, that any non-performance by Caldwell or Caldwell
Tanks that would be a defense to Brown's or GSAC's performance under this
Agreement shall constitute a defense to Matrix under this Section 6.12); (b) any
bankruptcy, insolvency, reorganization, dissolution, liquidation or other like
proceeding relating to Brown, GSAC or Matrix, whether or not Matrix shall have
had knowledge of any of the foregoing; (c) any permitted assignment or other
transfer of this Agreement; and (d) the invalidity or unenforceability of this
Agreement or any provision hereof. Matrix unconditionally waives all demands,
protests and notices of protests, any right to require Caldwell or Caldwell
Tanks to first proceed against Brown or GSAC, and any and all guarantor's
defenses, whether general or otherwise.
6.13 Certain Employee Matters. Notwithstanding any other provision
of this Agreement to the contrary, the Parties agree as follows:
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(a) Accrued Vacation.
(1) With respect to all persons who are or were
employed by any of the Brown Parties as of or at any time prior to the
Closing other than (y) "field" employees and (z) the employees that are
identified by Caldwell Tanks as not to be offered employment following the
Closing as contemplated in Subsection (e) below (collectively, the "Non-
Field Employees"): (A) Matrix and GSAC shall be solely responsible for the
costs of all vacation of such Non-Field Employees accrued under the
vacation policies of the Brown Parties in effect as of or at any time prior
to the Closing, based upon their service with the relevant Brown Party at
any time prior to January 1, 1999, including without limitation, all
vacation time to be taken in 1999 for service to the Brown Parties during
1998; and (B) the Brown Parties shall remain responsible for the costs of
all vacation of such Non-Field Employees accrued based upon their service
for the relevant Brown Party during the period from January 1, 1999 through
the Closing, including without limitation, all vacation time to be taken in
2000 for service during 1999. Prior to the Closing, the Parties shall
mutually agree upon the amount of accrued vacation of the Non- Field
Employees for which Matrix and GSAC are responsible as contemplated above,
and such amount shall be deducted from the Purchase Price otherwise payable
by Caldwell to GSAC at the Closing. Following that deduction the
responsibility of the Brown Parties thereafter for such accrued vacation
shall be an Excluded Obligation and not a Retained Obligation. The Parties
agree that any accrued vacation of any of the employees that are identified
by Caldwell Tanks as not to be offered employment following the Closing as
contemplated in Subsection (e) below, whether of the type described in
Subclause (A) or (B), above, shall remain a Retained Obligation for all
purposes under this Agreement, and shall not be the subject of a deduction
from the Purchase Price as contemplated above.
(2) With respect to all persons who are or were
employed by any of the Brown Parties as of or at any time prior to the Closing
as "field" employees (collectively, the "Field Employees"), Matrix and GSAC
shall be solely responsible for, and hereby agree to pay and discharge, and to
defend, indemnify and hold harmless the Brown Parties, Caldwell Tanks and
Caldwell from and against, the costs of any vacation of such Field Employees
accrued under the vacation policies of the Brown Parties in effect as of or at
any time prior to the Closing
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(including without limitation, any amounts owed to such Field Employees and
any amounts required under applicable Legal Requirements to be withheld
from such employees and remitted to any Governmental Body): (A) based upon
their service for the relevant Brown Party at any time during the period
from January 1, 1999 through the Closing (it being the belief of Matrix and
GSAC that no such vacation has or will accrue for the Field Employees for
that period under the policies of the Brown Parties or applicable Legal
Requirements); and (B) based upon the service of the Field Employees for
the relevant Brown Party at any time prior to January 1, 1999. Promptly
following the Closing, Matrix shall (x) inform each of the Field Employees
that they will not, following the Closing, be entitled to any vacation (or
payments in lieu thereof) from the Brown Parties that may have accrued
prior to the Closing under the vacation policies of the Brown Parties in
effect prior to the Closing, (y) offer to each of those Field Employees in
lieu of such accrued vacation one (1) week's wages or salaries (based upon
that employee's wage rate or salary in effect immediately prior to the
Closing), and (z) inform those Field Employees that, should they desire to
take time off from work at any time following the Closing in order to use
vacation time that they believe accrued prior to the Closing, they shall
not be entitled to their wages or salary during that vacation time.
(b) Severance, Sick Pay and Bonuses. Matrix and GSAC shall
be solely responsible for, and shall pay when due and defend, indemnify and hold
harmless the Brown Parties, Caldwell Tanks and Caldwell from and against: (i)
any severance benefits, termination benefits or other similar payments or
benefits now or hereafter owing under the policies of the Brown Parties in
effect immediately prior to the Closing to any of the employees of the Brown
Parties who are identified by Caldwell Tanks as not to be offered employment
following the Closing as contemplated in Subsection (e) below, and to any
employees who are offered such employment but who decline to accept the same (it
being understood by the Parties that the Brown Parties shall remain responsible
for any such severance benefits, termination benefits and other similar payments
or benefits that may now or hereafter be owing to any employees of the Brown
Parties that are actually employed by Caldwell or Caldwell Tanks following the
Closing, and the same shall constitute Excluded Obligations); (ii) any bonuses
or other incentive compensation (over and above their base salary or wages), to
which any past or present employee of the Brown Parties is entitled as of the
Closing, or to which they may become entitled following the Closing by reason of
their service to the Brown
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Parties prior to the Closing, by reason of the performance (financial or
otherwise) of the Brown Parties prior to the Closing (it being the belief of
Matrix and GSAC that any such bonuses and incentive compensation payments may be
made or made available, or withheld, by the Brown Parties in their sole and
absolute discretion and without obligation to those employees); and (iii) any
sick pay or sick leave benefits (including without limitation, any short term
disability benefits) to which any past or present employee of the Brown Parties
is entitled as of the Closing, or to which they may become entitled following
the Closing by reason of their service to the Brown Parties prior to the
Closing, in either case in excess of the sick pay or sick leave benefits to
which they may become entitled under the policies of Caldwell Tanks and its
Affiliates in effect following the Closing. Matrix and GSAC shall have no
obligation hereunder for any such bonuses, other incentive compensation or sick
leave or sick pay benefits that may accrue following the Closing by reason of
the service of any employees of the Brown Parties following the Closing.
Caldwell Tanks agrees that it shall not, and shall not permit Caldwell or any
Brown Party to, pay any discretionary bonuses or incentive compensation to any
employees of the Brown Parties by reason of their service to the Brown Parties
prior to the Closing, or by reason of the performance (financial or otherwise)
of the Brown Parties prior to the Closing.
(c) 401(k) Plan Participation. Matrix agrees that it shall,
consistent with the last sentence of Section 2.5(b), make all contributions to
its 401(k) plan required of it, GSAC or any Brown Party for the benefit of the
employees of the Brown Parties participating therein, for all periods through
the Closing Date, shall (and shall cause GSAC and each of the Brown Parties to)
vest 100% of all such employer contributions to its 401(k) plan for the benefit
of the employees of the Brown Parties, and shall offer to all such employee
participants the options available under the terms of that 401(k) plan, which
include lump sum distributions and, depending upon amounts, continued investment
in the Matrix 401(k) plan. Matrix agrees to give each employee of the Brown
Parties who is a participant in the Matrix 401(k) plan, and who, as of the
Closing, has an outstanding loan owing to their 401(k) plan account, reasonable
prior notice that their loan must be repaid by them to their account prior to
the Closing in order to avoid a deemed distribution to them of such loan amounts
from their accounts. Matrix and GSAC acknowledge that Caldwell Tanks and
Caldwell do not intend to permit any such plan participant to roll his or her
401(k) plan account
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balances into the 401(k) plan of Caldwell Tanks until such time as all previous
loans taken from their Matrix 401(k) plan accounts have been repaid.
(d) Employees Currently Under Disability. Matrix agrees to
cause the benefits of its long term disability plan and workers compensation
insurance coverages (as applicable) in effect prior to the Closing for the
employees of the Brown Parties, to be made available following the Closing to
all employees of the Brown Parties who are off from work as of the Closing due
to a disability or other injury, until such time as those employees are no
longer disabled or eligible for workers compensation benefits under applicable
Legal Requirements and Matrix's workers compensation insurance policies. The
covenant of Matrix in the preceding sentence shall include, without limitation,
all employees that are terminated by the Brown Parties as contemplated in (e),
below, and that may be hired by Brown, Caldwell or Caldwell Tanks following the
Closing.
(e) Termination of Certain Employees. The Brown Parties
shall, and Matrix and GSAC agree to cause the Brown Parties to, prior to the
Closing, terminate all of the employees of the Brown Parties immediately prior
to the Closing. Caldwell or Caldwell Tanks agrees to offer employment to all
such terminated employees following the Closing, based on job responsibilities
comparable to their previous positions with the Brown Parties (but otherwise on
terms that are satisfactory to Caldwell or Caldwell Tanks (as applicable)),
other than those employees who are identified by Caldwell Tanks, in a notice
delivered to Matrix at least ten (10) days prior to the anticipated Closing
Date, as not to be offered such employment following the Closing. Matrix and
GSAC shall be solely responsible for communicating to (and hereby agree to
communicate to) all employees of the Brown Parties all such notices regarding
their termination or otherwise that are required by applicable Legal
Requirements (including without limitation, sending to all employees the notice
required under COBRA), and shall provide whatever assistance as Matrix elects,
or the Brown Parties are otherwise required pursuant to Legal Requirements to
make or provide, to assist such designated employees. Matrix and GSAC agree to
use their commercially reasonable efforts from and after the date hereof to
obtain from all employees identified by Caldwell Tanks as not to be offered
employment following the Closing, a general release of claims in a form
reasonably satisfactory to Caldwell Tanks, releasing Caldwell Tanks, Caldwell
and each Brown Party of and from any debts, obligations and liabilities of any
nature to those employees. The Parties further
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agree that Matrix shall initially pay all premium payments that would otherwise
be owing by the Field Employees who accept the offer of employment by Caldwell
or Caldwell Tanks as contemplated above, for continued COBRA medical coverage
under the Benefit Plans of Matrix throughout the ninety (90) day period
immediately following their termination by the relevant Brown Party (or
throughout such shorter period following that termination as they shall remain
employees of Caldwell or Caldwell Tanks (as applicable)). Following their
payment of such premium payments, Matrix shall either bill the total amount of
such premium payments to the relevant Field Employees (with a copy to Caldwell)
or shall bill those premium payments to Caldwell. If billed to a Field Employee,
Caldwell shall promptly reimburse that employee for the premium payments
actually paid by him or her to Matrix for that period. If billed to Caldwell,
Caldwell shall remit and pay to Matrix the amount of such premium payments
within thirty (30) days after Caldwell's receipt of the Matrix invoice.
(f) Medical Coverage. With respect to terminated employees
of the Brown Parties that are offered employment by Caldwell or Caldwell Tanks
as contemplated in (e) above, Caldwell Tanks shall use its commercially
reasonable efforts to attempt to have such employees made eligible for inclusion
in the health and medical Benefit Plans of Caldwell Tanks based upon their prior
service with the Brown Parties.
6.14 Books and Records. Matrix, GSAC, Caldwell and Brown agree to
retain, for a period of seven (7) years after the Closing Date, any and all
books and records (hard copy, electronic or otherwise) related to the Brown
Parties and their respective businesses for all periods through the Closing Date
or related to the transactions contemplated hereby; provided, however, that upon
expiration of such seven (7) year period, the Party with custody of such books
and records shall give written notice to the other Party(s) and an opportunity
to such other Party(s) to ship such books and records at such other Party's
costs, expense and risk to a location chosen by it. In the event any Party needs
access to such books and records for purposes of verifying any representations
and warranties contained in this Agreement, responding to inquiries regarding
the Brown Parties' businesses from Governmental Bodies, indemnifying, defending
and holding harmless Caldwell, Brown, GSAC or Matrix, as the case may be, in
accordance with Section 10 or any other legitimate business purpose, each Party
will allow representatives of the other Party(s) access to such books and
records upon
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reasonable notice during regular business hours for the sole purpose of
obtaining information for use as aforesaid, and will permit such other Party(s)
to make such extracts and copies thereof as may be necessary or convenient and,
if required for such purpose, to have access to and possession of original
documents.
6.15 Orion Contract. The Parties acknowledge that Brown, together
with Matrix (through its San Luis Tank Division) and Orion Refining Corporation,
are or may become parties to one or more related agreements pertaining to the
completion of construction by Matrix and the Brown, as the Contractors, for
Orion Refining Corporation, as the Owner, of two (2) 69-foot diameter spheres (A
and B) that were originally under Contract K73524E (collectively, the "Orion
Contract"). The latest draft of the Orion Contact is set forth in Exhibit F
---------
attached hereto. The Parties agree that any and all debts, obligations and
liabilities that Brown may now or hereafter have arising out of or in any manner
relating to the Orion Contract or Brown's performance thereunder shall
constitute Retained Obligations for all purposes under this Agreement (but only
to the extent not resulting from or arising out of Brown's gross negligence or
willful misconduct occurring following the Closing), including without
limitation, any obligations or liabilities arising out of any breach or default
by Brown or Matrix (or their respective successors or assigns) under the Orion
Contract occurring following the Closing Date. Subject to the foregoing and to
the obligations of Matrix and GSAC to pay, indemnify, defend and hold harmless
Brown and the other Caldwell Indemnitees for, from and against such Retained
Obligations pursuant to Section 10.2, Brown shall endeavor to perform the
obligations of Brown under the Orion Contract as specified in the June 2, 1999
memorandum that is included as a part of Exhibit F as being specifically
---------
allocated to Brown alone, based upon the form of the Orion Contract set forth in
Exhibit F (with such changes from that form as shall be approved in writing by
- ---------
Caldwell, which approval shall not be unreasonably withheld), and in accordance
with the code and standards established by the American Society of Mechanical
Engineers. Matrix shall pay or cause to be paid to Brown, within thirty (30)
days after its invoice for the same, all reasonable costs and expenses that are
incurred by Brown in rendering such performance, at the rates specified in such
June 2, 1999 memorandum. Brown agrees that Matrix will oversee and direct the
performance of Brown pursuant to the Orion Contract, subject to the limitations
described above; provided, that Brown shall have no obligation to follow the
directives of Matrix in the event Brown shall reasonably believe that the same
would result in a
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breach or default by Brown under the terms of the Orion Contract or would give
rise to damages for which Matrix will be unable or will refuse to defend,
indemnify and hold harmless Brown pursuant to Section 10.2.
6.16 Permits. The Parties agree to reasonably cooperate with and
assist each other, at their respective cost and expense, to effect the transfer
or assignment of any existing Governmental Authorizations of the Brown Parties
that may be required by reason of, or that may result from, the consummation of
the transactions contemplated in this Agreement, and agree to file any notices,
requests, applications and the like with all relevant Governmental Bodies in
connection with those Government Authorizations (or their assignment or
transfer), including without limitation, any notices of the change in control
and ownership of Brown required under applicable Legal Requirements for the
continued use, maintenance and effectiveness of such Governmental
Authorizations.
6.17 [Intentionally Omitted].
6.18 Caldwell Tanks' Guaranty. Caldwell Tanks hereby guarantees
unconditionally and absolutely to Matrix and GSAC the due and punctual payment
and performance by Caldwell of all obligations of Caldwell provided for in this
Agreement or in any other Ancillary Document, whether such payment or
performance is required before or after the Closing. This is a guarantee of
payment and performance and not of collection, and this guarantee shall survive
any termination of this Agreement to the extent of any continuing obligations of
Caldwell hereunder or under any Ancillary Document. The obligations of Caldwell
Tanks hereunder shall remain in full force and effect without regard to, and
shall not be affected or impaired by, any of the following, any of which may be
taken without the consent of, or notice to, Caldwell Tanks: (a) any exercise,
non-exercise or waiver by Matrix or GSAC of any right or privilege under this
Agreement (provided, that any non-performance by Matrix or GSAC that would be a
defense to Caldwell's performance under this Agreement shall constitute a
defense to Caldwell Tanks under this Section 6.18); (b) any bankruptcy,
insolvency, reorganization, dissolution, liquidation or other like proceeding
relating to Caldwell or Caldwell Tanks, whether or not Caldwell Tanks shall have
had knowledge of any of the foregoing; (c) any permitted assignment or other
transfer of this Agreement; and (d) the invalidity or
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unenforceability of this Agreement or any provision hereof. Caldwell Tanks
unconditionally waives all demands, protests and notices of protests, any right
to require Matrix or GSAC to first proceed against Caldwell, and any and all
guarantor's defenses, whether general or otherwise.
7. CONDITIONS TO CLOSING.
7.1 Conditions to Obligations of Caldwell. The obligations of
Caldwell to purchase the Shares and for Caldwell and Caldwell Tanks to take the
other actions required to be taken by them at and subsequent to the Closing are
subject to the satisfaction at or prior to the Closing of each of the following
conditions, any one or more of which Caldwell and Caldwell Tanks may waive in
whole or in part at or prior to the Closing:
(a) Representations True. The representations and warranties
of Brown, GSAC and Matrix contained in this Agreement (considered collectively)
and each of those representations and warranties (considered individually) must
have been true and correct in all material respects (or with respect to
representations and warranties that are expressly subject to materiality or that
include a specific dollar threshold, in all respects) as of the date hereof, and
(except as otherwise provided below) must be true and correct in all material
respects (or with respect to representations and warranties that are expressly
subject to materiality or that include a specific dollar threshold, in all
respects) on and as of the Closing Date (including those representations and
warranties which specifically speak as of the date hereof) with the same effect
as though such representations and warranties had been made and this Agreement
had been delivered on and as of the Closing Date, without giving effect to any
supplement to the Schedules. Notwithstanding the foregoing, in the event any of
the representations or warranties of Brown, GSAC and Matrix set forth in Section
4.6 of this Agreement are not true and correct as of the date hereof, or are not
true and correct on and as of the Closing Date, each as contemplated above, then
Caldwell and Caldwell Tanks shall be entitled to assert such misrepresentation,
breach of warranty or other failure as being an unsatisfied condition precedent
to its obligation to consummate the transactions contemplated in this Agreement
only to the extent Caldwell and Caldwell Tanks shall reasonably believe that
GSAC and Matrix will be unable or will refuse to indemnify and hold harmless the
Caldwell Indemnities, pursuant to Section 10.2 hereof, from and against all
Damages resulting from or arising out of such
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misrepresentation, breach of warranty or other failure, or will otherwise be
unable or will refuse to assume and pay, perform and discharge all Retained
Obligations that were or are the subject of such misrepresentation, breach of
warranty or other failure. Caldwell and Caldwell Tanks shall not be deemed to
have waived their right, following the Closing, to seek the indemnification and
other remedies provided for in this Agreement regarding such misrepresentation,
breach of warranty or Retained Obligations, notwithstanding Caldwell's or
Caldwell Tanks' knowledge of such misrepresentation or breach of warranty as of
the Closing.
(b) Covenants Performed. All of the covenants, agreements
and conditions of Brown, GSAC and Matrix required to be performed or complied
with at or prior to the Closing pursuant to the terms of this Agreement
(considered collectively), and each of those covenants, agreements and
conditions (considered individually), must have been duly performed and complied
with in all material respects.
(c) No Changes or Destruction of Property. Between the date
hereof and the Closing Date, there shall have been (i) no material adverse
change in the business, financial condition or results of operations of any of
the Brown Parties; (ii) no material adverse federal or state legislative or
regulatory change affecting any of the Brown Parties or their products or
services; and (iii) no material damage to any assets or properties of any of the
Brown Parties by fire, flood, casualty, act of God or public enemy or other
cause, regardless of insurance coverage for such damage.
(d) Necessary Consents Received. The Brown Parties shall
have received all consents and approvals, in form and substance reasonably
satisfactory to Caldwell, to the transactions contemplated in this Agreement
from the other parties to all contracts, leases, agreements and permits to which
the Brown Parties (or any of them) are parties or by which they or any of their
assets or properties are affected, and from all Governmental Bodies, in each
case to the extent necessary under those contracts, leases, agreements or
permits or under Legal Requirements.
(e) No Litigation. No Proceeding shall have been instituted
or, to the knowledge of Brown, GSAC and Matrix, be Threatened, before any
Governmental Body by any Person,
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(1) making any challenge to, or seeking damages or other relief in connection
with, the transactions contemplated in this Agreement, or (2) that may have the
effect of restraining, enjoining or prohibiting, making illegal or otherwise
interfering with such transactions.
(f) No Claim Regarding Shares. No claim shall have been made
or Threatened by any Person asserting that such Person (1) is the holder or the
beneficial owner of, or has the right to acquire or to obtain beneficial
ownership of, any Shares or any other capital stock of Brown or any of the
Subsidiaries, voting, equity or otherwise, or (2) is entitled to all or any
portion of the Purchase Price payable for the Shares.
(g) Hart-Scott-Rodino Compliance. All applicable waiting
periods (and any extensions thereof) under the HSR Act shall have expired or
otherwise been terminated.
(h) Closing Documents. Matrix, GSAC and Brown shall have
executed and delivered to Caldwell and Caldwell Tanks the Release of Claims, a
Non-Competition Agreement in a form reasonably satisfactory to the Parties (the
"Non-Competition Agreement"), and which is consistent with Section 5 of the
non-binding letter of intent between Matrix and Caldwell Tanks dated March 24,
1999 (the "Letter of Intent"), a Fabrication Services Agreement in a form
reasonably satisfactory to the Parties (the "Fabrication Services Agreement"),
and which is consistent with Section 6 of the Letter of Intent, the Assignment &
Assumption Agreement, the Certificates and Stock Powers, and the other
certificates, instruments, legal opinion and documents contemplated in Section
9, and Brown and each of the Subsidiaries shall have executed and delivered the
Bill of Sale to Matrix.
(i) Section 2.5 Matters. Each of the actions contemplated in
Section 2.5 as being taken, completed or effected at or prior to the Closing
shall have been so taken, completed or effected.
(j) Financing. Caldwell Tanks and Caldwell shall have
received a binding written commitment from a lender reasonably satisfactory to
them to provide tax exempt financing to them
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at the Closing for the full amount of the Purchase Price, on such terms and
conditions and shall be satisfactory to Caldwell and Caldwell Tanks.
(k) Environmental Review Report. Caldwell and Caldwell Tanks
shall have received, at their expense (except as otherwise provided below) an
environmental review report from a person satisfactory to Caldwell and Caldwell
Tanks as to the absence of any violation of any Environmental Laws, and the
absence of any Environmental, Health and Safety Liabilities, in each case that
could materially adversely effect any Brown Party, Caldwell, Caldwell Tanks or
any of their respective businesses, assets or property, or otherwise relating to
any of the Brown Parties or any of their businesses, assets or property. Matrix
agrees to reimburse Caldwell and Caldwell Tanks for one-half of all consulting
fees, costs and other expenses incurred by them in conducting a "Phase II"
environmental audit of the Brown Parties and their respective assets and
properties, regardless of whether the Closing shall occur, which amounts shall
be payable within ten (10) days after the written request therefor delivered by
Caldwell to Matrix, together with reasonable documentation of such fees, costs
and expenses.
(l) Caldwell's Investigation. The due diligence
investigation by Caldwell's and Caldwell Tanks' Representatives in connection
with the transactions contemplated in this Agreement shall not have caused
Caldwell, Caldwell Tanks or their Representatives to become aware of any facts
or circumstances relating to the businesses, operations, properties,
Liabilities, financial condition, results of operation or affairs of any of the
Brown Parties that, in the sole judgment of Caldwell and Caldwell Tanks, make it
inadvisable for them to proceed with the Closing and the transactions
contemplated in this Agreement.
(m) Revised Exhibit B. The parties shall have dated,
executed and delivered to each other Revised Exhibit B as contemplated in
Section 2.2(a)(3)(C).
(n) Inventory. The physical inventory of all Inventory of
the Brown Parties contemplated in Section 2.2(b) shall have been completed, and
the Parties shall have mutually agreed in writing on the Assigned Inventory
Price as contemplated in that Section.
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(o) Release of Encumbrances. Matrix and GSAC shall have
delivered to Caldwell and Caldwell Tanks evidence reasonably satisfactory to
Caldwell and Caldwell Tanks of the complete and absolute release and discharge
of all Encumbrances, and of all debts, obligations and liabilities of the Brown
Parties, each as contemplated in Section 7.2(f), below.
(p) [Intentionally Omitted]
(q) Purchase Price Allocation. The Parties shall have agreed
in writing upon the Purchase Price allocation (Exhibit D) as contemplated in
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Section 2.5(a).
(r) Accrued Vacation. The Parties shall have agreed upon the
accrued vacation for Non-Field Employees as contemplated in Section 6.13(a).
(s) Termination of Employees. The Brown Parties shall have
terminated their employees as contemplated in Section 6.13(e).
(t) Lost Records Affidavit; New Share Certificates. Matrix,
GSAC, Brown and each of the Subsidiaries shall have executed and delivered to
Caldwell a Lost Records Affidavit in a form reasonably satisfactory to Caldwell,
pursuant to which Matrix, GSAC, Brown and the Subsidiaries shall represent,
warrant and certify to Caldwell that the share certificates representing the
Shares, the share certificates representing the issued and outstanding capital
stock of the Subsidiaries, and all other stock transfer records and cancelled
share certificates of Brown and the Subsidiaries, have been lost or misplaced,
and covenanting with Caldwell that in the event such share certificates and
other records and cancelled certificates (or any of them) are found in the
future by Matrix or GSAC, the same shall be promptly forwarded to Caldwell.
Matrix shall also have caused Brown to issue to GSAC, and caused the
Subsidiaries to issue to Brown, new share certificates representing all of the
Shares and the shares of the outstanding capital stock of the Subsidiaries, in
substitution for those that have been lost or misplaced.
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(u) Environmental Work Plan. The Parties shall have each
executed and delivered to the others an Environmental Work Plan in a form
satisfactory to the Parties, pursuant to which they shall agree upon a plan of
action for addressing certain environmental issues associated with the assets
and properties of Brown, and an allocation of responsibility for those
environmental issues.
7.2 Conditions to Obligations of Brown and Matrix. The obligations
of Matrix, GSAC and Brown to sell the Shares and to take the other actions
required to be taken by them at and subsequent to the Closing are subject to the
satisfaction at or prior to the Closing of each of the following conditions, any
one or more of which Matrix (for itself and for GSAC and Brown) may waive in
whole or in part at or prior to the Closing:
(a) Representations True. The representations and warranties
of Caldwell and Caldwell Tanks contained in this Agreement (considered
collectively) and each of the representations and warranties (considered
individually) must have been true and correct in all material respects as of the
date hereof, and must be true and correct in all material respects on and as of
the Closing Date (including those representations and warranties which speak
specifically as of the date hereof) with the same effect as though such
representations and warranties had been made and this Agreement had been
delivered on and as of the Closing Date.
(b) Covenants Performed. All of the covenants, agreements
and conditions of Caldwell and Caldwell Tanks required to be performed or
complied with at or prior to the Closing pursuant to the terms of this Agreement
(considered collectively), and each of those covenants, agreements and
conditions (considered individually), must have been duly performed and complied
with in all material respects.
(c) No Litigation. No Proceeding shall have been instituted
or, to the knowledge of Caldwell and Caldwell Tanks, be Threatened, before any
Governmental Body by any Person, (1) making any challenge to, or seeking damages
or other relief in connection with, the transactions contemplated in this
Agreement, or (2) that may have the effect of restraining, enjoining or
prohibiting, making illegal or otherwise interfering with such transactions.
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(d) Hart-Scott-Rodino Compliance. All applicable waiting
periods (and any extensions thereof) under the HSR Act shall have expired or
otherwise been terminated.
(e) Closing Documents. Caldwell and Caldwell Tanks shall
have executed and delivered to Matrix the Non-Competition Agreement, and the
other certificates, instruments, legal opinion and documents contemplated in
Section 9.
(f) Bank Consent and Release. Matrix shall have obtained, at
its expense, the consent of Bank One, Oklahoma, N.A. to the consummation of the
transactions contemplated in this Agreement in accordance with the Bank
Agreement and in form and substance satisfactory to Matrix and Matrix shall have
obtained, at its expenses, a complete and absolute release and discharge of (i)
all Encumbrances on, against or affecting any of the assets or properties of the
Brown Parties (other than the Excluded Assets) and in favor of Bank One,
Oklahoma, N.A. or any other Person, and (ii) any and all debts, obligations or
liabilities of the Brown Parties to Bank One, Oklahoma, N.A. or any other
Person, in each case arising under or in connection with the Bank Agreement or
the transactions relating thereto.
(g) Revised Exhibit B. The parties shall have dated,
executed and delivered to each other Revised Exhibit B as contemplated in
Section 2.2(a)(3)(C).
(h) Inventory. The physical inventory of all Inventory of
the Brown Parties contemplated in Section 2.2(b) shall have been completed, and
the Parties shall have mutually agreed in writing on the Assigned Inventory
Price as contemplated in that Section.
(i) Purchase Price Allocation. The Parties shall have agreed
in writing upon the Purchase Price allocation (Exhibit D) as contemplated in
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Section 2.5(a).
(j) Accrued Vacation. The Parties shall have agreed upon the
accrued vacation for Non-Field Employees as contemplated in Section 6.13(a).
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(k) Environmental Work Plan. The Parties shall have executed
and delivered the Environmental Work Plan contemplated in Section 7.1(u).
8. TERMINATION.
8.1 Termination of Agreement. This Agreement may be terminated
only as follows:
(a) Mutual Consent. Caldwell, Caldwell Tanks, Matrix, GSAC
and Brown may terminate this Agreement prior to the Closing by mutual written
agreement.
(b) Conditions Not Satisfied.
(1) Caldwell and Caldwell Tanks may terminate this
Agreement upon notice to Matrix, GSAC and Brown delivered at any time
following June 24, 1999 and prior to the Closing, in the event any of the
conditions set forth in Section 7.1 have not been satisfied for any reason
on or prior to that date (other than any failure of such condition(s) to be
so satisfied by reason of a breach by Caldwell or Caldwell Tanks of any of
their covenants set forth in this Agreement), or have not been waived by
Caldwell or Caldwell Tanks on or prior to that date.
(2) Matrix (on behalf of itself, GSAC and Brown) may
terminate this Agreement upon notice to Caldwell and Caldwell Tanks
delivered at any time following June 24, 1999 and prior to the Closing, in
the event any of the conditions set forth in Section 7.2 have not been
satisfied for any reason on or prior to that date (other than any failure
of such condition(s) to be so satisfied by reason of a breach by Matrix,
GSAC or Brown of any of their respective covenants set forth in this
Agreement), or have not been waived by Matrix on or prior to that date.
Notwithstanding the provisions of Sections 8.1(b)(1) and 8.1(b)(2), above,
Caldwell, Caldwell Tanks and Matrix each agree that, in the event the Closing
shall not have occurred on or before June 24, 1999 by reason of a failure of any
condition precedent set forth in Section 7.1 or 7.2 to have been satisfied or
waived, and in the event the failure of such condition precedent to be so
satisfied relates primarily to a failure by any Brown Party or any of their
assets or properties to comply with any
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Environmental Laws, or to any Environmental, Health and Safety Liability of or
relating to any Brown Party, then Caldwell, Caldwell Tanks and Matrix shall each
refrain from exercising their respective termination right provided for above
until July 30, 1999, and shall continue until that date to reasonably cooperate
with each other in an attempt to satisfy that condition precedent.
(c) Breach by a Party. Either Caldwell and Caldwell Tanks,
on the one hand, or Matrix (on behalf of itself, GSAC and Brown), on the other
hand, may terminate this Agreement if a breach of any of the provisions of this
Agreement has been committed by the other Party(s) or, in the case of a
termination by Caldwell and Caldwell Tanks, committed by GSAC or Brown, and such
breach (if curable) has not been (i) cured by such other Party (or GSAC or
Brown, as applicable) within ten (10) days after notice thereof is delivered by
Caldwell and Caldwell Tanks or Matrix (as applicable), or (ii) waived by
Caldwell and Caldwell Tanks or Matrix (as applicable) at or prior to the
Closing.
(d) Other Permitted Terminations. Caldwell and Caldwell
Tanks may terminate this Agreement as contemplated in Section 2.2(a)(3)(C), and
Caldwell and Caldwell Tanks, or Matrix, as applicable, may terminate this
Agreement as contemplated in Section 2.2(a)(4) or 2.2(a)(5).
8.2 Effect of Termination. Each Party's right of termination under
Section 8.1 is in addition to, and not in lieu of, any other rights or remedies
that it may have under this Agreement, at law, in equity or otherwise, and the
exercise of a right of termination will not be an election of remedies. No such
termination shall be deemed to relieve any Party from responsibility for any
breach by it under this Agreement occurring prior to such termination.
9. DELIVERIES AND ACTIONS TO BE TAKEN AT THE CLOSING.
9.1 Deliveries by Brown, GSAC and Matrix. Brown, GSAC and Matrix
agree to deliver (duly executed where appropriate) to Caldwell at the Closing
each of the following:
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(a) Shares. Certificates representing the Shares, duly
endorsed (or accompanied by duly executed stock powers) for transfer to Caldwell
(collectively, the "Certificates & Stock Powers").
(b) Resolutions. Copies of resolutions duly adopted by the
Board of Directors of Matrix, GSAC and Brown, approving the transactions
contemplated in this Agreement in a form reasonably satisfactory to Caldwell,
certified by an officer of each of Matrix, GSAC and Brown as being correct,
complete and in full force and effect as of the Closing Date.
(c) Certificate. A Certificate from a duly authorized
officer of Brown, GSAC and Matrix, dated the Closing Date, certifying as to the
fulfillment of the conditions set forth in Section 7.1.
(d) Matrix's Release and Other Evidence. Matrix and GSAC
shall execute and deliver to Caldwell, Caldwell Tanks, Brown and each of the
Subsidiaries the Release of Claims, and shall deliver to Caldwell written
evidence of the assignment, transfer and contribution to capital as contemplated
in 2.5(c), and of the releases and discharges contemplated in Section 7.1(o).
(e) Non-Competition Agreement. Matrix, GSAC and Brown shall
execute and deliver to Caldwell and Caldwell Tanks the Non-Competition
Agreement.
(f) Resignations. Each of the Brown Parties shall deliver to
Caldwell executed written resignations of each of the directors and officers of
the Brown Parties effective as of the Closing Date.
(g) Payment of Liens and Encumbrances. Written confirmation
that the Encumbrances (other than Permitted Encumbrances) set forth on Schedules
4.25(a)(1) and 4.29, or as disclosed on the reports referred to in Section 6.5
(other than those accepted or waived in writing by Caldwell), have been paid,
released and discharged.
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(h) Opinion of Counsel. An opinion from Hall, Estill,
Hardwick, Gable, Golden & Nelson, P.C., counsel for Matrix, GSAC and Brown, in a
form reasonably satisfactory to Caldwell.
(i) Fabrication Services Agreement. GSAC and Brown shall
execute and deliver the Fabrication Services Agreement.
(j) Assignment & Assumption Agreement, Bill of Sale and
Environmental Work Plan. GSAC, Matrix, Brown and each of the Subsidiaries shall
execute and deliver the Assignment & Assumption Agreement and the Environmental
Work Plan contemplated in Section 7.1(u), and the Brown Parties shall execute
and deliver the Bill of Sale.
(k) Delivery of Corporate Records; Lost Records Affidavit.
The complete minute books and corporate seal of the Brown Parties, and the Lost
Records Affidavit contemplated in Section 7.1(t).
(l) Other Documents. Such other documents as may be
reasonably necessary to effect the closing of the transactions contemplated in
this Agreement as such closing is herein contemplated.
9.2 Deliveries by Caldwell. Caldwell covenants to deliver (duly
executed where appro priate) to Matrix and GSAC at the Closing each of the
following:
(a) Caldwell's Resolutions. A copy of resolutions duly
adopted by the Board of Directors of Caldwell and Caldwell Tanks, approving the
transactions contemplated in this Agreement and in a form reasonably
satisfactory to Matrix and GSAC, certified by an officer of Caldwell and
Caldwell Tanks as being correct, complete and in full force and effect as of the
Closing Date.
(b) Purchase Price. The Purchase Price, by means of a wire
transfer of immediately available federal funds to such account or accounts as
GSAC shall direct in writing at least two (2) business days prior to the Closing
Date.
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(c) Certificate. A Certificate from a duly authorized
officer of Caldwell and Caldwell Tanks, dated the Closing Date, certifying as to
the fulfillment of the conditions set forth in Section 7.2.
(d) Non-Competition Agreement and Environmental Work Plan.
Caldwell and Caldwell Tanks shall execute and deliver the Non-Competition
Agreement and the Environmental Work Plan contemplated in Section 7.1(u).
(e) Opinion of Counsel. An opinion from Greenebaum Doll &
McDonald PLLC, counsel for Caldwell, in a form reasonably satisfactory to Matrix
and GSAC.
(f) Other Documents. Such other documents as may be
reasonably necessary to effect the closing of the transactions contemplated in
this Agreement as such closing is herein contemplated.
9.3 Actions and Deliveries Simultaneous. Notwithstanding the order
of the deliveries by the Parties set forth above, all actions and deliveries
shall occur simultaneously and none shall be deemed to have been completed until
each of the actions and deliveries set forth in this Section 9 has been
completed or has been waived by the Party entitled to make such waiver.
10. INDEMNIFICATION; REMEDIES.
10.1 Survival; Right to Indemnification Not Affected by Knowledge.
All representations, warranties, covenants and obligations set forth in this
Agreement, the certificates delivered pursuant to Sections 9.1(c) and 9.2(c),
and any other certificate or document delivered pursuant to this Agreement will
survive the Closing; provided, that the representations and warranties (i) in
Sections 4.19 and 4.24(a) shall expire after 12 months from the Closing Date,
and (ii) in Sections 4.11, 4.12, 4.18 and 4.29 shall expire after 18 months from
the Closing Date. The right to indemnification, payment of "Damages" (as defined
in Section 10.2) or other remedies based on such representations, warranties,
covenants and obligations will not be affected by the Closing, by any earlier
termination of this Agreement, or by any investigation conducted by any Person
with
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respect to, or any knowledge acquired by any Person at any time, whether before
or after the execution and delivery of this Agreement or the Closing Date, with
respect to, the accuracy or inaccuracy of or compliance with any such
representation, warranty, covenant or obligation. The waiver of any condition
based on the accuracy of any representation or warranty, or on the performance
of or compliance with any covenant or obligation, will not affect the right to
indemnification, payment of Damages or other remedy based on such
representations, warranties, covenants and obligations.
10.2 Indemnification and Payment of Damages By Matrix, GSAC and
Brown. Prior to the Closing Matrix, GSAC and Brown each agrees, and following
the Closing Matrix and GSAC each agrees, jointly and severally, to defend,
indemnify and hold Brown, the Subsidiaries, Caldwell Tanks, Caldwell and their
respective directors, officers, shareholders, Affiliates, successors and assigns
(collectively, "Caldwell Indemnitees") harmless from and against, and to pay to
the Caldwell Indemnitees the amount of, any and all debts, obligations, losses,
claims, damages (including without limitation, direct, indirect, special
incidental and consequential damages), Liabilities, deficiencies, Proceedings,
demands, assessments, Orders, judgments, writs, decrees, costs and other
expenses (including without limitation, costs of investigation and defense and
reasonable attorneys' and accountants' fees), and diminution of value, whether
or not involving a third-party claim, of any nature and of any kind whatsoever
(collectively, "Damages"), that may be suffered or incurred by them (or any of
them) resulting from, arising, directly or indirectly, out of or in connection
with (without duplication):
(a) any misrepresentation or breach of warranty made by
Brown, GSAC or Matrix in this Agreement or in any Ancillary Document; provided,
that in the event the Closing does not occur, the Caldwell Indemnitees shall be
entitled to be defended, indemnified and held harmless by Brown, Matrix and GSAC
pursuant to this Subsection (a) only to the extent that Brown, Matrix or GSAC
knew or should reasonably have known that the relevant representation or
warranty was not true and correct in all material respects (or with respect to a
representation or warranty that is expressly subject to materiality or that
includes a specific dollar threshold, in all respects) as of the date of this
Agreement; it being understood that the foregoing limitation on recovery shall
have no relevance in the event the Closing shall occur;
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(b) any breach by Brown, GSAC or Matrix of any covenant,
agreement or obligation of Brown, GSAC or Matrix in this Agreement or in any
Ancillary Document (other than Brown's obligations to GSAC or Matrix pursuant to
the Non-Competition Agreement, the Bill of Sale, the Assignment and Assumption
Agreement and the Fabrication Services Agreement); and
(c) the Retained Obligations (and each of them); it being
understood and agreed by Matrix, GSAC and Brown that the foregoing right of the
Caldwell Indemnitees to be defended, indemnified and held harmless from and
against the Retained Obligations may be exercised by the Caldwell Indemnitees
regardless of whether such Retained Obligations are the subject of any
representations or warranties set forth in Section 4 or any disclosure(s) by
Matrix, GSAC or Brown in connection with those representations and warranties,
and regardless of whether the Caldwell Indemnitees have a claim for
indemnification regarding the same Damages pursuant to Subsection (a) or (b)
above (except to the extent otherwise provided in the second to last sentence of
Section 2.5(b)).
The remedies provided in this Section 10.2 shall not be exclusive of or limit
any other remedies that may be available to the Caldwell Indemnitees. All Damage
payments to Caldwell or Caldwell Tanks hereunder shall be deemed adjustments to
the Purchase Price.
10.3 Limitation on Matrix's Indemnification. Notwithstanding the
provisions of Section 10.2, Matrix and GSAC shall have no obligation to
indemnify or hold harmless any Caldwell Indemnitee pursuant to Section 10.2(a)
until such time as the sum of all Damages that are suffered or incurred by all
Caldwell Indemnitees, collectively, resulting from or arising out of all
misrepresentations and breaches of warranties shall exceed $50,000 in the
aggregate, at which time Matrix and GSAC shall indemnify and hold harmless all
Caldwell Indemnitees pursuant to Section 10.2(a) for all Damages then and
thereafter suffered or incurred by them, including without limitation, that
initial $50,000 in Damages. The foregoing limitation on the Caldwell
Indemnitees' right to indemnification shall not apply to any Damages resulting
from, arising out of or in connection with any of the matters described in
Section 10.2(b) or Section 10.2(c), notwithstanding that such Damages may also
be recoverable pursuant to Section 10.2(a).
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10.4 Indemnification By Caldwell. Caldwell and Caldwell Tanks,
jointly and severally, shall defend, indemnify and hold Matrix and GSAC, and
their respective directors, officers, shareholders, Affiliates, successors and
assigns (collectively, the "Matrix Indemnitees"), harmless from and against, and
will pay to the Matrix Indemnitees the amount of, all Damages suffered or
incurred by them (or any of them) resulting from, arising directly or indirectly
out of or in connection with: (a) any misrepresentation or breach of warranty
made by Caldwell or Caldwell Tanks in this Agreement or in any Ancillary
Document to which it is a party; and (b) any breach by Caldwell or Caldwell
Tanks of any covenant, agreement or obligation of Caldwell or Caldwell Tanks in
this Agreement or in any Ancillary Document to which it is a party; but
excluding any Damages resulting from, arising out of or in connection with any
Retained Obligations. Notwithstanding the foregoing, in the event the Closing
does not occur, the Matrix Indemnitees shall be entitled to be defended,
indemnified and held harmless by Caldwell and Caldwell Tanks pursuant to
Subclause 10.4(a), above, only to the extent that Caldwell or Caldwell Tanks
knew or should have known that the relevant representation or warranty was not
true and correct in all material respects as of the date of this Agreement (it
being understood that the foregoing limitation on recovery shall have no
relevance in the event the Closing shall occur). The remedies provided in this
Section 10.4 shall not be exclusive of or limit any other remedies that may be
available to the Matrix Indemnitees.
10.5 Procedure for Indemnification.
(a) Notice of Claims. Promptly after receipt by a Party (the
"Claiming Party") of notice of the commencement or assertion of any claim,
action, suit, Proceeding, arbitration, audit, hearing, investigation, Order or
litigation (each a "Claim") against it or any Caldwell Indemnitee (in the case
of Caldwell, Caldwell Tanks and Brown) or any Matrix Indemnitee (in the case of
Matrix and GSAC), and if a claim is to be made by the Claiming Party against any
other Party (the "Indemnifying Party") for indemnification with respect to that
Claim pursuant to Section 10.2 or 10.4 (as applicable), the Claiming Party shall
promptly give notice to the Indemnifying Party of the commencement or assertion
of such Claim; provided, that the failure to so notify the Indemnifying Party of
the commencement or assertion of such Claim will not relieve the Indemnifying
Party of any liability that it may have to any Caldwell Indemnitee or Matrix
Indemnitee (as applicable) hereunder, except to the extent that such
Indemnifying Party demonstrates that the defense of such action was
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prejudiced by the Claiming Party's failure to give such notice. The notice
contemplated herein shall describe the Claim and the specific facts and
circumstances in reasonable detail, shall include a copy of any related notices
or written claims from third-parties, and shall indicate the amount, if known,
or an estimate, if possible, of the Damages that have been or may be suffered or
incurred.
(b) Assumption of Defense. If any Claim is brought against a
Caldwell Indemnitee or a Matrix Indemnitee and the Claiming Party gives notice
to the Indemnifying Party of such Claim, the Indemnifying Party will, unless the
Claim involves Taxes (which shall be resolved in accordance with the procedures
in Section 4.28), be entitled to participate in such Claim and, to the extent
that it wishes (unless (i) such Indemnifying Party is also a party to such Claim
and the Claiming Party determines in good faith that joint representation would
be inappropriate, or (ii) the Indemnifying Party fails to provide reasonable
assurance to the Claiming Party of its financial capacity to defend such Claim
and provide indemnification with respect to such Claim), to assume the defense
of such Claim with counsel reasonably satisfactory to the Claiming Party and,
after notice from the Indemnifying Party to the Claiming Party of its election
to assume the defense of such Claim, the Indemnifying Party will not, as long as
it diligently conducts such defense, be liable to the Claiming Party or the
other relevant Caldwell Indemnitee(s) or Matrix Indemnitee(s) (as applicable)
under this Section 10 for any fees of other counsel or any other expenses with
respect to the defense of such Claim, in each case subsequently incurred by the
Claiming Party or the other relevant Caldwell Indemnitee(s) or Matrix
Indemnitee(s) (as applicable) in connection with the defense of such Claim,
other than their reasonable costs of investigation. If the Indemnifying Party
assumes the defense of a Claim, (i) it will be conclusively established for
purposes of this Agreement that the Claim (and any resulting Damages) are within
the scope of and subject to indemnification by the Indemnifying Party; (ii) no
compromise or settlement of such claims may be effected by the Indemnifying
Party without the Claiming Party's consent unless (A) there is no finding or
admission of any violation of Legal Requirements or any violation of the rights
of any Person and no effect on any other Claims that may be made against the
Claiming Party or any other Caldwell Indemnitee or Matrix Indemnitee (as
applicable), and (B) the sole relief provided is monetary damages that are paid
in full by the Indemnifying Party; and (iii) the Claiming Party and each
relevant Caldwell Indemnitee or Matrix Indemnitee (as applicable) will have no
liability with respect to any compromise or settlement of such Claims effected
without its consent. The Claiming Party and any relevant Caldwell Indemnitee
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or Matrix Indemnitee shall be entitled to participate (at its expense) in the
defense of any Claim assumed by the Indemnifying Party as contemplated herein.
If notice is given to an Indemnifying Party of any Claim and the Indemnifying
Party does not, within ten days after the Claiming Party's notice is given, give
notice to the Claiming Party of its election to assume the defense of such
Claim, the Indemnifying Party will no longer have the right to assume that
defense, and will be bound by any determination made in such Claim or any
compromise or settlement effected by the Claiming Party or any other Caldwell
Indemnitee or Matrix Indemnitee (as applicable).
(c) Exception. Notwithstanding the foregoing, if a Claiming
Party or any other Caldwell Indemnitee or Matrix Indemnitee (as applicable),
determines in good faith that there is a reasonable probability a Claim (other
than a claim arising under Section 10.2(c) hereof) may adversely affect it or
its Affiliates other than as a result of monetary damages for which it would be
entitled to indemnification under this Agreement, that party or Person may, by
notice to the Indemnifying Party, assume the exclusive right to defend,
compromise or settle such Claim, but the Indemnifying Party will not be bound by
any determination of a Claim so defended or any compromise or settlement
effected without its consent (which may not be unreasonably withheld).
(d) Other Claims. A claim for indemnification for any matter
not involving a third-party Claim may be asserted by notice to the Party from
whom indemnification is sought.
(e) Cooperation of Parties. The Party assuming the defense
of any Claim shall keep the other Party(s) reasonably informed at all times of
the progress and development of the Party's defense of and compromise efforts
with respect to such Claim, and shall furnish the other Party(s) with copies of
all relevant pleadings, correspondence and other papers. In addition, the
Parties to this Agreement shall cooperate with each other, and make available to
each other and their representatives all available relevant records or other
materials required by them for their use in defending, compromising or
contesting any Claim.
10.6 No Liability of Brown Parties. In the event a Claim is made
against Matrix or GSAC for any Damages incurred by Caldwell, Caldwell Tanks or
any other Caldwell Indemnitee, Matrix and GSAC shall not, nor shall they be
entitled to, maintain, assert or make a claim against
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any Brown Party, or the directors, officers, Affiliates (other than claims or
defenses against Caldwell or Caldwell Tanks with respect to their rights or
obligations under this Agreement or the Non- Competition Agreement), successor
or assigns of any Brown Party, for contribution, indemnity or any other
recovery, it being the intention of the Parties hereto that after the Closing
the Brown Parties shall have no liability, obligation or responsibility to
Matrix or GSAC for any breach or nonfulfillment of the representations,
warranties, covenants or obligations of Brown, GSAC or Matrix made in this
Agreement, or for any indemnitees of Brown, GSAC or Matrix set forth herein.
11. ARBITRATION.
11.1 Referral. If any dispute under this Agreement or any
Ancillary Document arises and the relevant Parties are unable to resolve such
dispute, the unresolved dispute shall be resolved by arbitration if a Party
requests arbitration in accordance with this Section 11. The place of
arbitration shall be in Louisville, Kentucky. Arbitration shall be conducted
under the auspices of the American Arbitration Association ("AAA"). Except as
otherwise provided in this Section 11, the Rules of the AAA shall govern all
proceedings; and in the case of conflict between the AAA Rules and this
Agreement, the provisions of this Agreement shall govern.
11.2 Demand. Any Party may initiate arbitration by making a demand
on the other relevant Party(s) and simultaneously filing copies of the demand,
together with the required fees, with the AAA office in Louisville, Kentucky.
The demand shall contain those provisions required by the Rules of the AAA and
shall also request the AAA to designate and appoint one person as the
arbitrator, who shall act as the sole arbitrator to resolve the matter.
11.3 Discovery. The Parties shall have the right of discovery in
accordance with the Federal Rules of Civil Procedure except that discovery may
commence immediately upon the service of the demand for arbitration. A Party's
unreasonable refusal to cooperate in discovery shall be deemed to be refusal to
proceed with arbitration and, until AAA has designated the arbitrator, the
Parties may enforce their rights (including the right of discovery) in the
courts. Such enforcement in the courts shall not constitute a waiver of a
Party's right to arbitration. Upon his or her appointment, the arbitrator shall
have the power to enforce the Parties' discovery rights.
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11.4 Binding Decision. The Parties shall be bound by the decision
of the arbitrator and accept his or her decision as the final determination of
the matter in dispute. The prevailing Party(s) shall be entitled to enter a
judgment in any court upon any arbitration award made pursuant to this Section
11. The arbitrator shall award the costs and expenses of the arbitration,
including reasonable attorneys' fees, disbursements, arbitration expenses,
arbitrators' fees and the administrative fee of the AAA, to the prevailing Party
as shall be determined by the arbitrator. The dispute resolution procedure set
forth in this Section 11 shall be the sole procedure by which disputes between
the Parties under this Agreement or any Ancillary Document shall be resolved.
12. MISCELLANEOUS PROVISIONS.
12.1 Confidentiality of Agreement. Each Party agrees that it will
treat in confidence all Confidential Information which such Party shall have
obtained regarding the other Parties during the course of the negotiations
leading to the consummation of the transactions contemplated in this Agreement
(whether obtained before or after the date hereof), the investigation provided
for herein and the preparation of this Agreement and the Ancillary Documents,
and in the event the transactions contemplated in this Agreement shall not be
consummated, each Party will return to the other Parties all copies of
Confidential Information which have been furnished in connection herewith. Such
Confidential Information shall not be communicated to any third Person (other
than to each Party's counsel, accountants, financial advisors and lenders). No
other Party shall use any Confiden tial Information in any manner whatsoever
except solely for the purpose of evaluating the proposed purchase and sale of
the Shares; provided, that after the Closing, Caldwell and Caldwell Tanks may
use or disclose any Confidential Information included in the assets, properties
or rights of the Brown Parties, or otherwise reasonably related to the Brown
Parties or their assets, properties or rights. The obligation of each Party to
treat such documents, materials and other information in confidence shall not
apply to any Confidential Information which (a) is required to be disclosed
under applicable law or judicial process, but only to the extent it must be
disclosed, or (b) such Party reasonably deems necessary to disclose to obtain
any of the consents or approvals contemplated herein.
12.2 Consent to Jurisdiction. Each of the Parties hereto consents
and voluntarily submits to personal jurisdiction in the Commonwealth of Kentucky
and in the courts in such state located in Jefferson County and the United
States District Court for the Western District of Kentucky
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in any Proceeding arising out of or relating to this Agreement which is not
subject to arbitration as provided in Section 11, and agrees that all claims in
respect of the Proceeding may be heard and determined in any such court. Each of
the Parties hereto further consents and agrees that such Party may be served
with process in the same manner as a Notice may be given under Section 12.12.
Brown, GSAC and Matrix agree that any action instituted by any of them against
Caldwell with respect to this Agreement will be instituted exclusively in the
United States District Court for the Western District of Kentucky or, if such
Court does not have jurisdiction to adjudicate such action, in the Courts of the
Commonwealth of Kentucky located in Jefferson County. Brown, GSAC and Matrix
irrevocably and unconditionally waive and agree not to plead, to the fullest
extent permitted by law, any objection that they may now or hereafter have to
the laying of venue or the convenience of the forum of any action with respect
to this Agreement in the United States District Court for the Western District
of Kentucky and the Courts of the Commonwealth of Kentucky located in Jefferson
County. Each Party agrees that a final judgment in any Proceeding so brought,
and in any arbitration proceeding pursuant to Section 11, shall be conclusive
and may be enforced by suit on the judgment or in any other manner provided by
law or in equity, in any court or other tribunal having competent jurisdiction.
12.3 Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any Legal Requirement shall
be deemed also to refer to all rules and regulations promulgated thereunder,
unless the context requires otherwise. In the event of any inconsistency between
the statements in the body of this Agreement and those in the Schedules (other
than an exception expressly set forth as such in the Schedules rather than in
any agreement or document referred to in or attached to such Schedule), the
statements in the body of this Agreement will control. The Parties intend that
each representation, warranty, covenant and obligation contained herein shall
have independent significance. If any Party has breached any representation,
warranty, covenant or obligation contained herein in any respect, the fact that
there exists another representation, warranty, covenant or obligation relating
to the same subject matter (regardless of the relative levels of specificity)
which the Party has not breached shall not detract
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from or mitigate the fact that the Party is in breach of the first
representation, warranty, covenant or obligation. Unless the context clearly
states otherwise, the use of the singular or plural in this Agreement shall
include the other and the use of any gender shall include all others. All
references to "Section" or "Sections" refer to the corresponding Section or
Sections of this Agreement. Unless otherwise expressly provided, the word
"including" does not limit the preceding words or terms.
12.4 Entire Agreement. This Agreement embodies the entire
agreement and understanding of the Parties hereto with respect to the subject
matter herein contained, and supersedes all prior agreements, correspondence,
arrangements and understandings relating to the subject matter hereof. This
Agreement may be amended, modified, superseded, or canceled only by a written
instrument signed by all of the Parties hereto, and any of the terms,
provisions, and condi tions hereof may be waived only by a written instrument
signed by the waiving Party.
12.5 Exhibits and Schedules. All Exhibits to this Agreement and
the Schedules hereto shall constitute part of this Agreement and shall be deemed
to be incorporated herein by reference, in their entirety and made a part
hereof, as if set out in full at the point where they first are mentioned.
References in this Agreement to a specific Schedule shall refer solely to such
Schedule and shall not be deemed to include material included in any other
Schedule, unless the Schedule specifically states that the material is to be
included in another specified Schedule.
12.6 Expenses. Except as otherwise specifically provided in this
Section 12.6 or elsewhere in this Agreement, each Party to this Agreement will
bear its respective expenses incurred in connection with the preparation,
execution and performance of this Agreement and the transactions contemplated
herein, including all fees and expenses of agents, representatives, counsel and
accountants; provided Matrix will cause the Brown Parties not to incur any
out-of-pocket expenses in connection with this Agreement and the transactions
contemplated herein. In the event of the termination of this Agreement, the
obligation of each Party to pay its or his own expenses will be subject to any
rights of each party arising from a breach of this Agreement by another party.
Caldwell Tanks and Matrix shall each pay one-half of the HSR Act filing fee, at
the time of such filing.
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12.7 Governing Law. This Agreement is executed and delivered in,
and shall be governed by and construed in accordance with the laws of, the
Commonwealth of Kentucky, without giving effect to any conflict of law rule or
principle that might require the application of the laws of another
jurisdiction.
12.8 Headings. The headings in this Agreement are included for
purposes of convenience only and shall not be considered a part of this
Agreement in construing or interpreting any provision hereof.
12.9 Invalidity of Provisions; Severability. If any provision of
this Agreement or the application thereof to any Person or circumstance shall to
any extent be held in any Proceeding to be invalid, illegal or unenforceable,
the remainder of this Agreement, or the application of such provision to persons
or circumstances other than those to which it was held to be invalid, illegal or
unenforceable, shall not be affected thereby, and shall be valid, legal and
enforceable to the fullest extent permitted by law, but only if and to the
extent such enforcement would not materially and adversely frustrate the
parties' essential objectives as expressed herein. Notwithstanding the
foregoing, each Party hereto agrees that it has reviewed the provisions of this
Agreement, and that the same, taken as a whole, are fair and reasonable. The
Parties hereto shall endeavor in good faith negotiations to replace the invalid,
illegal or unenforceable provisions with valid provisions, the economic effect
of which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
12.10 No Public Announcement. Neither Caldwell, Caldwell Tanks,
Brown, GSAC nor Matrix shall, without the approval of the others, make any press
release or other public announcement concerning the transactions contemplated in
this Agreement, except as and to the extent that any such Party shall be so
obligated by law or the rules of any stock exchange, in which case the other
Party shall be advised and the Parties shall use their reasonable best efforts
to cause a mutually agreeable release or announcement to be issued; provided,
the foregoing shall not preclude communications or disclosures necessary to
implement the provisions of this Agreement or to comply with Securities and
Exchange Commission disclosure obligations. Matrix and Caldwell Tanks will
consult with each other concerning the means by which Brown's employees,
customers,
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and suppliers and others having dealings with the Brown Parties will be informed
of the transactions contemplated in this Agreement, and Caldwell Tanks will have
the right to be present for any such communication.
12.11 No Third Party Beneficiaries. This Agreement is not intended
to, and shall not be construed to, confer upon any third Person any right,
remedy or benefit nor is it intended to be enforceable by any third Person, and
shall only be enforceable by the Parties hereto, and their respective successors
and permitted assigns.
12.12 Notices.
(a) Giving of Notices. All notices, requests, consents,
approvals, waivers, demands and other communications required or permitted to be
given or made hereunder (collectively, "Notices") shall be given or made in
writing and (1) personally delivered against a written receipt, or (2) sent by
confirmed telephonic facsimile, or (3) delivered to a reputable express
messenger service (such as Federal Express, DHL Courier and United Parcel
Service) for overnight delivery, addressed as follows (or to such other address
as a Party shall have given Notice to the other):
If to Brown prior to Closing: Brown Steel Contractors, Inc.
c/o Matrix Service Company
10701 East Ute Street
Tulsa, Oklahoma 74116
Attn: Chief Financial Officer
Fax: 918/838-8810
With a copy (which shall
not constitute notice) to: Larry W. Sandel, Esq.
Hall, Estill, Hardwick, Gable, Golden & Nelson
320 South Boston Avenue, Suite 400
Tulsa, Oklahoma 74103-3708
Fax: 918/594-0505
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If to Brown following Closing: Brown Steel Contractors,
Inc.
c/o Caldwell Tanks, Inc.
4000 Tower Road
Louisville, Kentucky 40219
Attn: President
Fax: 502/966-8732
With a copy (which shall not
constitute notice) to: Patrick R. Northam, Esq.
Greenebaum Doll & McDonald
PLLC
3300 National City Tower
Louisville, Kentucky 40202
Fax: 502/587-3695
If to Matrix: Matrix Service Company
10701 East Ute Street
Tulsa, Oklahoma 74116
Attn: Chief Financial
Officer
Fax: 918/838-8810
With a copy (which shall not
constitute notice) to: Larry W. Sandel, Esq.
Hall, Estill, Hardwick,
Gable, Golden & Nelson
320 South Boston Avenue,
Suite 400
Tulsa, Oklahoma 74103-3708
Fax: 918/594-0505
If to GSAC: Georgia Steel Acquisition
Corp.
c/o Matrix Service Company
10701 East Ute Street
Tulsa, Oklahoma 74116
Attn: Chief Financial
Officer
Fax: 918/838-8810
With a copy (which shall not
constitute notice) to: Larry W. Sandel, Esq.
Hall, Estill, Hardwick,
Gable, Golden & Nelson
320 South Boston Avenue,
Suite 400
Tulsa, Oklahoma 74103-3708
Fax: 918/594-0505
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If to Caldwell Tanks: Caldwell Tanks, Inc.
4000 Tower Road
Louisville, Kentucky 40219
Attn: President
Fax: 502/966-8732
With a copy (which shall not
constitute notice) to: Patrick R. Northam, Esq.
Greenebaum Doll & McDonald
PLLC
3300 National City Tower
Louisville, Kentucky 40202
Fax: 502/587-3695
If to Caldwell: Caldwell Tanks Alliance,
LLC
c/o Caldwell Tanks, Inc.
4000 Tower Road
Louisville, Kentucky 40219
Attn: President
Fax: 502/966-8732
With a copy (which shall not
constitute notice) to: Patrick R. Northam, Esq.
Greenebaum Doll & McDonald
PLLC
3300 National City Tower
Louisville, Kentucky 40202
Fax: 502/587-3695
(b) Time Notices Deemed Given. All Notices shall be
effective upon being properly personally delivered, or upon confirmation of a
telephonic facsimile, or upon the delivery to a reputable express messenger
service. The period in which a response to any such Notice must be given shall
commence to run from the date on the receipt of a personally delivered notice,
or the date of confirmation of a telephonic facsimile or two days following the
proper delivery of the Notice to a reputable express messenger service, as the
case may be.
12.13 Specific Performance. Brown, GSAC, Matrix, Caldwell Tanks
and Caldwell acknowledge and agree that the other would be damaged irreparably
in the event any of the provisions of this Agreement are not performed in
accordance with their specific terms or otherwise
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are breached. Accordingly, Brown, GSAC and Matrix, on the one hand, and Caldwell
Tanks and Caldwell on the other, agree that the other(s) shall be entitled to an
injunction or injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically this Agreement and the terms and
provisions hereof in any action instituted in any court of the United States or
any state thereof having jurisdiction over Caldwell, Caldwell Tanks, Brown, GSAC
and Matrix and the matter (subject to the provisions set forth in Section 12.2),
in addition to any other remedy to which it or he may be entitled, at law or in
equity.
12.14 Successors and Assigns.
(a) Assignment. The rights of any Party under this Agreement
shall not be assignable by such Party hereto prior to the Closing without the
consent of the other Parties, except that the rights of Caldwell hereunder may
be assigned prior to the Closing, without the consent of Brown, GSAC or Matrix,
to any corporation all of the outstanding capital stock of which is owned or
controlled by Caldwell Tanks, or to any general or limited partnership, or
limited liability company or partnership, in which Caldwell Tanks or any such
corporation is a general partner or controlling member; provided that (1) such
assignment shall not result in Caldwell, Caldwell Tanks, GSAC, Matrix or Brown
having to amend its respective Notification and Report Form filed under the HSR
Act in connection with the transactions contemplated herein, (2) the assignee
shall assume in writing all of Caldwell's obligations to Matrix and GSAC
hereunder, (3) Caldwell shall not be released from any of its obligations
hereunder by reason of such assignment, and (4) Matrix's and GSAC's obligations
under this Agreement shall be subject to the delivery by such assignee, on or
prior to the Closing Date, of a certificate signed on its behalf containing
representations and warranties similar to those made by Caldwell in Section 5
and an opinion of counsel for Caldwell with respect to the assignee which is
similar to the opinion with respect to Caldwell set forth in Section 9.2.
Following the Closing, any Party may assign any of its rights hereunder, but no
such assignment shall relieve it of its obligations hereunder.
(b) Successors. All of the terms, provisions and conditions
of this Agreement shall be binding upon and inure to the benefit of and be
enforceable by the Parties hereto and their successors and permitted assigns.
The successors and permitted assigns hereunder shall include
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without limitation, in the case of Caldwell, any permitted assignee as well as
the successors in interest to such permitted assignee (whether by merger,
liquidation (including successive mergers or liquidations) or otherwise). This
Agreement and all of its provisions and conditions are for the sole and
exclusive benefit of the Parties and their successors and permitted assigns.
12.15 Time of Essence. Time is of the essence to the performance
of the obligations set forth in this Agreement.
12.16 Waiver. The rights and remedies of the Parties to this
Agreement are cumulative and not alternative. Neither the failure nor any delay
by any Party in exercising any right, power, or privilege under this Agreement
or the documents referred to in this Agreement will operate as a waiver of such
right, power, or privilege, and no single or partial exercise of any such right,
power, or privilege will preclude any other or further exercise of such right,
power, or privilege or the exercise of any other right, power, or privilege. To
the maximum extent permitted by applicable Legal Requirement, (a) no claim or
right arising out of this Agreement or the documents referred to in this
Agreement can be discharged by one Party, in whole or in part, by a waiver or
renunciation of the claim or right unless in writing signed by the other
Parties, (b) no waiver that may be given by a Party will be applicable except in
the specific instance for which it is given, and (c) no notice to or demand on
one Party will be deemed to be a waiver of any obligation of such Party or of
the right of the party giving such notice or demand to take further action
without notice or demand as provided in this Agreement or the documents referred
to in this Agreement.
[Signatures Are on the Following Page]
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IN WITNESS WHEREOF, the Parties hereto have duly executed this
Agreement as of the date first above written.
CALDWELL TANKS, INC.
By:
------------------------------------
Title:
---------------------------------
("Caldwell Tanks")
CALDWELL TANKS ALLIANCE, LLC
By:
------------------------------------
Title:
---------------------------------
("Caldwell")
BROWN STEEL CONTRACTORS, INC.
By:
------------------------------------
Title:
---------------------------------
(the "Brown")
MATRIX SERVICE COMPANY
By:
------------------------------------
Title:
---------------------------------
("Matrix")
GEORGIA STEEL ACQUISITION CORP.
By:
------------------------------------
Title:
---------------------------------
("GSAC")
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EXHIBIT A
CERTAIN DEFINED TERMS
As used in the Stock Purchase Agreement dated as of June 9, 1999, among
Caldwell Tanks, Inc., Caldwell Steel Fabricators, LLC, Brown Steel Contractors,
Inc., Georgia Steel Acquisition Corp. and Matrix Service Company, the following
capitalized terms shall have the meanings set forth below. References hereto to
particular Sections shall refer to Sections of the Stock Purchase Agreement,
unless the context clearly requires a different construction.
"Acquisition Balance Sheet" -- shall have the meaning set forth in
Section 4.5.
"Accounts Receivable" -- shall mean, without duplication, (i) all
Billings, (ii) the unbilled amount of the Contract Price of any contract,
agreement or work order that is identified on Exhibit B but is no longer a WIP
Contract as of the Closing, as contemplated in Section 2.2(a)(3)(B) of the
Agreement, and (iii) all other accounts that would be reflected as an account
receivable of the Brown Parties on a balance sheet of the Brown Parties as of
the Closing on the Closing Date prepared in accordance with GAAP (but excluding
any such accounts receivable under the WIP Contracts).
"Acquisition Balance Sheet" -- shall have the meaning set forth in
Section 4.5.
"Affiliate" -- any Person that, directly or indirectly, through one or
more intermediaries, controls or is controlled by, or is under common control
with, the Person specified. For purposes of this definition, "control" means the
power, direct or indirect, to direct or cause the direction of the management
and policies of the relevant Person, whether by ownership of securities,
contract, law or otherwise.
"Agreement" -- this Stock Purchase Agreement, the Exhibits hereto,
including those executed and delivered by one or more of the parties prior to or
at the Closing pursuant hereto, and the Schedules hereto.
"Ancillary Documents" -- shall have the meaning set forth in Section
4.1(a).
"Aqua Tanks" -- shall mean Aqua Tanks, Inc., a Georgia corporation.
"Assignment & Assumption Agreement" -- shall have the same meaning set
forth in Section 2.5(b).
"Audit Firm" -- shall have the meaning set forth in Section 2.2(b).
"Bank Agreement" -- shall mean collectively, (a) the Amended and Restated
Credit Agreement dated as of October 22, 1998, among Matrix, Brown, Brown Tanks,
Aqua Tanks, certain
<PAGE>
other Affiliates of Matrix and Bank One, Oklahoma, N.A. (as successor in
interest to Liberty Bank and Trust Company of Tulsa, National Association) (the
"Credit Agreement"), and (b) the "Loan Documents" (as defined in the Credit
Agreement).
"Base Price" -- shall have the meaning set forth in Section 2.1.
"Benefit Plans" -- shall have the meaning set forth in Section 4.14(a).
"best efforts", "reasonable best efforts", "commercially reasonable
efforts" and words of similar effect shall mean -- the efforts that a prudent
Person desirous of achieving a result would use in similar circumstances to
ensure that such result is achieved as expeditiously as possible; provided,
however, that an obligation to use best efforts under any agreement does not
require the Person subject to that obligation to take actions that would result
in a materially adverse change in the benefits to such Person of such agreement
and the transactions described therein.
"Bill of Sale" -- shall have the meaning set forth in Section 2.5(d).
"Billings" -- shall have the meaning set forth in Section 2.2(a)(3)(A).
"Brown" -- shall have the meaning set forth in the preamble of this
Agreement.
"Brown Acquisition Agreements" -- shall have the meaning set forth in
Section 6.13.
"Brown Agreements" -- shall have the meaning set forth in Section 4.26.
"Brown Parties" -- shall have the meaning set forth in Section 2.1.
"Brown Steel" -- shall mean Brown Steel Services, Inc., a Georgia
corporation.
"Brown Tanks" -- shall mean Brown Tanks, Inc., a Georgia corporation.
"Caldwell" -- shall have the meaning set forth in the preamble of this
Agreement.
"Caldwell Indemnitees" -- shall have the meaning set forth in Section
10.2.
"Caldwell Tanks" -- shall have the meaning set forth in the preamble of
this Agreement.
"Certificates and Stock Powers" -- shall have the meaning set forth in
Section 9.1(a).
"Claim" -- shall have the meaning set forth in Section 10.5.
"Claiming Party" -- shall have the meaning set forth in Section 10.5.
"Closing" -- shall have the meaning set forth in Section 3.1.
"Closing Date" -- shall have the meaning set forth in Section 3.2.
-2-
<PAGE>
"Code" -- shall have the meaning set forth in Section 2.5.
"Common Stock" -- shall have the meaning set forth in Section 4.3(b).
"Compensation Plans" -- shall have the meaning set forth in Section 4.14.
"Completion Costs" -- shall have the meaning set forth in Section
2.2(a)(3)(C).
"Computers" -- shall have the meaning set forth in Section 4.12(a).
"Confidential Information" -- Any information which is proprietary in
nature and non-public or confidential, in whole or in part; provided however
Confidential Information shall not include any information in the possession of
the receiving Party (a) that is independently developed by the such Party, (b)
is learned from a third Person not under any duty of confidence to the
disclosing Party or (c) becomes part of the public domain through no fault of
the receiving Party.
"Consent" -- any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"Contract Price" -- shall have the meaning set forth in Section
2.2(a)(3)(A).
"Control" -- shall have the meaning set forth in Section 4.4.
"Copyrights" -- shall have the meaning set forth in Section 4.18.
"Core Software" -- shall have the meaning set forth in Section 4.11(b).
"DB Plan" -- shall have the meaning set forth in Section 4.14(b).
"Damages" -- shall have the meaning set forth in Section 10.2.
"Disputed Contract" -- shall have the meaning set forth in Section
2.2(a)(3)(C).
"EBITDA" -- shall mean the sum of net income from operations before the
effect of changes in accounting principles and extraordinary items, plus the
following expenses or charges to the extent deducted from net income in such
period: depreciation, amortization, depletion, interest expense and income
Taxes, all determined in accordance with GAAP.
"Employment Agreements" -- shall have the meaning set forth in Section
4.32.
"Encumbrance" -- any charge, claim, community property interest, deed of
trust, condition, equitable interest, lien, mortgage, easement, encumbrance,
servitude, right of way, option, pledge, purchase agreement, conditional sale
agreement, proxy, security interest, right of first refusal, or restriction of
any kind, including any restriction on use, voting, transfer, receipt of income,
or exercise of any other attribute of ownership.
-3-
<PAGE>
"Entity" -- any corporation (including any non-profit corporation),
general or limited partnership, limited liability company, joint venture,
estate, trust, association or any other type of business organization.
"Environment" -- soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage basins, and
wetlands), groundwaters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other environmental
medium or natural resource.
"Environmental, Health, and Safety Liabilities" -- any cost, damages,
expense, liability, obligation, or other responsibility arising from or under
Environmental Law or Occupational Safety and Health Law and consisting of or
relating to:
(a) any environmental, health, or safety matters or conditions
(including on-site or off-site contamination, occupational safety and health,
and regulation of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative Proceedings, damages, losses, claims, demands and response,
investigative, remedial, or inspection costs and expenses arising under
Environmental Law or Occupational Safety and Health Law;
(c) financial responsibility under Environmental Law or
Occupational Safety and Health Law for cleanup costs or corrective action,
including any investigation, cleanup, removal, containment, or other remediation
or response actions ("Cleanup") required by applicable Environmental Law or
Occupational Safety and Health Law (whether or not such Cleanup has been
required or requested by any Governmental Body or any other Person) and for any
natural resource damages; or
(d) any other compliance, corrective, investigative, or remedial
measures required under Environmental Law or Occupational Safety and Health Law.
The terms "removal," "remedial," and "response action," include the types
of activities covered by the United States Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. ss. 9601 et seq., as amended
("CERCLA").
"Environmental Law" -- any Legal Requirement that requires or relates to:
(a) advising appropriate authorities, employees, and the public of
intended or actual releases of pollutants or hazardous substances or materials,
violations of discharge limits, or other prohibitions and of the commencements
of activities, such as resource extraction or construction, that could have
significant impact on the Environment;
(b) preventing or reducing to acceptable levels the release of
pollutants or hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or minimizing
the hazardous characteristics of wastes that are generated;
-4-
<PAGE>
(d) assuring that products are designed, formulated, packaged, and
used so that they do not present unreasonable risks to human health or the
Environment when used or disposed of;
(e) protecting resources, species, or ecological amenities;
(f) reducing to acceptable levels the risks inherent in the
transportation of hazardous substances, pollutants, oil, or other potentially
harmful substances;
(g) cleaning up pollutants that have been released, preventing the
threat of release, or paying the costs of such clean up or prevention; or
(h) making responsible parties pay private parties, or groups of
them, for damages done to their health or the Environment, or permitting
self-appointed representatives of the public interest to recover for injuries
done to public assets.
"ERISA" -- the Employee Retirement Income Security Act of 1974 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"Exchange Act" -- the Securities Exchange Act of 1934, as amended, or any
similar Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect from time to time.
"Excluded Assets" -- shall have the meaning set forth in Section 2.5.
"Excluded Obligations" -- shall have the meaning set forth in Section
2.5(b).
"Fabrication Services Agreement" -- shall have the meaning set forth in
Section 7.1(h).
"Facilities" -- any real property, leaseholds, or other interests
currently or formerly owned or operated by the Brown Parties (and each of them)
and any buildings, plants, structures, or equipment (including motor vehicles,
tank cars, and rolling stock) currently or formerly owned or operated by any of
the Brown Parties.
"Field Employees" -- shall have the meaning set forth in Section 6.13(a).
"Financial Statements" -- shall have the meaning set forth in Section
4.5.
"GAAP" -- generally accepted United States accounting principles, applied
on a basis consistent with the basis on which the Balance Sheet and the other
audited Financial Statements referred to in Section 4.5 were prepared.
"Governmental Authorization" -- any approval, consent, certificate,
registration, variance, exemption, right of way, franchise, privilege, immunity,
grant, ordinance, license, permit, waiver, or other authorization issued,
granted, given, or otherwise made available by or under the authority of any
Governmental Body or pursuant to any Legal Requirement.
-5-
<PAGE>
"Governmental Body" -- any (a) nation, state, county, city, town,
village, district, or other jurisdiction of any nature; (b) federal, state,
local, municipal, foreign, or other government; (c) governmental or
quasi-governmental authority of any nature (including any governmental agency,
branch, department, official, or entity and any court or other tribunal); (d)
multi-national organization or body; or (e) body exercising, or entitled to
exercise, any administrative, executive, judicial, legislative, police,
regulatory or taxing authority or power of any nature.
"Hazardous Activity" -- the distribution, generation, handling,
importing, management, manufacturing, processing, production, refinement,
Release, storage, transfer, transportation, treatment or use (including any
withdrawal or other use of groundwater) of Hazardous Materials in, on, under,
about, or from the Facilities or any part thereof into the Environment, and any
other act, business, operation, or thing that increases the danger, or risk of
danger, or poses an unreasonable risk of harm to persons or property on or off
the Facilities, or that may affect the value of the Facilities or any of the
Brown Parties.
"Hazardous Materials" -- any waste or other substance that is listed,
defined, designated, or classified as, or otherwise determined to be, hazardous,
radioactive, or toxic or a pollutant or a contaminant under or pursuant to any
Environmental Law, including any admixture or solution thereof, and specifically
including petroleum and all derivatives thereof or synthetic substitutes
therefor and asbestos or asbestos-containing materials.
"HSR Act" -- shall have the meaning set forth in Section 3.2.
"Immaterial Liabilities" -- shall have the meaning set forth in Section
4.16(d).
"Immaterial Violations" -- shall have the meaning set forth in Section
4.16(a).
"Indemnifying Party" -- shall have the meaning set forth in Section 10.5.
"Intellectual Property" -- shall have the meaning set forth in Section
4.18.
"Interim Balance Sheet" -- shall have the meaning set forth in Section
4.5.
"Inventory Price" -- shall have the meaning set forth in Section 2.1.
"IRC" -- the Internal Revenue Code of 1986 or any successor law, and
regulations issued by the IRS pursuant to the Internal Revenue Code or any
successor law.
"IRS" -- the United States Internal Revenue Service or any successor
agency, and, to the extent relevant, the United States Department of the
Treasury.
"Legal Requirement" -- any federal, state, local, municipal, foreign,
international, multinational, or other Order, constitution, law, ordinance,
principle of common law, regulation, statute, or treaty.
"Letter of Intent" -- shall have the meaning set forth in Section 7.l(h).
-6-
<PAGE>
"Liability" -- shall have the meaning set forth in Section 4.6.
"Marks" -- shall have the meaning set forth in Section 4.18.
"Matrix" -- shall have the meaning in the preamble of this Agreement.
"Matrix Indemnitees" -- shall have the meaning set forth in Section 10.4.
"Multiemployer Plans" -- shall have the meaning set forth in Section
4.14(a).
"Net Billings" -- shall have the meaning set forth in Section
2.2(a)(3)(A).
"Non-Competition Agreement" -- shall have the meaning set forth in
Section 7.1(h).
"Non-Field Employees" -- shall have the meaning set forth in Section
6.13(a).
"Notices" -- shall have the meaning set forth in Section 12.12.
"Occupational Safety and Health Law" -- any Legal Requirement designed to
provide safe and healthful working conditions and to reduce occupational safety
and health hazards, and any program, whether governmental or private (including
those promulgated or sponsored by industry associations and insurance
companies), designed to provide safe and healthful working conditions.
"Order" -- any award, decision, injunction, judgment, writ, decree,
order, ruling, subpoena, or verdict entered, issued, made, or rendered by any
court, administrative agency, or other Governmental Body or by any arbitrator or
arbitration panel.
"Ordinary Course of Business" -- an action taken by a Person will be
deemed to have been taken in the "Ordinary Course of Business" only if:
(a) such action is consistent with the past practices of such
Person and is taken in the ordinary course of the normal day-to-day operations
of such Person;
(b) such action is not required to be authorized by the board of
directors of such Person (or by any Person or group of Persons exercising
similar authority) and is not required to be specifically authorized by the
parent company (if any) of such Person; and
(c) such action is similar in nature and magnitude to actions
customarily taken, without any authorization by the board of directors (or by
any Person or group of Persons exercising similar authority), in the ordinary
course of the normal day-to-day operations of other Persons of similar size and
similarly situated that are in the same line of business as such Person.
"Orion Contract" -- shall have the meaning set forth in Section 6.15.
"Other Agreements" -- shall have the meaning set forth in Section 2.5(b).
"Other Work-in-Process Contracts" -- shall have the meaning set forth in
Section 2.2(c).
-7-
<PAGE>
"Parties" -- shall have the meaning set forth in the preamble of this
Agreement.
"Patents" -- shall have the meaning set forth in Section 4.18.
"PBGC" -- shall have the meaning set forth in Section 4.14(b).
"Pension Plans" -- shall have the meaning set forth in Section 4.14.
"Permitted Encumbrances" -- shall mean (i) such Encumbrances and minor
imperfections of title that have arisen only in the Ordinary Course of Business;
(ii) Encumbrances for current Taxes not yet due or for Taxes being contested in
good faith by appropriate proceedings; (iii) any inchoate mechanic's and
materialmen's Encumbrances for construction in process; (iv) any workmen's,
repairmen's, warehousemen's and carriers Encumbrances arising in the Ordinary
Course of Business; (v) easements, quasi-easements, rights of way, restrictive
covenants and land use ordinances and zoning plans which are matters of public
record; (vi) deposits or pledges to secure obligations under workers'
compensation, social security or similar laws or under unemployment insurance;
(vii) any "Permitted Exceptions" (as contemplated in Section 6.4(b)); and (viii)
deposits or pledges to secure bids, tenders, contracts (other than contracts for
the payment of money), leases, statutory obligations, surety and appeal bonds
and other obligations of like nature arising in the Ordinary Course of Business;
in each case to the extent the same do not and will not detract in any material
respect from the value (determined as if such Encumbrance did not exist) of, or
impair the use or enjoyment of, or impair the sale, transfer, conveyance or
assignment for fair value (determined as if such Encumbrance did not exist) of,
any assets subject thereto or the operation of the businesses of the Brown
Parties as currently conducted.
"Person" -- any individual, entity, organization, labor union, or other
entity or Governmental Body.
"Preliminary Determination Date" -- shall have the meaning set forth in
Section 2.2(a)(3)(C).
"Proceeding" -- any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative or
informal, and whether in law or in equity) commenced, brought, conducted, or
heard by or before, or otherwise involving, any Governmental Body or arbitrator
or arbitration panel.
"Proprietary Property" -- all Marks, Patents, Copyrights, Rights in Mask
Works and Trade Secrets.
"Purchase Price" -- shall have the meaning set forth in Section 2.1.
"Release" -- any spilling, leaking, emitting, discharging, depositing,
escaping, leaching, dumping or other releasing into the Environment, whether
intentional or unintentional.
"Release of Claims" -- shall have the meaning set forth in Section
2.5(c).
-8-
<PAGE>
"Representative" -- with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants, and financial advisors.
"Retained Obligations" -- shall have the meaning set forth in Section
2.5.
"Revised Exhibit B" -- shall have the meaning set forth in Section
2.2(a)(3)(C).
"Rights in Mask Work" -- shall have the meaning set forth in Section
4.18(a).
"Securities Act" -- the Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect from time to time.
"Shares" -- shall have the meaning set forth in Section 1.
"Software" -- shall have the meaning set forth in Section 4.11(b).
"Subsidiaries" -- shall mean Brown Tanks, Aqua Tanks and Brown Steel.
"Survey" -- shall have the meaning set forth in Section 6.4(d).
"Tax" -- shall have the meaning set forth in Section 4.28.
"Tax Return" -- shall have the meaning set forth in Section 4.28.
"Threat of Release" -- a substantial likelihood of a Release that may
require action in order to prevent or mitigate damage to the Environment that
may result from such Release.
"Threatened" -- a claim, Proceeding, dispute, action, or other matter
will be deemed to have been "Threatened" if any demand or statement has been
made (orally or in writing) or any notice has been given (orally or in writing),
or if any other event has occurred or any other circumstances exist, that would
lead a prudent Person to conclude that such a claim, Proceeding, dispute,
action, or other matter is likely to be asserted, commenced, taken, or otherwise
pursued in the future.
"338 Election" -- shall have the meaning set forth in Section 2.5.
"338 Taxes" -- shall have the meaning set forth in Section 2.5.
"Trade Secrets" -- shall have the meaning set forth in Section 4.18.
"Undisclosed Liabilities" -- shall have the meaning set forth in Section
4.6.
"Welfare Plans" -- shall have the meaning set forth in Section 4.14.
"WIP Contracts" -- shall have the meaning set forth in Section
2.2(a)(3)(B).
-9-
<PAGE>
LOU-225734-9
-10-
<PAGE>
EXHIBIT 11.1
STATEMENTS RE COMPUTATION OF EARNINGS PER SHARE
[ARTICLE] 5
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] MAY-31-1999
[PERIOD-START] MAR-01-1999
[PERIOD-END] MAY-31-1999
[COMMON] 9,524
[NET-INCOME] (14,139)
[EPS-BASIC] (1.49)
[COMMON] 9,524
[NET-INCOME] (14,139)
[EPS-DILUTED] (1.49)
[FISCAL-YEAR-END] MAY-31-1998
[PERIOD-START] MAR-01-1998
[PERIOD-END] MAY-31-1998
[COMMON] 9,987
[NET-INCOME] 1,297
[EPS-BASIC] 0.13
[COMMON] 10,008
[NET-INCOME] 1,297
[EPS-DILUTED] 0.13
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] MAY-31-1999
[PERIOD-START] JUN-01-1998
[PERIOD-END] MAY-31-1999
[COMMON] 9,440
[NET-INCOME] (12,612)
[EPS-BASIC] (1.34)
[COMMON] 9,440
[NET-INCOME] (12,612)
[EPS-DILUTED] (1.34)
[FISCAL-YEAR-END] MAY-31-1998
[PERIOD-START] JUN-01-1997
[PERIOD-END] MAY-31-1998
[COMMON] 9,546
[NET-INCOME] (11,638)
[EPS-BASIC] (1.22)
[COMMON] 9,546
[NET-INCOME] (11,638)
[EPS-DILUTED] (1.22)
</TABLE>
<PAGE>
Exhibit 21.1
MATRIX SERVICE COMPANY
Subsidiaries
Matrix Service, Inc., an Oklahoma corporation
Matrix Service Mid-Continent, Inc., an Oklahoma corporation
San Luis Tank Piping Construction Co., Inc., a Delaware corporation
West Coast Industrial Coatings, Inc., a California corporation
Matrix Service, Inc. Canada, an Ontario, Canada corporation
Midwest Industrial Contractors, Inc., a Delaware corporation
Brown Steel Contractors, Inc., a Georgia corporation
Georgia Steel Acquisition Corp., an Oklahoma corporation
Brown Steel Services, Inc., a Georgia corporation
Brown Tanks, Inc., a Georgia corporation
Aqua Tanks, Inc., a Georgia corporation
San Luis Tank S.A. de C.V., a Mexican corporation
Matrix Service, Inc., Panama, a Panama Corporation
53
<PAGE>
Exhibit 23.1
Consent of Ernst & Young LLP
We consent to the incorporation by reference of our report dated August 27,
1999, with respect to the consolidated financial statements of Matrix Service
Company included in this Form 10-K for the year ended May 31, 1999, in the
following registration statements.
Matrix Service Company 1990 Incentive Stock Form S-8 File No. 33-36081
Option Plan
Matrix Service Company 1991 Stock Option Form S-8 File No. 333-56945
Plan, as amended
Matrix Service Company 1995 Nonemployee Form S-8 File No. 333-2771
Directors' Stock Option Plan
Ernst & Young LLP
Tulsa, Oklahoma
August 27, 1999
54
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-END> MAY-31-1999
<CASH> 2,972
<SECURITIES> 0
<RECEIVABLES> 36,854
<ALLOWANCES> (2,464)
<INVENTORY> 3,042
<CURRENT-ASSETS> 58,656
<PP&E> 36,185
<DEPRECIATION> 17,971
<TOTAL-ASSETS> 88,220
<CURRENT-LIABILITIES> 32,984
<BONDS> 0
0
0
<COMMON> 96
<OTHER-SE> 49,619
<TOTAL-LIABILITY-AND-EQUITY> 88,220
<SALES> 210,997
<TOTAL-REVENUES> 210,997
<CGS> 197,012
<TOTAL-COSTS> 197,012
<OTHER-EXPENSES> 25,467
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 969
<INCOME-PRETAX> (12,612)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,612)
<EPS-BASIC> (1.34)
<EPS-DILUTED> (1.34)
</TABLE>
