UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1997
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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 Number: 001-10621
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AMERICAN ECO CORPORATION
------------------------
(Exact name of registrant as specified in its charter)
ONTARIO, CANADA 52-1742490
--------------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
11011 JONES ROAD, HOUSTON, TEXAS 77070
--------------------------------------------------------
(Address or principal executive offices) (Zip Code)
(281) 774-7000
----------------------------------------------------
(Registrant's telephone number, including area code)
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
----- -----
As of June 30, 1997, there were 15,966,336 shares of Common
Shares, no par value, outstanding.
<PAGE>
AMERICAN ECO CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
PART I. FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statements
Consolidated Balance Sheets:
May 31, 1997 and November 30, 1996 . . . 3
Consolidated Statements of Income:
Three Months and Six Months Ended
May 31, 1997 and May 31, 1996 . . . . . . 5
Consolidated Statements of Changes in
Financial Position:
Six Months Ended May 31, 1997
and May 31, 1996 . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . 12
Item 2. Changes in Securities . . . . . . . . . . . 12
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . 13
Item 6. Exhibits and Reports on Form 8-K . . . . . . 13
Signatures . . . . . . . . . . . . . . . . . . . . . . 15
2
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN ECO CORPORATION
CONSOLIDATED BALANCE SHEETS
(United States dollars in thousands)
At May 31, At November 30,
1997 1996
---------- ---------------
(Unaudited) (Audited)
ASSETS
------
CURRENT ASSETS
Cash . . . . . . . . . . . . . . $ 5,687 $ 317
Certificate of deposit,
restricted . . . . . . . . -0- 180
Accounts receivable . . . . . . 35,649 20,918
Current portion of notes
receivable . . . . . . . . 9,673 6,695
Costs and estimated earnings in
excess of billings on jobs
in progress . . . . . . . 9,997 3,446
Inventory . . . . . . . . . . . 10,459 6,807
Deferred income tax . . . . . . 3,147 1,393
Prepaid expenses and other 9,191 4,499
expenses . . . . . . . . . -------- --------
TOTAL CURRENT ASSETS 83,083 44,255
-------- --------
PROPERTY, PLANT AND EQUIPMENT, net 50,331 33,238
-------- --------
OTHER ASSETS
Goodwill, net . . . . . . . . . 29,110 18,969
Debenture issue costs, net . . . 3,647 97
Notes receivable . . . . . . . . 280 280
Investments . . . . . . . . . . 12,888 7,645
-------- --------
TOTAL OTHER ASSETS . 45,925 26,991
-------- --------
TOTAL ASSETS . . . . $180,059 $104,484
======== ========
The accompanying notes to the financial statements are
an integral part thereof.
3
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AMERICAN ECO CORPORATION
CONSOLIDATED BALANCE SHEETS
(United States dollars in thousands)
At May 31, At November 30,
1997 1996
---------- ---------------
(Unaudited) (Audited)
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued
liabilities . . . . . . . . . $ 21,622 $ 18,449
Notes payable (Note A) . . . . . 50,005 20,399
Current portion of long-term debt 1,805 1,595
Current portion of
obligations under capital
leases . . . . . . . . . . . . 122 113
Billings in excess of costs
and estimated earnings on 2,554 419
jobs in progress . . . . . . . -------- --------
TOTAL CURRENT LIABILITIES . . 76,108 40,975
-------- --------
LONG-TERM LIABILITIES
Long-term debt, net of current
portion . . . . . . . . . . . 11,181 6,618
Obligations under capital leases 104 102
Deferred income tax liability . 5,010 1,373
Debentures payable (Note B) . . 12,871 --
-------- --------
29,166 8,093
-------- --------
TOTAL LIABILITIES . . . . . . 105,274 49,068
-------- --------
MINORITY INTEREST . . . . . . . . . 370 373
-------- --------
SHAREHOLDERS' EQUITY
Common Shares . . . . . . . . . 50,779 39,411
Common Shares subscribed . . . . 34 34
Unrealized gain on marketable
securities . . . . . . . . . . 22 --
Additional paid-in capital . . . 2,845 2,845
Retained earnings . . . . . . . 20,735 12,753
-------- --------
74,415 55,043
-------- --------
TOTAL LIABILITIES AND $180,059 $104,484
SHAREHOLDERS' EQUITY . . . ======== ========
The accompanying notes to the financial statements are
an integral part thereof.
4
<PAGE>
AMERICAN ECO CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(United States dollars in thousands except per share data)
Three Months Ended May 31,
---------------------------
1997 1996
----------- ------------
(unaudited) (unaudited)
$ 56,362 $ 25,069
REVENUE . . . . . . . . . . . . . ----------- ----------
COSTS AND EXPENSES
Cost of contracts, sales and other
operating expenses . . . . . 49,520 22,275
Interest expense on long-term
debt, net exchange . . . . . 1,448 164
Depreciation and amortization . . 956 563
----------- ----------
51,924 23,002
INCOME BEFORE RECOVERY OF
(PROVISION FOR) INCOME TAXES . 4,438 2,067
RECOVERY OF (PROVISION FOR) 0 0
INCOME TAXES . . . . . . . . . ----------- ----------
NET INCOME . . . . . . . . . . . $ 4,438 $ 2,067
=========== ==========
Earnings per common share: . . . $ 0.30 $ 0.21
=========== ==========
Earnings per common share
Fully diluted: . . . . . . . . $ 0.29 $ 0.20
=========== ==========
Weighted average number of shares
used in computing income per 14,432,926 9,559,690
common share . . . . . . . . . ========== =========
Six Months Ended May 31,
--------------------------
1997 1996
----------- -----------
(unaudited) (unaudited)
$ 101,599 $ 65,083
REVENUE . . . . . . . . . . . . . ----------- ----------
COSTS AND EXPENSES
Cost of contracts, sales and other
operating expenses . . . . . 89,891 60,234
Interest expense on long-term
debt, net exchange . . . . . 1,864 292
Depreciation and amortization . . 1,862 685
----------- ----------
93,617 61,211
INCOME BEFORE RECOVERY OF
(PROVISION FOR) INCOME TAXES 7,982 3,872
RECOVERY OF (PROVISION FOR) 0 0
INCOME TAXES . . . . . . . . ----------- ----------
NET INCOME . . . . . . . . . . . $ 7,982 $ 3,872
=========== ==========
Earnings per common share: . . . $ 0.55 $ 0.41
=========== ==========
Earnings per common share
Fully dilutes: . . . . . . . . $ 0.53 $ 0.37
=========== ==========
Weighted average number of shares
used in computing income per 14,624,864 9,559,690
common share . . . . . . . . =========== ==========
The accompanying notes to the financial statements are
an integral part thereof.
5
<PAGE>
AMERICAN ECO CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
(United States dollars in thousands)
Six Months Ended
---------------------
1997 1996
----------- -----------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATIONS
Net income . . . . . . . . . . . . . $ 7,982 $ 3,872
Depreciation and amortization . . . 1,863 685
Changes in Working Capital:
Accounts receivable . . . . . . . . (4,630) (11,617)
Costs in excess of billings . . . . (4,402) 1,584
Other assets . . . . . . . . . . . . (3,426) (1,614)
Accounts payable . . . . . . . . . . (9,583) 2,324
Billings in excess of costs . . . . 1,003 181
Other liabilities . . . . . . . . . (566) (111)
-------- --------
Net cash from operations . . . . . . (11,759) (4,696)
-------- --------
CASH FLOWS FROM INVESTING
Capital expenditures . . . . . . . . 683 (500)
Acquisition of businesses, net of
working capital acquired . . . . . (5,210) --
Increase in goodwill . . . . . . . . (1,540) (729)
-------- --------
Net cash used in investing activities (6,067) (1,229)
-------- --------
CASH FLOWS FROM FINANCING
Net proceeds from notes receivable . (2,978) (760)
Net proceeds from long term debt . . 21,118 2,968
Net proceeds from issuance of stock 5,056 6,815
-------- --------
Net cash provided by (used in) 23,196 9,023
financing activities . . . . . . . -------- --------
NET INCREASE IN CASH . . . . . . . . . 5,370 3,098
CASH AT BEGINNING OF THE YEAR . . . . . 317 898
-------- --------
CASH AT THE END OF THE PERIOD . . . . . $ 5,687 $ 3,996
======== ========
The accompanying notes to financial statements are
an integral part hereof.
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The accompanying financial statements have been prepared in
accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-Q
and Article 10 of Regulation S-X promulgated by the Securities
and Exchange Commission. Such financial statements do not
include all disclosures required by generally accepted accounting
principles for annual financial statement reporting purposes.
However, there has been no material change in the information
disclosed in the Company's annual consolidated financial
statements dated November 30, 1996, except as disclosed herein.
Accordingly, the information contained herein should be read in
conjunction with such annual consolidated financial statements
and related disclosures. The accompanying financial statements
reflect, in the opinion of management, all adjustments
(consisting of normal recurring adjustments) necessary for a fair
presentation of the results for the interim periods presented.
Results of operations for the quarter and six months ended May
31, 1997 are not necessarily indicative of results expected for
an entire year.
NOTE A
Notes payable of the Company increased to $50 million for
the six month period ended May 31, 1997 compared to $20.3 million
for the year ended November 30, 1996. The increase is primarily
due to the debt associated with the Company's acquisition of
Chempower Inc. ("Chempower") that closed as of March 4, 1997. A
newly formed wholly-owned subsidiary of the Company merged with
and into Chempower and Chempower became a wholly-owned subsidiary
of the Company. As a result of the merger, all of the
shareholders of Chempower, other than two principal shareholders,
received cash for each of their Chempower shares. The two
principal shareholders received a portion of the merger
consideration in cash and the balance was represented by a $15.9
million promissory note due on February 28, 1998. In addition,
the Company acquired property from the two principal shareholders
in the amount of $4 million due on February 28, 1998, which
property had been leased by Chempower. Chempower also borrowed
$6 million against its $15 million credit line, which was
guaranteed by the Company, to complete the cash consideration for
the acquisition.
NOTE B
On January 24, 1997, the Company sold $15 million aggregate
principal amount of 9.5% Cumulative Convertible Debentures due
January 24, 2007 (the "Debentures"), together with 1,125,000
stock purchase warrants (the "Warrants") to a group of
institutional investors. The Company used the net proceeds from
the offering of such securities to fund in part the acquisition
of Chempower. The total proceeds from the issuance of the
Debentures have been allocated between the Warrants issued to the
holders, the conversion feature of the Debentures, and the debt
feature of the Debentures for financial reporting purposes. As a
result of this allocation, the Debentures are being carried at
less than their face value with a difference being charged to
interest expense over the term of the Debentures. The total
charge associated with this Debenture offering was $6.3 million
that is being amortized over their ten year life. For the six
months ended May 31, 1997, the Company had an interest expense of
$223,000 as a result of this financial reporting practice.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The results of operations for the three months and the six
months ended May 31, 1997 are not necessarily indicative of the
results for future periods. The following discussion should be
read in conjunction with the unaudited financial statements
included herein and the notes thereto, and with the audited
financial statements and notes thereto for the year ended
November 30, 1996.
OVERVIEW
The Company provides industrial support services to the
petroleum and petrochemical refining, power generation and forest
products industries in the United States and Canada. Within this
general line of business, the Company provides industrial
maintenance, environmental remediation and specialty fabrication
services. The Company's industrial maintenance services include
the repair, maintenance and modification of boilers, pressure
vessels and tubing used in industrial facilities as well as the
provision of project management and engineering services. The
Company's environmental services include hazardous material
remediation and abatement, emergency hazardous spill containment
and cleanup and hazardous material packaging and transportation.
The Company's specialty fabrication services typically involve
the construction of custom steel and metal alloy products used in
refineries, pulp mills and offshore oil drilling platforms.
The Company entered its current lines of business in
November 1992 when it acquired Eco Environmental, Inc., and it
has continued to expand its service capabilities, geographic
presence and customer base primarily by acquiring other
companies. The Company acquired eight businesses between fiscal
1993 and fiscal 1996, and its revenues grew from $7.6 million in
fiscal 1993 to $119.5 million in fiscal 1996 and to $101.6
million for the first six months of fiscal 1997 primarily as a
result of such acquisitions. The Company accelerated its
acquisition program in fiscal 1996 by adding the following five
operating subsidiaries: Industra Service Corporation, a British
Columbia, Canada corporation ("Industra Service"), Separation and
Recovery Systems, Inc., a Nevada corporation ("SRS"),
Environmental Evolutions, Inc., a Texas corporation
("Environmental Evolutions"), United Eco Systems, Inc., a
Delaware corporation ("United Eco"), and MM Industra, Ltd., a
Nova Scotia, Canada corporation ("MM Industra"). In March 1997,
the Company completed its $50.0 million acquisition of
Chempower.
The Company intends to continue to expand its business
through the acquisition of companies in the industrial
maintenance, environmental remediation and specialty fabrication
businesses. The Company's acquisition strategy entails the
potential risks inherent in assessing the value, strengths,
weaknesses, contingent liabilities and potential profitability of
acquisition candidates and in integrating the operations of
acquired companies. There can be no assurance that acquisition
opportunities will continue to be available, that the Company
will have access to the capital required to finance potential
acquisitions or that any business acquired will be integrated
successfully or prove profitable or be sold.
The Company's acquisition strategy has led to rapid growth
in the Company's operations over the past four fiscal years. The
Company's operations generally are managed at each of its
subsidiaries, but core administrative, financing and strategic
planning functions are performed at the holding company level.
This rapid growth has increased, and may continue to increase,
the operating complexity of the Company as well as the level and
responsibility for both existing and new management personnel at
the holding company level. The Company's ability to manage its
expansion effectively will require it to hire and retain new
management personnel at the holding company level and to continue
to implement and improve its operational and financial systems.
The Company's inability to effectively manage its expansion could
have a materially adverse effect on its results of operations and
financial results.
8
<PAGE>
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company's revenues from its industrial and environmental
segments may be affected by the timing of scheduled outages at
its industrial customers' facilities and by weather conditions
with respect to projects conducted outdoors. The effects of
seasonality may be offset by the timing of large individual
contracts, particularly if all or a substantial portion of the
contracts fall within a one- to two-quarter period. Accordingly,
the Company's quarterly results may fluctuate and the results of
one fiscal quarter should not be deemed to be representative of
the results of any other quarter or for the full fiscal year.
RECOGNITION OF REVENUES
The Company recognizes revenues and profits on contracts
using the percentage-of-completion method of accounting. Under
the percentage-of-completion method, contract revenues are
accrued based upon the percentage that accrued costs to date bear
to total estimated costs. As contacts can extend over more than
one accounting period, revisions in estimated total costs and
profits during the course of work are reflected during the period
in which the facts requiring the revisions become known. Losses
on contracts are charged to income in the period in which such
losses are first determined. The percentage-of-completion method
of accounting can result in the recognition of either costs and
estimated profits in excess of billings or billings in excess of
costs and estimated profits on uncompleted contracts, which are
classified as current assets and liabilities, respectively, in
the Company's balance sheet.
RESULTS OF OPERATIONS
Revenues
--------
The Company's revenues totaled $56.4 million and $101.6
million for the three and six months ended May 31, 1997 compared
to $2.5 million and $65.1 million for the three and six months
ended May 31, 1996. This significant increase for the first six
months of fiscal 1997 compared to the first six months of fiscal
1996 on both a percent and a dollar basis is due to the
acquisition of five operating subsidiaries subsequent to the
second quarter of fiscal 1996 in addition to the acquisition of
Chempower as of March 4, 1997. The second quarter of fiscal 1997
reflects for the first time the revenues generated from
Chempower's operations. The Company has recorded $525,000 of a
$2.4 million arbitration award that was given to its wholly-owned
subsidiary SRS as of May 31, 1997. The Company plans to record
the remaining $1.8 million prior to November 30, 1997. For
additional information, see Item 1 of Part II of this report and
Item 3 of the Company's Form 10-K for the fiscal year ended
November 30, 1996.
Operating Expenses
------------------
The Company's operating costs increased to $49.5 million and
$89.9 million for the three and six months ended May 31, 1997
versus $22.3 million and $60.2 million for the three and six
months ended May 31, 1996. This significant increase is
primarily as a result of adding five new subsidiaries subsequent
to the second quarter of fiscal 1996. Expressed as a percent of
total revenues, operating costs decreased to 88.9% for the first
six months of fiscal 1997 compared to 92.5% for the first six
months of fiscal 1996. Management attributes this decrease to
the Company's continued effort to control operating expenses.
The Company had instituted a program in fiscal 1994 which
requires managers to track such cost control indicators as labor
productivity and potential project cost overruns. Management
believes that the Company will continue to control operating
expenses, but there can be no assurance that the Company's cost
control policies will be effective in the future. The Company's
interest expenses increased to $1.5 million and $1.9 million for
the three and six months ended May 31, 1997 versus $200,000 and
$300,000 for the three and six months ended May 31, 1996. This
9
<PAGE>
increase in expenses is due primarily to the acquisition of the
operating subsidiaries with existing debt and an addition to the
interest associated with the Debenture placement in January 1997
and increase in a bank line used as part of the payment to
acquire Chempower. The Company's depreciation and amortization
increased to $1 million and $12.9 million for the three and six
months ended May 31, 1997 versus $600,000 and $700,000 for the
three and six months ended May 31, 1996. This significant
increase is due to the Company's expanded operations as a result
of its acquisition program.
Net Income
----------
Net income from continuing operations increased to $7.9
million, or $0.55 per share as of May 31, 1997 compared to $3.9
million or $0.41 per share as of May 31, 1996. Net income for
the quarter ended May 31, 1997 was $4.4 million or $0.30 per
share compared to $2.1 million and $0.21 per share for the
quarter ended May 31, 1996.
The Company has net loss carry forwards in Canada with which
it is able to reduce its tax liabilities. At November 30, 1996,
the Company had a total of $3.2 million in net loss carry
forwards that expire incrementally between 1999 and 2003.
Management believes that the net operating loss carry forwards
will be extinguished in the second half of fiscal 1997 at which
time the Company will begin to pay taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's existing capital resources consist of cash,
cash provided by its operating subsidiaries and funds available
under its lines of credit. Typically the Company maintains cash
levels of between $1.0 million and $2.0 million for general
corporate needs, but the Company's available cash increased to
$5.7 million at May 31, 1997 from $317,000 at November 30, 1996
primarily due to the Company raising funds from the sales to a
group of institutional investors of $15.0 million aggregate
principal amount of 9.5% Debentures in January 1997 and $3.0
million of Debentures in March 1997, together with stock purchase
Warrants. The Company used the net proceeds from the January
offering of the Debentures to fund, in part, the acquisition of
Chempower, which closed as of March 4, 1997. At May 31, 1997,
the Company and its operating subsidiaries had an aggregate of
$34.1 million in lines of credit, of which $11.9 million remained
available to the Company and its subsidiaries.
The Company incurred additional debt in the second quarter
of fiscal 1997 in connection with the acquisition of Chempower.
The Company issued the January Debentures and guaranteed two
Chempower promissory notes in the aggregate principal amount of
$15.9 million, which notes mature in 1998. The Company pledged
all of its shares of Chempower capital stock to secure its
guaranty of each promissory note. Chempower issued the
promissory notes to two former principal shareholders of
Chempower as partial payment for such shareholders' equity
interest in Chempower. In addition, Chempower borrowed
$6.0 million under an unsecured line of credit in the amount of
$15 million, which line of credit is guaranteed by the Company.
The Company's cash requirements consist of working capital
needs, obligations under its leases and promissory notes and the
funding of potential acquisitions. The Company primarily
provides services and its capital expenditure requirements are
low relative to the revenues that it generates. The Company used
$700.000 for capital expenditures during the first six months of
fiscal 1997 compared to a negative $500,000 during the first six
months of fiscal 1996. Management believes that the Company's
cash and funds available under its credit facilities, together
with cash generated from its operations, are sufficient to meet
its anticipated cash requirements, with the exception of the
Company's obligations under the notes guaranteed by it in
connection with the Chempower acquisition. The Company may fund
its capital requirements by increasing its current lines of
credit or restructuring such lines of credit to enable all
operating subsidiaries to draw upon them. The Company is
presently engaged in negotiations with banks to open a line of
10
<PAGE>
credit which would replace certain lines of credit held by some
of its subsidiaries. The Company also may seek to raise
additional capital by issuing debt or equity securities in
private or public offerings. There can be no assurance that the
Company will be able to increase or restructure its lines of
credit or that the Company will be able to issue its securities
to coincide with the funding of certain capital requirements.
Accounts receivable at May 31, 1997 increased to $35.6
million from $21.0 million at November 30, 1996. Management
attributes this increase to the addition of five new operating
subsidiaries during fiscal 1996. Property, plant and equipment
increased to $50.3 million at May 31, 1997 from $33.2 million at
November 30, 1996 as a result of the acquisition of Chempower
which contributed an additional $17.1 million. Accounts payable
increased to $21.6 million at May 31, 1997 from $18.4 million at
November 30, 1996 as a result of the Company's acquisition of
Chempower.
INFORMATION REGARDING FORWARD LOOKING STATEMENTS.
The Company is including the following cautionary statement
in its Report on Form 10-Q to make applicable and take advantage
of the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 for any forward-looking statements
made by, or on behalf of the Company. Forward-looking statements
include statements concerning plans, objectives, goals,
strategies, future events or performance and underlying
assumptions and other statements which are other than statements
of historical facts. Certain statements contained herein are
forward looking statements and accordingly involve risks and
uncertainties which could cause actual results or outcomes to
differ materially from those expressed in the forward-looking
statements. The Company's expectations, beliefs and projects are
expressed in good faith and are believed by the Company to have a
reasonable basis, including without limitations, management's
examination of historical operating trends, data contained in the
Company's records and other data available from third parties,
but there can be no assurance that management's expectations,
beliefs or projections will result or be achieved or
accomplished. In addition to other factors and matters discussed
elsewhere herein, the following are important factors that, in
the view of the Company, could cause actual results to differ
materially from those discussed in the forward-looking
statements: the ability of the Company to continue to expand
through acquisitions, the availability of capital to fund the
Company's expansion program, the ability of the Company to manage
its expansion effectively, economic conditions that could affect
demand for the Company's services, the ability of the Company to
complete projects profitably and severe weather conditions that
could delay projects. The Company disclaims any obligation to
update any forward-looking statements to reflect events or
circumstances after the date hereof.
11
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 16, 1997, the arbitrators in the arbitration
proceeding brought by OHM Remediation Services Corp. ("OHM"), a
customer of Separation and Recovery Systems, Inc. ("SRS"), a
wholly-owned subsidiary of the Company, awarded SRS $2.4 million
in compensatory damages on its counterclaims, and denied SRS's
claims for punitive damages, and also denied all claims of OHM.
On June 23, 1997, OHM filed a complaint in the United States
District Court for the Southern District of Ohio (the "Court")
challenging the award asserting that the arbitrators had exceeded
their authority. On June 24, 1997, SRS filed a motion in the
same Court seeking confirmation of the award. The Court
scheduled a hearing on the motions for September 1997.
Management believes that the award will be confirmed as binding
arbitration had been ordered by the Court and agreed to by both
parties and the Company is not aware of any basis for vacating
the award. For the six months ended May 31, 1997, the Company
has recorded $525,000 for the award, and plans to record the
remaining $1.8 million prior to November 30, 1997. For
additional information, see Item 3 of the Company's Form 10-K for
the fiscal year ended November 30, 1996.
ITEM 2. CHANGES IN SECURITIES
(c) Effective January 24, 1997, the Company closed the sale
of $15 million aggregate principal amount of 9.5% Cumulative
Convertible Debentures due January 24, 2007 (the "Debentures")
and 1,125,000 share purchase warrants (the "Warrants") to a group
of institutional investors. The Debentures are convertible into
shares of Common Shares at the conversion rate of 85% of the
average closing price of the Common Shares on the Nasdaq National
Market for the five trading days immediately preceding the
respective conversion dates, subject to a floor conversion price
of $6.30 per share. The floor conversion price was eliminated
upon shareholders ratification of the placement at the May 7,
1997 shareholders meeting, see Item 4 below. Each Warrant is
exercisable for one Common Share at an exercise price of $9.56
per share (110% of the closing market price for the Common Shares
on January 23, 1997) subject to customary anti-dilution
provisions, for a period of five years. An aggregate of 300,000
Warrants also were issued to the placement agents for the
transaction, which Warrants are exercisable for five years at
$8.00 per share. At June 30, 1997, $3,360,000 principal amount
of the Debentures had been converted into 585,952 Common Shares.
Effective March 3, 1997, the Company closed the sale of $3
million aggregate principal amount of 9.5% Cumulative Convertible
Debentures due May 2007 and 225,000 Warrants to a group of
institutional investors, which included entities which had
participated in the January 1997 placement. Each Warrant is
exercisable for one Common Share at an exercise price of $9.21
per share (110% of the closing market price for the Common Shares
on February 28, 1997), subject to customary anti-dilution
provisions, for a period of five years. At June 30, 1997, all
these Debentures had been converted into 367,303 Common Shares.
On June 2, 1997, the Company borrowed an aggregate of $6
million from two institutional investors pursuant to Term Loan
Agreements and issued to the borrowers Warrants to purchase
480,000 Common Shares at an exercise price of $7.27 per share,
subject to customary anti-dilution provisions for a period of
five years. The Term Loan Agreement includes financial covenants
of the Company and restrictions on the payment of cash dividends.
The sales of the Debentures, Notes and Warrants mentioned in
this Item 2 were claimed to be exempt from registration under the
Securities Act of 1933 by virtue of Section 4(2) thereof and
Regulation D promulgated thereunder, and the conversion of the
Debentures into Common Shares were claimed to be exempt from
12
<PAGE>
registration under the Securities Act by virtue of Section
3(a)(9) thereof. The purchasers have certain rights for the
registration under the Securities Act of the Common Shares
underlying the Debentures and the Warrants.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 7, 1997, the Company held its Annual and Special
Meeting of Shareholders (the "Meeting").
The following persons were elected directors at the Meeting:
Barry Cracower
William A. Dimma
Hon. Donald R. Getty
Michael E. McGinnis
John C. Pennie
Francis J. Sorg
At the Meeting, in addition to the election of directors,
the shareholders approved amendments to the Articles of the
Company relating to its preference shares, approved amendments to
the Company's Stock Option Plan, approved an amendment to
outstanding January Debentures, authorized the Company to enter
into private placement agreements over the next 12 months and
appointed Coopers & Lybrand L.L.P. as auditors for fiscal 1997.
The voting by shareholders at the Meeting was as follows:
FOR AGAINST WITHHELD
--- ------- --------
Elect directors 4,523,830 - 4,300
Amend Articles 3,190,960 1,196,350 2,520
Amend Option Plan 4,219,877 306,353 1,900
Amend Debentures 3,398,622 990,208 1,000
Authorize Placements 3,164,546 1,222,784 2,500
Appoint Auditors 4,520,979 - 5,751
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Articles of Amendment, certified on May 27, 1997.
4.1 Form of 9.5% Cumulative Convertible Debenture due
January 24, 2007 (incorporated by reference to Exhibit
2 to the Company's Form 6-K, dated February 7, 1997).
4.2 Form of 9.5% Cumulative Convertible Debenture due March
3, 2007 (incorporated by reference to Exhibit 2 to the
Company's Form 6-K, dated March 14, 1997).
4.3 Form of Common Share Purchase Warrant expiring January
24, 2002 (incorporated by reference to Exhibit 3 to the
Company's Form 6-K, dated February 7, 1997).
13
<PAGE>
4.4 Form of Common Share Purchase Warrant expiring March 3,
2002 (incorporated by reference to Exhibit 3 to the
Company's Form 6-K, dated March 14, 1997).
4.5 Form of Common Stock Purchase Warrant expiring May 29,
2002.
10.1 Term Loan Agreement, dated as of May 30, 1997, between
the Company and Refco Capital Markets, Ltd., together
with Secured Term Note (similar agreement with other
lender).
27 Financial Data Schedule
(b) Form 8-K
None
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
AMERICAN ECO CORPORATION
(Registrant)
Dated: July 17, 1997 /s/ Michael E. McGinnis
--------------------------
Michael E. McGinnis
Chief Executive Officer
Dated: July 17, 1997 /s/ Davis L. Norris
--------------------------
David L. Norris
Chief Financial Officer
15
<PAGE>
EXHIBIT INDEX
Exhibit Description
------- -----------
3.1 Articles of Amendment, certified on May 27, 1997.
4.1 Form of 9.5% Cumulative Convertible Debenture due
January 24, 2007 (incorporated by reference to Exhibit
2 to the Company's Form 6-K, dated February 7, 1997).
4.2 Form of 9.5% Cumulative Convertible Debenture due March
3, 2007 (incorporated by reference to Exhibit 2 to the
Company's Form 6-K, dated March 14, 1997).
4.3 Form of Common Share Purchase Warrant expiring January
24, 2002 (incorporated by reference to Exhibit 3 to the
Company's Form 6-K, dated February 7, 1997).
4.4 Form of Common Share Purchase Warrant expiring March 3,
2002 (incorporated by reference to Exhibit 3 to the
Company's Form 6-K, dated March 14, 1997).
4.5 Form of Common Stock Purchase Warrant expiring May 29,
2002.
10.1 Term Loan Agreement, dated as of May 30, 1997, between
the Company and Refco Capital Markets, Ltd., together
with Secured Term Note (similar agreement with other
lender).
27 Financial Data Schedule
For Ministry Use Only Ontario Corporation
A l'usage exclusif du ministere Number
Numero de la societe en
Ontario
219837
Ministry of Ministere de
Consumer and la Consommation
Commercial et du Commerce
Ontario Relations
CERTIFICATE CERTIFICAT
This is to certify Ceci certie que
that these les presents
articles are status entrent en
effective on vigueur le
May 27 MAI, 1997
Director/Directeur
Business Corporations Act/Los de sur les compagnies
---------------------------------------------------------------
Form 3
Business
Corporations
Act
Formula 3
Loi sur les
societes par
actions
ARTICLES OF AMENDMENT
STATUS OF MODIFICATION
1. The name of the Denomination sociale de la
corporation is: societe
A M E R I C A N E C O C O R P O R A T I O N
2. The name of the corporation is changed to (if Nouvelle
denomination sociale de la societe (s'il y a lieu):
applicable):
N / A
3. Date of incorporation/ Date de la constitution ou de
amalgamation: la fusion:
1969/02/06
-------------------------------------------------------------
(Year, Month, Day)
(annee, mois, jour)
4. The articles of the Les statuts de la societe de
corporation are amended la facon suivante.
as follows:
The Articles of the Corporation be and they are hereby
amended as follows:
1. by decreasing the authorized capital of the
Corporation by deleting the Class A Preference
Shares and the Class A Preference Shares, Series 1
(none of which are issued and outstanding);
2. by increasing the authorized capital of the
Corporation by creating an unlimited number of
preference shares, issuable in series;
3. by declaring that the capital of the Corporation after
giving affect to the foregoing consists of an unlimited
number of preference shares, issuable in series and an
unlimited number of common shares;
4. by deleting the existing share conditions attaching to
the Class A Preference Shares, Class A Preference
Shares, Series 1 and common shares;
5. by providing that the rights, privileges, restrictions
and conditions attaching to the preference shares and
common shares are as follows:
A. PREFERENCE SHARES
-----------------
The preference shares, as a class, shall have attached
thereto the following rights, privileges, restrictions and
conditions:
1. Directors' Authority to Issue in One or More Series
---------------------------------------------------
1.1 The directors of the Corporation may issue the
preference shares at any time and from time to time in one
or more series. Before any shares of a particular series
are issued, the directors of the Corporation shall fix the
number of shares in such series and shall determine, subject
to the limitations set out in the articles, the designation,
rights, privileges, restrictions and conditions to be
attached to the shares of such series, including, but
without in any way limiting or restricting the generality of
the foregoing, the rate or rates, amount or method or
methods of calculation of any dividends thereon and whether
such rate(s), amount or method(s) of calculation shall be
subject to change or adjustment in the future, the currency
or currencies of payment, the date or dates and place or
places of payment thereof and the date or dates from which
such dividends shall accrue, the consideration and the terms
and conditions of any purchase for cancellation, retraction
or redemption rights (if any), the conversion or exchange
rights attached thereto (if any) and the terms and
conditions of any purchase obligation or sinking fund or
other provisions attaching thereto. Before the issue of a
series of preference shares,the directors of the Corporation
shall send to the Director appointed under the Business
Corporations Act, Ontario (as now enacted or from time to
time amended, re-enacted or replaced) (the "Act") articles
of amendment in prescribed form containing a description of
such series including the number of shares in such series
and the designation, rights, privileges, restrictions and
conditions determined by the directors.
2. Ranking of Preference Shares
----------------------------
2.1 No rights, privileges, restrictions or conditions
attaching to a series of preference shares shall confer upon
the shares of a series a priority in respect of dividends or
in respect of return of capital in the event of the
liquidation, dissolution or winding-up of the Corporation,
whether voluntary or involuntary, over the shares of any
other series of preference shares.
2.2 The preference shares, as a class, shall be entitled to
such priority over the common shares of the Corporation and
over any other shares of any other class of the Corporation
ranking junior to the preference shares with respect to
priority in the payment of dividends and/or the return of
capital and the distribution of assets in the event of the
liquidation, dissolution or winding-up of the Corporation,
whether voluntary or involuntary, or any other distribution
of the assets of the Corporation among its shareholders for
the purpose of winding-up its affairs as the directors of
the Corporation shall determine at the time of determining
the number and designation of, and the rights, privileges,
restrictions and conditions attaching to, the series of
preference shares. The preference shares of any series may
also be given such other preferences not inconsistent with
the preferences so determined to attach to the preference
shares as a class not inconsistent with the provisions
hereof over the common shares and over any other shares
ranking junior to the preference shares as the directors of
the Corporation may determine at the time of determining the
number and designation of, and the rights, privileges,
restrictions and conditions attached to, the shares of such
series.
2.3 If any amount of cumulative dividends, whether or not
declared, or declared non-cumulative dividends or amounts
payable on a return of capital in the event of the
liquidation, dissolution or winding-up of the Corporation in
respect of a series of preference shares is not paid in
full, the preference shares of all series shall participate
rateably in respect of all accumulated cumulative
dividends,whether or not declared,and all declared non-
cumulative dividends, and in respect of amounts payable on
return of capital in the event of liquidation, dissolution
or winding-up of the Corporation; provided, however,that in
the event of there being insufficient assets to satisfy in
full all such claims as aforesaid, the claims of the holders
of the preference shares with respect to amounts payable on
return of capital shall first be paid and satisfied and any
assets remaining thereafter shall be applied toward the
payment and satisfaction of claims in respect of dividends.
3. Voting Rights
-------------
3.1 Except as herein specifically provided or as otherwise
provided by law, the holders of the preference shares shall
not be entitled as such to receive notice of, to attend or
to vote at any meeting of the shareholders of the
Corporation. The holders of the preference shares shall be
entitled to receive notice of meetings of shareholders of
the Corporation called for the purpose of authorizing the
dissolution of the Corporation or the sale, lease or
exchange of all or substantially all the property of the
Corporation other than in the ordinary course of business of
the Corporation under subsection 184(3) of the Act.
4. Modification
------------
4.1 The rights, privileges, restrictions and conditions
attaching to the preference shares, as a class, may not be
deleted, amended, modified or varied in whole or in part
except with the prior approval of the holders of the
preference shares given as hereinafter specified in addition
to any other approval required by the Act.
4.2 The approval of the holders of the preference shares
with respect to any and all matters hereinbefore referred to
may be given by not less than two-thirds of the votes cast
at a meeting of the holders of the preference shares duly
called for that purpose and held upon at least 21 days'
notice at which the holders of not less than 25 per cent of
the outstanding preference shares are present or represented
by proxy. If at any such meeting the holders of 25 per cent
of the outstanding preference shares are not present or
represented by proxy within one-half hour after the time
appointed for such meeting, then the meeting shall be
adjourned to such date being not less than 30 days later and
at such time and place as may be determined by the person
appointed as chairman by the persons present and entitled to
vote at such meeting (and, for such purpose, the presence of
one holder of preference shares or of a proxy therefor shall
constitute a quorum) and no less than 21 days' notice shall
be given of such adjourned meeting. At such adjourned
meeting the holders of the preference shares present or
represented by proxy may transact the business for which the
meeting was originally called and a resolution passed
thereat by not less than two-thirds of the votes cast at
such adjourned meeting shall constitute the approval of the
holders of the preference shares referred to above. The
formalities to be observed in respect of the giving of
notice of any such meeting or any adjourned meeting and the
conduct thereof shall be those from time to time prescribed
by the Act and the by-laws of the Corporation with respect
to meetings of shareholders. On every poll taken at a
meeting of holders of preference shares as a class, each
holder of preference shares entitled to vote thereat shall
have one vote in respect of each $1.00 of stated capital
attributable to each preference share held by him.
B. COMMON SHARES
-------------
The common shares, as a class, shall have attached thereto
the following rights, privileges, restrictions and
conditions:
1. Dividends
---------
1.1 Subject to the prior rights of the holders of any
shares of the Corporation ranking senior to the common
shares with respect to priority in the payment of dividends,
the holders of the common shares shall be entitled to
receive dividends and the Corporation shall pay dividends
thereon, as and when declared by the Board of Directors of
the Corporation out of assets properly applicable to the
payment of dividends, in such amount and in such form as the
Board of Directors may from time to time determine and all
dividends which the directors may declare on the common
shares shall be declared and paid in equal amounts per share
on all common shares at the time outstanding. Cheques of
the Corporation payable at par at any branch of the
Corporation's bankers for the time being in Canada shall be
issued in respect of any such dividends payable in cash
(less any tax required to be withheld by the Corporation)
and payment thereof shall satisfy such dividends. Dividends
which are represented by a cheque which has not been
presented to the Corporation's bankers for payment or that
otherwise remain unclaimed for a period of six years from
the date on which they were declared to be payable shall be
forfeited to the Corporation.
2. Dissolution
-----------
2.1 In the event of the liquidation, dissolution or
winding-up of the Corporation, whether voluntary or
involuntary, or any other distribution of assets of the
Corporation among its shareholders for the purpose of
winding-up its affairs, subject to the prior rights of the
holders of any shares of the Corporation ranking senior to
the common shares with respect to priority in the
distribution of assets upon liquidation, dissolution or
winding-up, the holders of the common shares shall be
entitled to receive the remaining property and assets of the
Corporation and to participate equally in any distribution
thereof without preference or distinction.
3. Voting Rights
-------------
3.1 The holders of the common shares shall e entitled to
receive notice of and to attend all meetings of the
shareholders of the Corporation. At any such meeting other
than a meeting at which only holders of another specified
class or series of shares of the Corporation are entitled to
vote separately as a class or series, each common share
shall confer one vote.
4. Creation of other Voting Shares
-------------------------------
4.1 No other class or series of shares of the Corporation,
other than the common shares, carrying the right to vote at
a meeting of the Corporation (other than a meeting at which
only the holders of a particular class or series of shares
of the Corporation are entitled to vote separately as a
class or series) either under all circumstances or under
certain circumstances that have occurred and are continuing
shall be authorized without the affirmative vote of a
majority of the votes cast at a meeting of the holders of
common shares voting separately as a class.
5. The amendment has been duly authorized as required by
Sections 168 & 170 (as applicable)
La modification a ete dument autorisee by conformement
aux articles 168 et 170 Corporations Act. (selon le
cas) de la Loi sur les societes par actions.
6. The resolution authorizing the amendment was approved
by the shareholders/directors (as applicable) of the
corporation on
Les actionnaires ou les administrateurs (selon le cas)
de la societe ont approuve la resolution autorisant la
modification le
1997/05/07
----------------------------------------------------------
(Year, Month, Day)
(annee, mois, jour)
These articles are signed in duplicate.
Les presents status sont siges en double exemplaire.
AMERICAN ECO CORPORATION
------------------------------------
(Name of Corporation)
(Denomination sociale de la societe)
President &
By/Par: /s/ Michael E. McGinnis C.E.O.
------------------------------------
(Signature) (Description of Office)
(Signature) (Fonction)
<PAGE>
CERTIFICATE
The undersigned John C. Pennie, being the duly elected or
appointed Vice-Chairman of the Board of American ECO Corporation
(the "Corporation") does hereby certify that attached hereto is a
true and correct copy of resolutions of the shareholders of the
Corporation duly passed on May 7, 1997 (regarding the approval of
future private placements) and that the same are still in full
force and effect, unamended as of the date hereof.
DATED at Toronto this 28th day of May , 1997.
------ ----------
/s/ John C. Pennie
---------------------------
John C. Pennie
<PAGE>
APPROVAL OF FUTURE PRIVATE PLACEMENTS
-------------------------------------
The Chairman stated that the next item of business is the
authorization and approval of future private placements and that
the affirmative vote of at least a majority of the votes cast in
respect thereof is required in order to pass such resolution.
The Chairman stated that the Scrutineers' report shows that the
following resolution has been duly carried by a majority of the
votes cast as the meeting:
NOW THEREFORE BE IT RESOLVED THAT:
1. The directors of the Corporation be and they are hereby
authorized and directed to arrange from time to time,
additional private placements in the capital of the
Corporation, subject to the following terms:
(a) All private placement financings will be carried
out by the Corporation in accordance with the
guidelines of The Toronto Stock Exchange and
specifically paragraphs 619 and 622 of The Toronto
Stock Exchange Company Manual.
(b) The future private placements will not result in
additional shares of the Corporation being issued
in an amount exceeding the current number of
issued and outstanding shares in the aggregate of
the Corporation.
(c) Any of the future private placements would be
substantially at arm's length and would not
materially affect control of the Corporation.
2. Any one director of officer of the Corporation be and
he is hereby authorized and directed to execute and deliver
under the corporate seal or otherwise all such deed,
documents, instruments and assurances and to do all such
acts and things as in his opinion may be necessary or
desirable to give effect to this resolution.
The Chairman declared that if any shareholder or proxy nominee is
interested in the exact number of votes cast in favour of or
against the resolution which has been voted upon by poll, he or
she may obtain particulars after the meeting on enquiry from the
Secretary. Attached to these minutes is a copy of such ballot
results.
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS
PROMULGATED THEREUNDER (THE "U.S. SECURITIES ACT"), AND MAY BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE
CORPORATION, (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH
RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES ACT, (C)
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE U.S.
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER, IF APPLICABLE,
AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS,
(D) WITH THE PRIOR WRITTEN CONSENT OF THE CORPORATION PURSUANT TO
ANOTHER EXEMPTION FROM REGISTRATION UNDER THE U.S. SECURITIES ACT
AND ANY APPLICABLE STATE SECURITIES LAWS OR (E) PURSUANT TO AN
EFFECTIVE REGISTRATION UNDER THE U.S. SECURITIES ACT AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS. NON-CANADIAN
CITIZENS SHALL NOT BE AUTHORIZED TO SELL OR REDISTRIBUTE THE
SECURITIES REPRESENTED HEREBY FOR A MINIMUM PERIOD OF 41 DAYS
AFTER THE DATE OF ISSUANCE OF THIS WARRANT.
AMERICAN ECO CORPORATION
Warrant to Subscribe for
400,000 Common Shares
NUMBER _______ _________, 1997
1. Purchase Rights. For value received by the undersigned,
---------------
REFCO CAPITAL MARKETS, LTD., a Bermuda corporation, or its
assignee (the "Holder"), is entitled to subscribe for and
purchase up to 400,000 fully paid and non-assessable common
shares without nominal or par value (the "Shares"), as
constituted on the date hereof, of American Eco Corporation,
an Ontario, Canada corporation (the "Corporation"), at a
price of US $7.27 per Share (the price at which one Share
may be purchased hereunder from time to time is hereinafter
referred to as the "Exercise Price"), all subject to the
terms and conditions set forth herein and any adjustment as
hereinafter provided, by surrendering this Warrant together
with a subscription in the form attached hereto duly
completed and executed at the registered office of the
Corporation. Rights granted hereunder shall terminate at
5:00 p.m., New York City time, on May 29, 2002 (hereinafter
referred to as the "Time of Expiry").
2. Partial Exercise. The Holder may subscribe for and purchase
----------------
less than the full number of Shares of the Corporation
entitled to be subscribed for and purchased hereunder. In
the event that the Holder subscribes for and purchases less
than the full number of Shares entitled to be subscribed for
and purchased under the Warrant, the Corporation shall issue
a new Warrant to the Holder in the same form as this Warrant
with the appropriate changes in respect of the remaining
number of Shares for which the Holder is entitled to
subscribe.
3. Delivery of Certificates. Within three business days of
------------------------
receipt of this Warrant, together with a subscription form
substantially in the form annexed hereto duly completed and
executed, the Corporation shall deliver or cause to be
delivered to the Holder a certificate or certificates
representing the Shares subscribed for and purchased by the
Holder hereunder and a new Warrant, if any, against payment
of such Shares by certified check, bank draft or money order
in lawful money of the United States payable to or to the
order of the Corporation.
4. Warrant Holder Not A Shareholder. Nothing contained in this
--------------------------------
Warrant shall be construed as conferring upon the Holder any
right or interest whatsoever as a holder of Shares of the
Corporation or any other right or interest except as herein
expressly provided.
5. Adjustments.
-----------
(a) Adjustment on Reclassification. In case of any
------------------------------
reclassification of the Shares or change of the Shares
into other shares or in case of the consolidation,
merger, reorganization or amalgamation of the
Corporation with or into any other corporation or
entity which results in any reclassification of the
Shares or a change of the Shares into other shares or
in case of any transfer of the undertaking or assets of
the Corporation as an entirety or substantially as an
entirety to another person (any such event being
hereinafter referred to as a "Reclassification of
Shares"), at any time prior to the Time of Expiry,
after the effective date of such Reclassification of
Shares and upon exercise of the right to purchase
Shares hereunder, the Holder shall be entitled to
receive and shall accept, in lieu of the number of
Shares to which the Holder was theretofore entitled
upon such exercise, the kind and amount of shares and
other securities or property which the Holder would
have been entitled to receive as a result of such
Reclassification of Shares if on the effective date
thereof the Holder had been the registered Holder of
the number of Shares to which the Holder was
theretofore entitled upon such exercise. If necessary,
appropriate adjustments shall be made in the
application of the provisions set forth in this Section
S with respect to the rights and interest thereafter of
the Holder of this Warrant to the end that the
provisions set forth in this Section 5 shall thereafter
correspondingly be made applicable as nearly as may be
reasonable in relation to any shares or other
securities or property thereafter deliverable upon the
exercise of this Warrant.
(b) Adjustment on Capital Reorganization. If and whenever
------------------------------------
at any time prior to the Time of Expiry, the
Corporation shall:
(i) subdivide the Shares into a greater number of
shares;
(ii) consolidate the Shares into a lesser number of
shares; or
(iii) issue Shares of Convertible Securities to all
or substantially all of the holders of Shares
by way of a stock divided or other
distribution on the Shares payable in Shares
or Convertible Securities;
(any such event being hereinafter referred to as a
"Capital Reorganization"), and any such event results
in an adjustment in the Exercise Price pursuant to
paragraph (c), the number of Shares purchasable
pursuant to this Warrant shall be adjusted
contemporaneously with the adjustment of the Exercise
Price by multiplying the number of Shares theretofore
purchasable on the exercise thereof by a fraction the
numerator of which shall be the Exercise Price in
effect immediately prior to such adjustment and the
denominator of which shall be the Exercise Price
resulting from such adjustment. For the purpose of
this Section 5, "Convertible Security" means a security
convertible into or exchangeable for a Share.
(c) Adjustment to Exercise Price. If and whenever at any
----------------------------
time prior to the Time of Expiry, the Corporation shall
engage in a Capital Reorganization, the Exercise Price
shall, on the effective date in the case of a
subdivision or consolidation, or on the record date, in
the case of a stock dividend, be adjusted by
multiplying the Exercise Price in effect on such
effective date or record date by a fraction: (i) the
numerator of which is the number of Shares outstanding
before giving effect to such Capital Reorganization;
and (ii) the denominator of which shall be the number
of Shares outstanding after giving effect to such
Capital Reorganization. The number of Shares
outstanding shall include the deemed conversion into or
exchange for Shares of any Convertible Securities
distributed by way of stock dividend or other such
distribution. Such adjustment shall be made
successively whenever any event referred to in this
paragraph shall occur.
(d) Effect of Stock Dividends. An issue of Shares or
-------------------------
Convertible Securities by way of a stock dividend or
other such distribution shall be deemed to have been
made on the record date thereof for the purpose of
calculating the number of outstanding Shares under
paragraphs (e) and (f).
(e) Effect of Rights Offering. If and whenever at any time
-------------------------
prior to the Time of Expiry, the Corporation shall fix
a record date for the issuance of rights, options or
warrants (other than this Warrant) to all or
substantially all the holders of Shares entitling them,
for a period expiring not more than 45 days after such
record date, to subscribe for or purchase Shares or
Convertible Securities at a price per share (or having
a conversion or exchange price per share) of less than
90% of the Current Market Price of the Shares on such
record date (any such event being hereinafter referred
to as a "Rights Offering"), the Exercise Price shall be
adjusted immediately after such record date so that it
shall equal the price determined by multiplying the
Exercise Price in effect on such record date by a
fraction;
(i) the numerator of which shall be the aggregate of:
(A) the number of Shares outstanding on such
record date; and (B) a number determined by
dividing whichever of the following is applicable
by the Current Market Price of the Shares on the
record date: (I) the amount obtained by
multiplying the number of shares which the holders
of Shares are entitled to subscribe for or
purchase by the subscription or purchase price; or
(II) the amount obtained by multiplying the
maximum number of Shares which the holders of the
Shares are entitled to receive on the conversion
or exchange of the Convertible Securities by the
conversion or exchange price per share; and
(ii) the denominator of which shall be the aggregate
of: (A) the number of Shares outstanding on such
record date; and (B) whichever of the following is
applicable: (I) the number of Shares which the
holders of Shares are entitled to subscribe for or
purchase; or (II) the maximum number of Shares
which the holders of Shares are entitled to
receive on the conversion or exchange of the
Convertible Securities.
Any Shares owned by or held for the account of the
Corporation shall be deemed not to be outstanding for
the purpose of any such computation. Such adjustment
shall be made successively whenever such a record date
is fixed.
To the extent that such Rights Offering is not so made
or any such rights, options or warrants are not
exercised prior to the expiration thereof, the Exercise
Price shall be readjusted to the Exercise Price which
would be in effect if such record date had not been
fixed or if such expired rights, options or warrants
had not been issued.
(f) Effect of Special Distribution. If and whenever at any
------------------------------
time during the Exercise Period, the Corporation shall
fix a record date for the distribution to all or
substantially all the holders of the Shares of:
(i) shares of any class other than Shares;
(ii) rights, options or warrants;
(iii) evidences of indebtedness; or
(iv) other assets or property;
and if such distribution does not constitute a Capital
Reorganization or a Rights Offering or does not consist
of rights, options or warrants entitling the holders of
Shares to subscribe for or purchase Shares or
Convertible Securities for a period expiring not more
than 45 days after such record date and at a price per
share (or having a conversion or exchange price per
share) of at least 90% of the Current Market Price of
the Shares on such record date (any such non-excluded
event being hereinafter referred to as a "Special
Distribution") the Exercise Price shall be adjusted
immediately after such record date so that it shall
equal the price determined by multiplying the Exercise
Price in effect on such record date by a fraction: (I)
the numerator of which shall be the amount by which (A)
the amount obtained by multiplying the number of Shares
outstanding on such record date by the Current Market
Price of the Shares on such record date, exceeds (B)
the fair market value (as determined by the directors
of the Corporation, which determination shall be
conclusive) to the holders of such Shares of such
Special Distribution; and (II) the denominator of which
shall be the total number of Shares outstanding on such
record date multiplied by such Current Market Price.
Any Shares owned by or held for the account of the
Corporation shall be deemed not to be outstanding for
the purpose of any such computation. Such adjustment
shall be made successively whenever such a record date
is fixed.
To the extent that such Special Distribution is not so
made or any such rights, options or warrants are not
exercised prior to the expiration thereof, the Exercise
Price shall then be readjusted to the Exercise Price
which would then be in effect if such record date had
not been fixed or if such expired rights, options or
warrants had not been issued.
(g) Dividend Adjustment Limitation. No adjustment pursuant
------------------------------
to this Section 5 shall be made in respect of dividends
(payable in cash or Shares) declared payable on the
Shares in any fiscal year of the Corporation to the
extent that such dividends, when aggregated with any
dividends previously declared payable on the Shares in
such fiscal year, do not exceed 50% of the aggregate
consolidated net income of the Corporation before
extraordinary items for its immediately preceding
fiscal year.
(h) Deferral of Share Issuance. In any case in which this
--------------------------
Section 5 shall require that an adjustment shall become
effective immediately after a record date for an event
referred to herein, the Corporation may defer, until
the occurrence of such event, issuing to the Holder,
upon the exercise of this Warrant after such record
date and before the occurrence of such event, the
additional Shares issuable upon such exercise by reason
of the adjustment required by such event; provided,
however, that the Corporation shall deliver to the
Holder an appropriate instrument evidencing the
Holder's right to receive such additional Shares upon
the occurrence of the event requiring such adjustment
and the right to receive any distributions made on such
additional Shares on and after such exercise.
(i) Cumulative Effect. The adjustments provided for in
-----------------
this Section 5 are cumulative and, in the case of
adjustments to the Exercise Price, shall be computed to
the nearest one-tenth of one cent, and shall apply
(without duplication) to successive Reclassifications
of Shares, Capital Reorganizations, Rights Offerings
and Special Distributions; provided that,
notwithstanding any other provision of this Section 5,
no adjustment of the Exercise Price shall be required
unless such adjustment would require an increase or
decrease of at least 1% of the Exercise Price then in
effect (provided however that any adjustments which by
reason of this paragraph are not required to be made
shall be carried forward and taken into account in any
subsequent adjustment).
(j) No Adjustment if Participation Rights Available. No
-----------------------------------------------
adjustment in the number of Shares which may be
purchased upon exercise of this Warrant or in the
Exercise Price shall be made pursuant to this Warrant
if the Holder is entitled to participate in such event
on the same terms mutatis mutandis as if the Holder had
------- --------
exercised this Warrant for Shares prior to the
effective date or record date of such event. Any
participation by the Holder shall require the prior
approval of The Toronto Stock Exchange if the Shares
are then listed on the Toronto Stock Exchange.
(k) Resolution of Disputes. In the event of any question
----------------------
arising with respect to the adjustments provided in
this Section 5, such question shall conclusively be
determined by an internationally recognized firm of
independent chartered accountants appointed by the
Corporation (who may be the Corporation's auditors)
with the consent of the Holder, which consent may not
be unreasonably withheld. Such accountants shall have
access to all necessary records of the Corporation and
such determination shall be binding upon the
Corporation and the Holder.
(l) Reservation of Shares. As a condition precedent to the
---------------------
taking of any action which would require an adjustment
in the subscription rights pursuant to this Warrant
including the Exercise Price and number of such classes
of shares or other securities or property which are to
be received upon the exercise thereof, the Corporation
shall take all corporate action which, in the opinion
of counsel, may be necessary in order that the
Corporation has reserved and there will remain unissued
out of its authorized capital a sufficient number of
Shares for issuance upon the exercise of this Warrant
and that the Corporation may validly and legally issue
as fully paid and non-assessable all the shares of such
classes or other securities or may validly and legally
distribute the property which the Holder is entitled to
receive on any exercise of this Warrant.
(m) Notice of Adjustment Event. At least four days prior
--------------------------
to the effective date or record date, as the case may
be, of any event which requires an adjustment in the
subscription rights pursuant to this Warrant, including
the Exercise Price and number and classes of shares or
other securities or property which are to be received
upon the exercise thereof, the Corporation shall give
notice to the Holder of the particulars of such event
and the required adjustment.
6. No Fractional Shares. The Corporation shall not issue
--------------------
fractional Shares upon the exercise of this Warrant.
7. Definition of Current Market Price. For the purpose of any
----------------------------------
computation under this Warrant, the "Current Market Price"
at any date shall mean (i) the average closing bid price for
a share on the Nasdaq National Market ("Nasdaq") as reported
by Nasdaq or (ii) if the shares are not then listed on
Nasdaq, the average closing price for at least one board lot
sale of the Shares on The Toronto Stock Exchange, in each
case for the 30 consecutive trading days commencing 45
trading days before the date for determining the Current
Market Price.
8. Registration Rights.
-------------------
(a) Registration. The Corporation shall file, as promptly
------------
as practicable after the date hereof and in no event
later than June 30, 1997, a registration statement (the
"Registration Statement") under the U.S. Securities Act
covering the sale and resale (if necessary to permit
the unrestricted resale of the Shares under the U.S.
Securities Act) of the Shares or other securities
issuable upon any purchase hereunder (the "Registrable
Securities").
(b) Registration Procedures. The Corporation shall use its
-----------------------
best efforts to cause the Registration Statement to
become and remain effective pursuant to Rule 415 under
the U.S. Securities Act. Thereafter, until (1) such
Registrable Securities have been sold without
restriction on the subsequent transfer thereof, (2) 30
days after the Time of Expiry or (3) the Registrable
Securities may be publicly sold in the United States
without registration and without any limitation on
volume or manner of sales under the U.S. Securities
Act, whichever is the shortest period of time, the
Corporation shall:
(i) Prepare and file with the U.S. Securities and
Exchange Commission (the "Commission") such
amendments and supplements to the Registration
Statement and the prospectus included therein
(including any preliminary prospectus) as may be
necessary to keep the Registration Statement
effective;
(ii) Furnish to Holder and its legal counsel (1)
promptly when the same is delivered, copies of all
correspondence to and from the Commission relating
to the Registration Statement, (2) such reasonable
number of copies of the Registration Statement,
preliminary prospectus, final prospectus and any
supplements and amendments thereof and (3) such
other documents as Holder may reasonably request
in order to facilitate the public offering of such
Registrable Securities;
(iii) Permit counsel designated by Holder to review
at Holder's sole expense the Registration
Statement and all amendments and supplements
thereto a reasonable period of time prior to
their filing with the Commission;
(iv) Use its best efforts to register or qualify the
Registrable Securities covered by the Registration
Statement under the state securities laws of such
jurisdictions as Holder may reasonably request
within 20 days following the original filing of
the Registration Statement and do any and all
other acts and things which may be reasonably
necessary or advisable to enable Holder to
consummate the disposition of such Registrable
Securities in such jurisdictions (provided that
the Corporation will not be required to
(i) qualify generally to do business in any
jurisdiction where it would not otherwise be
required to qualify but for this subparagraph (b);
(ii) subject itself to taxation in any such
jurisdiction; or (iii) consent to general service
of process in any such jurisdiction);
(v) Notify Holder promptly after it shall receive
notice thereof, of the time when the Registration
Statement has become effective or any amendment or
supplement to the Registration Statement or any
prospectus included therein has been filed;
(vi) Notify Holder promptly of any request by the
Commission for the amending or supplementing of
the Registration Statement or prospectus or for
additional information;
(vii) Prepare and file with the Commission,
promptly upon Holder's request any amendments
or supplements to the Registration Statement
or prospectus which, in the opinion of
Holder's counsel, are required under the U.S.
Securities Act in connection with the
distribution of Shares;
(viii) Promptly notify Holder at any time when a
prospectus relating to such Registrable
Securities is required to be delivered under
the U.S. Securities Act, if any event shall
have occurred as the result of which any such
prospectus or any other prospectus as then in
effect would include an untrue statement of a
material fact or omit to state any material
fact necessary to make the statements
therein, in light of the circumstances in
which they were made, not misleading and
promptly prepare and file with the Commission
a supplement or amendment to such prospectus
so that, as thereafter delivered to the
purchasers of Registrable Securities, such
prospectus will not contain an untrue
statement of material fact or omit to state
any material fact necessary to make the
statements therein, in light of the
circumstances in which they were made, not
misleading;
(ix) Advise Holder promptly after the Corporation shall
receive notice, or obtain knowledge thereof, of
the issuance of any stop order by the Commission
suspending the effectiveness of the Registration
Statement or the initiation or threatening of any
proceeding for that purpose and promptly use its
best efforts to prevent the issuance of any stop
order or to obtain its withdrawal if such stop
order should be issued;
(x) Not file any amendment or supplement to the
Registration Statement or prospectus to which
Holder or its counsel shall have objected on the
grounds that such amendment or supplement does not
comply in all material respects with the
requirements of the U.S. Securities Act or the
rules and regulations thereunder;
(xi) Make available for inspection by Holder and any
underwriter participating in any disposition
pursuant to the Registration Statement and any
attorney, accountant or other agent retained by
such persons, all financial and other records,
pertinent corporate documents and properties of
the Corporation and cause the Corporation's
officers, directors, employees and independent
accountants to supply all information and
documents reasonably requested by Holder or
Holder's underwriter, attorney, accountant or
agent in connection with the Registration
Statement;
(xii) Use its best efforts to cause all such
Registrable Securities to be listed or quoted
on Nasdaq or a United States national
securities exchange of comparable liquidity;
and
(xiii) Cause the Shares issuable upon a purchase
hereunder to be listed on Nasdaq immediately
after the Registration Statement becomes
effective and maintain such listing.
(c) Expenses. All fees, costs and expenses of registration
--------
shall be borne by the Corporation provided, however,
that Holder and any other holder of Registrable
Securities shall bear its pro rata share of any
underwriting discounts and commissions if a majority of
such holders elect to have the Registrable Securities
sold through an underwritten offering, as well as the
fees of its own counsel. The fees, costs and expenses
of registration to be borne by the Corporation shall
include without limitation, all internal costs
(including without limitation, all salaries and
expenses of its officers and employees performing legal
or accounting duties), all Commission and Nasdaq filing
fees, listing or quotation fees, printing expenses fees
and disbursements of counsel and accountants for the
Corporation (including, the cost of any special audit
requested in order to effect such registration), all
legal fees and disbursements and other expenses of
complying with U.S. state securities laws of any
jurisdiction in which the Registrable Securities to be
offered are to be registered or qualified, reasonable
fees and disbursements of counsel and accountants for
Holder and any other holders of Registrable Securities,
and the premiums and other costs of policies of
insurance against liability arising out of such public
offering which the Corporation determines to obtain,
but shall not include underwriting discounts and
commissions attributable to Shares not sold for the
account of the Corporation.
(d) Indemnification by the Corporation. Subject to the
----------------------------------
conditions set forth below, in connection with any
registration of Registrable Securities pursuant to
Section (a) or (b) above, the Corporation agrees to
indemnify and hold harmless Holder, any underwriter for
the offering and each of their officers, directors and
agents and each other person, if any, who controls
Holder or such underwriter within the meaning of
Section 15 of the U.S. Securities Act as follows:
(i) Against any and all loss, claim, damage and
expense whatsoever, including attorneys' fees and
expenses, including attorney's fees and expenses,
arising out of or based upon (including, but not
limited to, any and all expense whatsoever
reasonably incurred in investigating, preparing or
defending any litigation, commenced or threatened,
or any claim whatsoever based upon) any untrue or
alleged untrue statement contained in any
preliminary prospectus (if used prior to the
effective date of the Registration Statement), the
Registration Statement or the prospectus (as from
time to time amended and supplemented), or in any
application or other document executed by the
Corporation or based upon written information
furnished by the Corporation filed in any
jurisdiction in order to qualify the Corporation's
securities under the securities laws thereof; or
the omission or alleged omission therefrom of a
material fact required to be stated therein or
necessary to make the statements therein not
misleading; or any other violation of applicable
federal or state statutory or regulatory
requirements or limitations relating to action or
inaction by the Corporation in the course of
preparing, filing or implementing the Registration
Statement; provided, however, that the indemnity
contained in this subsection (i) shall not apply
to a Holder of Registrable Securities with respect
to any loss, claim, damage, liability or action
arising out of or based upon any untrue or alleged
untrue statement or omission made in reliance upon
and in conformity with any information furnished
in writing to the Corporation by or on behalf of
such Holder expressly for use in connection
therewith;
(ii) Subject to the proviso contained in subsection (i)
above, against any and all loss, liability, claim,
damage and expense whatsoever, including
attorneys' fees and expenses, to the extent of the
aggregate amount paid in settlement of any
litigation, commenced or threatened, or of any
claim whatsoever based upon any such untrue
statement or omission or any such alleged untrue
statement or omission (including but not limited
to, any and all expense whatsoever reasonably
incurred in investigating, preparing or defending
against any such litigation or claim) if such
settlement is effected with the written consent of
the Corporation.
(iii) The Corporation shall be entitled to
participate at its own expense in the defense
of any suit brought to enforce any such
claim, but if the Corporation elects to
assume the defense, such defense shall be
conducted by counsel chosen by it, provided
that such counsel is reasonably satisfactory
to Holder and any other holders of
Registrable Securities or controlling persons
who are defendants in any suit so brought.
In the event the Corporation elects to assume
the defense of any suit and retain such
counsel, such holders or controlling persons
shall, after the date they are notified of
such election, bear the fees and expenses of
any counsel thereafter retained by them as
well as any other expenses thereafter
incurred by them in connection with the
defense thereof unless, in the reasonable
opinion of such holders or controlling
persons, separate representation is advisable
because of conflict in the interest of the
parties, in which case the Corporation shall
continue to pay the fees of such counsel.
(e) Indemnification of Corporation. Holder shall indemnify
------------------------------
and hold harmless the Corporation, any underwriters for
the offering and each of their officers and directors
and agents and each other person, if any, who controls
the Corporation or such underwriters within the meaning
of Section 15 of the U.S. Securities Act against any
and all such losses, liabilities, claims, damages and
expenses as are indemnified against by the Corporation
under Section 8(d); provided however, that such
indemnification shall be limited to statements or
omissions, if any, made (or in settlement of any
litigation effected with Holder's written consent,
alleged to have been made) in any preliminary
prospectus, the Registration Statement or prospectus or
any amendment or supplement thereof or any application
or other document in reliance upon and in conformity
with, written information furnished by Holder or on
Holder's behalf expressly for use in any preliminary
prospectus, the Registration Statement or prospectus or
any amendment or supplement thereof. In case any
action shall be brought against the Corporation or any
other person so indemnified, in respect of which
indemnity may be sought against Holder, Holder shall
have the rights and duties given to the Corporation,
and each other person so indemnified shall have the
rights and duties given to Holder by the provisions of
Section 8(d)(iii).
9. Listing and Reservation of Shares. All Shares entitled to
---------------------------------
be purchased hereunder have been approved for listing on the
Toronto Stock Exchange and on Nasdaq and shall be listed
thereon upon their issuance. The Corporation has reserved
and there will remain unissued out of its authorized capital
a sufficient number of Shares for issuance upon the exercise
of this Warrant.
10. Governing Law. This Warrant shall be governed by and
-------------
construed in accordance with the laws of the United States
and the internal laws of the State of New York.
11. Assignment. Subject to compliance with the restrictions set
----------
forth on the face of this Warrant, this Warrant may be
assigned by the Holder in whole or in part.
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be
executed by one of its duly authorized officers.
AMERICAN ECO CORPORATION
By:
-------------------------
Michael E. McGinnis
President and CEO
FOR VALUE RECEIVED, _______________ hereby sells, assigns
and transfers unto _______________ Warrants to subscribe for
________ ( ) Shares of the no par value common shares of
American Eco Corporation standing in name on the books of said
corporation represented by Warrant No. ____________ herewith and
do hereby irrevocably constitute and appoint Corporation attorney
to transfer the said Warrant on the books of the within named
Corporation with full power of substitution in the premises.
Dated _______________
-------------------------
<PAGE>
SUBSCRIPTION FORM
TO: AMERICAN ECO CORPORATION
RE: WARRANT TO SUBSCRIBE FOR 400,000 COMMON SHARES DATED
____________, 1997 (the "Warrant")
The undersigned holder of the Warrant hereby subscribes for
________ common shares (the "Shares") of American Eco Corporation
or such number of Shares and/or other securities and/or property
to which such subscription entitles the undersigned holder in
lieu thereof or addition thereto under the provisions of the
Warrant pursuant to the terms of the Warrant at the Exercise
Price (as defined in the Warrant) per share on the terms
specified in the Warrant and encloses herewith a bank draft,
certified check or money order in lawful money of the United
States payable to the order of American Eco Corporation in
payment therefor.
The undersigned irrevocably hereby directs that ________
Shares be issued and delivered to _________________________.
DATED this ________ day of _______________, 19____.
------------------------------
By:
-------------------------
TERM LOAN AGREEMENT
THIS AGREEMENT, dated as of May 30, 1997, is entered into by
and between AMERICAN ECO CORPORATION, an Ontario, Canada
corporation maintaining a place of business in Houston, Texas
("Borrower"), and REFCO CAPlTAL MARKETS, LTD., a Bermuda
corporation ("Lender").
W I T N E S S E T H:
WHEREAS, Borrower desires to borrow funds from Lender, and
Lender is willing to make such loan to Borrower, upon the terms
and conditions set forth herein.
NOW, THEREFORE, in consideration of the terms and conditions
contained herein, the parties hereby agree as follows:
1. Term Loan.
---------
Subject to the terms and conditions of this Agreement and
the other Loan Documents (as defined below), and in reliance upon
the warranties of Borrower set forth herein and in the other Loan
Documents, Lender agrees to loan to Borrower the principal amount
of Five Million Dollars (US $5,000,000) (the "Loan").
Simultaneously with the funding of the Loan, Deere Park Capital
Management, Inc., an Illinois corporation ("Deere Park"), is
making a $1,000,000 principal amount secured loan (the "Deere
Park Loan") to Borrower on terms and pursuant to agreements (the
"Deere Park Agreements") substantially similar to the Loan, this
Agreement and the other agreements contemplated hereby. The Loan
shall be funded concurrently with the execution of this Agreement
on the date hereof by wire transfer of immediately available
funds to an account designated by Borrower in writing.
2. Terms.
------
2.1 Interest. The principal amount of the Loan from time to
---------
time outstanding shall bear interest at the rate of ten
percent (10%) per annum. Interest on the unpaid
principal balance of the Loan outstanding from time to
time shall be payable monthly in arrears as set forth
in Section 2.2 and in the form of the Note attached
hereto as EXHIBIT A (the "Note"), and shall be
calculated on the basis of a 360 day year for the
actual number of days elapsed.
2.2 Payment. The Loan shall be repayable monthly in
-------
arrears, on the first day of each calendar month,
commencing on the first day of the first full calendar
month succeeding the date of this Agreement, with the
final payment due hereunder on the third anniversary
date of this Agreement. Payments shall be made in
United States Dollars (all references in this Agreement
to dollars and $ shall refer to United States Dollars)
by wire transfer of immediately available funds to the
account designated by Lender in Section 12.3(b) as
follows:
(a) The first twelve (12) monthly installments shall
consist of interest only;
(b) The subsequent twenty-three (23) monthly
installments shall consist of principal payments of
$83,333.33 each, plus accrued interest thereon; and,
(c) On the third anniversary date of this Agreement,
the entire outstanding principal amount, plus all
accrued and unpaid interest, plus any fees or penalties
associated with the Loan shall be paid.
2.3 Evidence of Borrowing~. The Loan shall be evidenced by,
----------------------
and shall have the payment terms and other provisions
contained in, the Note.
2.4 Business Day. If any payment to be made by Borrower
-------------
hereunder or under the Note shall become due on a
Saturday, Sunday or any legal holiday on which banks
are authorized or required to be closed for the conduct
of commercial banking business in New York, New York,
such payment shall be made on the next succeeding
business day and such extension of time shall be
included in computing any interest in respect of such
payment.
2.5 Prepayment. The Note may be prepaid in whole or in part
-----------
without penalty, provided that the Borrower may not
--------
prepay all or any part of the outstanding amount of the
Deere Park Loan without simultaneously prepaying the
same pro rata portion of the outstanding amount of the
Note.
3. Collateral.
----------
The Loan shall be secured by a pledge of 500 shares of
common stock of MidAtlantic Recycling Technologies, Inc., a
Delaware corporation ("MART"), representing 50% of the
outstanding shares of MART ("Collateral"), in accordance with the
Stock Pledge Agreement (the "Stock Pledge Agreement") attached
hereto as EXHIBIT B. Lender acknowledges that the Collateral is
also subject to the security interest granted to Deere Park,
pursuant to a Stock Pledge Agreement between Borrower and Deere
Park dated as of the date hereof.
4. Warrants.
---------
4.1 Issuance. In connection herewith, as additional
--------
consideration for the Loan, Borrower shall issue to
Lender detachable warrants (the "Warrants") to purchase
up to 400,000 common shares without par value (the
"Shares") of Borrower, which Warrants shall expire on
the fifth anniversary of the date of this Agreement and
shall have such other terms and conditions as are set
forth in the form of Warrant attached hereto as EXHIBIT
C. Borrower shall issue the Warrants to Lender
immediately upon obtaining approval thereof from the
Toronto Stock Exchange (the "TSE") and, if applicable,
all approvals required thereby. Borrower covenants and
agrees that the registration rights provisions set
forth in Section 8 of the Warrants shall be deemed
applicable as if the Warrants were issued on the date
of this Agreement. Accordingly, Borrower agrees that
its obligation to file a Registration Statement (as
defined in the Warrants) with the United States
Securities and Exchange Commission (the "Commission")
shall commence on the date hereof and such filing is
required to be made no later than 30 days after the
date hereof.
4.2 Lender's Representations. Lender represents and
-------------------------
warrants to Borrower that (a) Lender is purchasing the
Warrants for its own account for investment and not
with a view towards the public sale or distribution
thereof and (b) Lender is an "accredited investor" as
that term is defined in Rule 501 of Regulation D under
the United States Securities Act of 1933, as amended
(the "1933 Act").
5. Representations Warranties and Covenants.
-----------------------------------------
To induce Lender to enter into this Agreement and to make
the Loan provided for herein, Borrower represents and warrants to
and covenants with Lender as follows:
5.1 Organization. Borrower and each corporation or other
-------------
entity of which a majority of the capital stock or
other ownership interests having ordinary voting power
to elect a majority of the board of directors or other
persons performing similar functions are directly or
indirectly owned by Borrower (a "Subsidiary") is a
corporation duly organized, existing and in good
standing under the laws of its jurisdiction of
organization, with full and adequate corporate power to
carry on and conduct its business as presently
conducted, and is duly licensed or qualified in all
jurisdictions where the nature of its activities
require such qualification or licensing, except with
respect to any Subsidiary where the failure to be so
licensed or qualified would not have a material adverse
effect on the business, properties, condition
(financial or otherwise) or prospects of Borrower and
its Subsidiaries, taken as a whole.
5.2 Authorization: Validity. Borrower has full right, power
------------------------
and authority to enter into this Agreement and to make
the borrowings and execute and deliver the other Loan
Documents (as defined in Section 6 below), as herein
provided for, and the execution and delivery of this
Agreement and the other Loan Documents shall not nor
shall the observance or performance of any of the
matters and things herein or therein set forth, violate
or contravene any provision of the charter or by-laws
of Borrower or any of its Subsidiaries. All necessary
and appropriate action has been taken on the part of
Borrower to authorize the execution and delivery of
this Agreement and the other Loan Documents. This
Agreement and the other Loan Documents are the valid
and binding agreements of Borrower enforceable in
accordance with their respective terms.
5.3 Financial Statements: Absence of Certain Changes.
-------------------------------------------------
Borrower has delivered to Lender Borrower's 1996 Annual
Report ("1996 Annual Report") containing Borrower's
consolidated financial statements for its fiscal year
ended November 30, 1996. Such financial statements have
been prepared (except as otherwise noted therein) in
accordance with GAAP on a basis consistent with the
previous fiscal year and fairly present the financial
position of Borrower and the results of its operations
as of the date and for the periods indicated. Since
November 30, 1996, there has been no material adverse
change in the business, financial condition, assets,
results of operations, liabilities or prospects of
Borrower and its Subsidiaries, taken as a whole, or
MART. "GAAP" SHALL MEAN generally accepted accounting
principles in (i) Canada, for fiscal periods ended on
or prior to November 30, 1996 and (ii) the United
States, for fiscal periods ending after November 30,
1996, in each case using the accrual basis of
accounting and consistently applied.
5.4 Litigation. There is no litigation or governmental
-----------
proceeding pending, or to the knowledge of Borrower,
threatened, against Borrower, any of its Subsidiaries
or MART, which, if adversely determined, would result
in any material adverse change in the financial
condition or properties, business, operations or
prospects of Borrower and its Subsidiaries, taken as a
whole, or of MART. Each of Borrower, its Subsidiaries
and MART has duly filed all applicable income or other
tax returns and has paid all income or other taxes when
due. There is no controversy or objection pending, or
to the knowledge of Borrower, threatened, in respect of
any tax returns of Borrower, its Subsidiaries or MART.
5.5 No Default. No Default (as defined below) has occurred
-----------
and is continuing, and no event has occurred and is
continuing which, with the lapse of time, the giving of
notice, or both, would constitute such a Default under
this Agreement or any of the other Loan Documents.
5.6 ERISA Obligations. Borrower has paid and shall promptly
-----------------
pay and discharge all obligations and liabilities
arising under the Employee Retirement Income Security
Act of 1974 ("ERISA") of a character which if unpaid or
unperformed might result in the imposition of a lien
against any of its or its Subsidiaries' properties or
assets and shall promptly notify Lender of (a) the
occurrence of any reportable event (as defined in
ERISA) which might result in the termination by the
Pension Benefit Guaranty Corporation ("PBGC") of any
employee benefit plan covering any officers or
employees of Borrower or its Subsidiaries, any benefits
of which are, or are required to be, guaranteed by PBGC
("Plan"), (b) receipt of any notice from PBGC of its
intention to seek termination of any such Plan or
appointment of a trustee therefor, and (c) its
intention to terminate or withdraw from any Plan.
Borrower shall not terminate any such Plan or withdraw
therefrom unless it shall be in compliance with all of
the terms and conditions of this Agreement after giving
effect to any liability to PBGC resulting from such
termination or withdrawal.
5.7 Authority. Borrower has full power and authority to
---------
conduct its business as presently conducted, to enter
into this Agreement and the other Loan Documents and to
perform all of its duties and obligations under this
Agreement and the other Loan Documents.
5.8 Absence of Breach. The execution, delivery and
------------------
performance of this Agreement, the other Loan Documents
and any other documents or instruments to be executed
and delivered by Borrower in connection with this Loan
shall not: (a) violate, in any material respect, any
provisions of United States, Canadian or any other
jurisdiction's law or any applicable regulation, order,
writ, injunction or decree of any court or governmental
authority in the United States, Canada or any other
jurisdiction, or (b) conflict with, be inconsistent
with, or result in any breach or default of any of the
terms, covenants, conditions or provisions of any
indenture, mortgage, deed of trust, instrument,
document, loan agreement or other agreement or contract
of any kind to which Borrower, or any of its
Subsidiaries or MART is a party or by which Borrower,
any of its Subsidiaries or MART may be bound. Neither
Borrower, any of its Subsidiaries or MART is in default
(without regard to grace or cure periods) under any
contract or agreement to which it is a party, the
effect of which default could materially adversely
affect the performance by Borrower of its obligations
pursuant to and as contemplated by the terms and
provisions of this Agreement and the other Loan
Documents.
5.9 Adverse Circumstances. No condition, circumstance,
---------------------
event, agreement, document, instrument, restriction,
litigation, violation of law or proceeding (or
threatened litigation or proceeding or basis therefor)
exists which could adversely affect the validity or
priority of the liens and security interests granted to
Lender under the Loan Documents, which could materially
adversely affect the ability of Borrower to perform its
obligations under the Loan Documents, which would
constitute a default under any of the Loan Documents or
which would constitute such a default with the giving
of notice or lapse of time or both.
5.10 Complete Information. This Agreement and all financial
---------------------
statements, schedules, certificates, confirmations,
agreements, contracts and other materials, including
without limitation (a) the 1996 Annual Report and (b)
the Borrower's Annual
Report on Form 10-K for the fiscal year ended November
30, 1996 (the "1996 10K") submitted to Lender in
connection with or in furtherance of this Agreement and
the other Loan Documents by or on behalf of Borrower
fully and fairly state the matters with which they
purport to deal, and neither misstate any material fact
or, separately or in the aggregate, fail to state any
material fact necessary to make the statements made
therein not misleading.
5.11 Ownership of MART Stock. Borrower has good,
-----------------------
indefeasible and sole title to the Collateral, free and
clear of all liens, claims, security interests and
other encumbrances, other than those liens, claims,
security interests or other encumbrances set forth on
SCHEDULE 5.11 attached hereto ("Permitted
Encumbrances").
5.12 MART. MART is a corporation duly organized, existing
----
and in good standing under the laws of Delaware, with
full and adequate corporate power and authority to
carry on and conduct its business as presently
conducted, and is duly licensed or qualified in all
jurisdictions wherein the nature of its activities
require such qualification or licensing.
5.13 Business Purpose. This Loan is being secured by
-----------------
Borrower for business purposes only.
5.14 Intellectual Property. Borrower and each of its
----------------------
Subsidiaries owns, or possesses adequate rights to use,
all patents, patent rights, inventions, trade secrets,
knowhow, proprietary techniques, including processes
and substances, trademarks, service marks, trade names
and copyrights owned or used by it or which are
necessary for the conduct of its business as it is
presently conducted, or as proposed to be conducted,
and Borrower is not aware of any claim to the contrary
or any challenge by any person to the rights of
Borrower or any of its subsidiaries with respect to the
foregoing.
5.15 Compliance with Law. Neither Borrower, any of its
--------------------
Subsidiaries or MART is in violation of any statute,
law, rule, regulation, ordinance, decision or order of
any governmental agency or body or any court in the
United States, Canada or any other jurisdiction,
including~ without limitation, those relating to the
use, operation~ handling, transportation, disposal or
release of hazardous or toxic substances or wastes or
relating to the protection or restoration of the
environment or human exposure to hazardous or toxic
substances or wastes, except where such violation would
not individually or in the aggregate have a material
adverse effect on the business, properties, operations,
condition (financial or other), results of operations
or prospects of the Borrower and its Subsidiaries,
taken as a whole, or of MART; and the Borrower is not
aware of any pending investigation which would
reasonably be expected to lead to such a claim.
5.16 Properties. Borrower, each of its Subsidiaries and MART
-----------
has good title to all property real and personal
(tangible and intangible) and other assets owned by it,
free and clear of all security interests, charges,
mortgages, liens or other encumbrances, except as
provided on SCHEDULE 5.16, such as are described in the
1996 10-K or such as do not materially interfere with
the use of such property made, or proposed to be made,
by Borrower and its Subsidiaries, taken as a whole, and
MART. The leases, licenses or other contracts or
instruments under which the Borrower, each of its
Subsidiaries and MART leases, holds or is entitled to
use any property, real or personal, are valid,
subsisting and enforceable with only such exceptions as
do not materially interfere with the use of such
property made or proposed to be made by Borrower and
its Subsidiaries, taken as a whole, and MART. Neither
Borrower, any of its Subsidiaries or MART has received
notice of any material violation of any applicable law,
ordinance, regulation, order or requirement relating to
its owned or leased properties.
5.17 Labor Relations. No material labor problem exists or,
----------------
to the knowledge of Borrower, is imminent with respect
to any of the employees of Borrower, its Subsidiaries
or MART.
5.18 Insurance. Each of Borrower, its Subsidiaries and MART
----------
maintain insurance against loss or damage by fire or
other casualty and such other insurance, including but
not limited to insurance for pollution-related and
environmental damage liabilities, in such amounts and
covering such risks as is usually maintained by
companies of comparable size engaged in the same or a
similar business and in the same geographic region as
Borrower, its Subsidiaries and MART, respectively.
5.19 Permits. (a) Each of Borrower and its Subsidiaries,
--------
taken as whole, and MART has all Permits (as defined
below) as are necessary for the conduct of its business
as it has been carried on; (b) all such Permits are in
full force and effect, and each of Borrower, its
subsidiaries and MART has fulfilled and performed all
material obligations with respect to such Permits; (c)
no event has occurred which allows, or after notice or
lapse of time would allow, revocation or termination by
the issuer thereof or which results in any other
material impairment of the rights of the holder of any
such Permit; and (d) each of Borrower, its Subsidiaries
and MART has no reason to believe that any governmental
body or agency is considering limiting, suspending or
revoking any such Permit. "Permits" means all United
States, Canadian and other jurisdictions' licenses,
permits and approvals required for the full operation
of Borrower, its Subsidiaries and MART, including
provincial, state, federal, city and county permits and
approvals.
5.20 Material Losses. Since November 30, 1996, neither
----------------
Borrower nor any of its Subsidiaries has sustained any
loss or interference with its business or properties
from fire, flood, hurricane, accident or other
calamity, whether or not covered by insurance or from
any labor dispute or court or governmental action,
order or decree, which loss or interference would be
material to the business or properties or condition
(financial or otherwise) or prospects of Borrower or
its Subsidiaries.
5.21 Conduct of Business. Since November 30, 1996, except as
--------------------
disclosed in the 1996 10-K or on SCHEDULE 5.16,
Borrower and each of its Subsidiaries has not: (i)
incurred any material obligation or liability (absolute
or contingent) other than in the ordinary course of
business; (ii) cancelled without payment in fully any
material notes, loans or other obligations receivable
or other debts or claims held by it other than in the
ordinary course of business; (iii) sold, assigned,
transferred, abandoned, mortgaged, pledged or subjected
to lien any of its material properties, tangible or
intangible or rights under any material contract,
permit, license, franchise or other agreement; or (iv)
conducted its business in a manner materially adversely
different from its business as conducted on such date.
5.22 Approvals. No authorization, approval or consent of, or
----------
filing with, any court, governmental body, regulatory
agency, self-regulatory organization or stock exchange
or market in the United States, Canada or any other
jurisdiction, any other party, or the stockholders of
Borrower or MART is required to be obtained or made
(which has not been obtained or made) by Borrower or
MART in connection with the execution, delivery and
performance of this Agreement and the other Loan
Documents, the issuance of the Warrants, the issuance
and sale of the Shares upon exercise of the Warrants
and the public resale of the Shares as contemplated by
the Warrants, other than (1) listing of the Warrants
and the Shares on the TSE and, if applicable, all
approvals required thereby, (2) listing of the Shares
on the Nasdaq National Market ("Nasdaq"), (3)
registration of the resale of the Shares under the 1933
Act as contemplated by Section 8 of the Warrants and
(4) such filings as may be required under applicable
United States and Canadian provincial, state securities
or "blue sky" laws.
5.23 No Solicitation. No form of general solicitation or
----------------
general advertising was used by Borrower or, to the
best of its knowledge, any other person acting on
behalf of Borrower, in respect of the Warrants, the
Shares or any similar securities offered to Deere Park
or any other persons (collectively, the "Securities")
in connection with the offer and sale of the
Securities. Borrower represents and agrees that neither
Borrower nor any person authorized to act on its behalf
has sold or offered or will sell or offer for sale any
Security to, or solicit any offers to buy any Security
from, or otherwise approach or negotiate in respect
thereof with, any person or persons so as thereby to
cause the issuance or sale of any of the Warrants or
Shares to be in violation of any of the provisions of
Section 5 of the 1933 Act or the Securities Act
(Ontario) and the Regulation thereto.
5.24 Capitalization. The authorized capital of Borrower
--------------
consists of an unlimited number of common shares and an
unlimited number of preference shares issuable in
series of which 14,925,932 common shares are issued and
outstanding at the date hereof all as fully paid and
non-assessable shares.
5.25 Securities Regulation. (a) Except for (i) the late
----------------------
filing of the 1996-10-K, (ii) Borrower's Quarterly
Report on Form 10-Q for the quarter ended February 28,
1997 which is past due, (iii) the filing of a Form
8-K/A in connection with the Borrower's acquisition of
Chempower, Inc. which is past due and (iv) the filing
of Amendments to Schedules 13D with respect to the
Borrower's investment in EIF Holdings, Inc., Borrower
has timely filed all reports required to be filed
under-the United States Securities Exchange Act of
1934, as amended (the "1934 Act"), and any other
material reports or documents required to be filed with
the Commission since January 1, 1996. Borrower has
timely filed all reports required to be ~lled under all
applicable Canadian and TSE securities laws and
regulations and any other material reports or documents
required to be filed with the TSE since January 1,
1994. All of such reports and documents complied, when
filed, in all material respects, with all applicable
requirements of the 1933 Act, the 1934 Act and such
Canadian and TSE securities laws and regulations.
(b) Borrower is a reporting issuer in good standing
under the securities laws of the Provinces of Ontario,
Quebec, British Columbia and Alberta and is in
compliance with the by-laws, rules and regulations of
the TSE and no material change relating to Borrower has
occurred with respect to which the requisite material
change report has not been filed under the applicable
Canadian and provincial securities laws and no such
disclosure has been made on a confidential basis.
5.26 Warrants and Shares. (a) The Warrants, when issued,
--------------------
sold and delivered in accordance with the terms hereof
for the consideration expressed herein, will be valid
and binding obligations of Borrower, enforceable in
accordance with their terms and will be issued in
compliance with all applicable United States and
Canadian federal, state and provincial securities laws,
and with the listing requirements of the TSE and, with
respect to the Shares, Nasdaq. The Shares have been
duly and validly reserved for issuance as hereafter
provided and upon issuance in accordance with the terms
of the Warrants, shall be duly and validly issued,
fully paid and nonassessable. Borrower currently has
reserved a sufficient number of common shares for
issuance upon exercise of the Warrants and shall at all
times reserve and keep available out of its authorized
but unissued common shares, solely for the purposes of
effecting the exercise of the Warrants, a sufficient
number of common shares as shall be sufficient to
effect the exercise of all then outstanding Warrants.
(b) Borrower has made application to the TSE for the
listing of the Shares issuable by Borrower upon the
exercise of the Warrants.
5.27 Deere Park Loan. Borrower has provided Lender with true and
----------------
accurate copies of the Deere Park Agreements.
The foregoing representations, warranties and covenants
shall survive the making of this Agreement and the issuance of
the Note pursuant hereto, and shall be deemed to be continuing
representations, warranties and covenants until such time as
Borrower has fulfilled all obligations to Lender under the Loan
Documents, and Lender has been paid in full.
6. Loan Documents.
--------------
On or prior to the date of this Agreement, Borrower shall
have provided Lender with the following documents, all of which
must be satisfactory to Lender and Lender's counsel in form,
substance and execution:
6.1 Loan Agreement. This Agreement duly executed by
---------------
Borrower.
6.2 Note. The Note duly executed by Borrower, in the form
-----
attached hereto as EXHIBIT A.
6.3 Stock Pledge Agreement. The Stock Pledge Agreement duly
-----------------------
executed by Borrower, in the form attached hereto as
EXHIBIT B.
6.4 Certified Resolutions. Resolutions of Borrower's Board
----------------------
of Directors, certified by an officer of Borrower,
approving the Loan Agreement, the Note, the Stock
Pledge Agreement and the Warrants and authorizing the
execution, issuance and delivery thereof.
6.5 Opinions of Counsel. The opinions of United States and
-------------------
Canadian legal counsel to Borrower in the form of
EXHIBITS D-1 AND D-2 hereto.
6.6 Additional Documents. Such other instruments and
--------------------
documents as Lender may reasonably require.
All such above-listed documents, the Warrants and all other
instruments and documents that may hereafter be executed by
Borrower and delivered to Lender pursuant to this Agreement, are
sometimes referred to herein as the "Loan Documents."
7. Negative Covenants.
-------------------
From and after the date hereof and so long as any amount is
outstanding under the Loan or under this Agreement, except to the
extent compliance in any case or cases is waived in writing by
Lender, Borrower shall not, and shall not permit any of its
Subsidiaries or MART to, directly or indirectly:
7.1 Transfer: Merger. Merge, consolidate, sell, transfer,
-----------------
lease, encumber or otherwise dispose of all or
substantially all of its property, assets or business,
except for such transactions (i) solely between
subsidiaries of the Borrower, (ii) in which the Net
Worth of the assets or business being disposed of is
less than $10,000,000 ("Net Worth" means the gross book
value of the assets being disposed of less total
liabilities related to such assets being disposed of or
cancelled, including but not limited to accrued and
deferred income taxes, and any reserves against assets)
or (iii) where Borrower or a Subsidiary is the
surviving entity of a merger or consolidation and no
change of control of Borrower or such Subsidiary has
occurred;
7.2 Value of Collateral. Take any actions, directly or
--------------------
indirectly, or permit MART to take any actions,
resulting in the diminution of the value of the
Collateral, or to create, assume, incur, suffer or
permit to exist any mortgage, pledge, encumbrance,
security interest, assignment, lien or charge of any
kind or character upon the Collateral other than the
Permitted Encumbrances or other than to Lender;
7.3 Actions Regarding MART. Take any actions, directly or
----------------------
indirectly, or permit MART to take any actions, which
would result in: (i) the merger, consolidation, sale,
transfer, lease, encumbrance or any other disposition
of all or any part of the property, assets or business
of MART; (ii) the sale or discount of any of the notes
or accounts receivable of MART, except in the ordinary
course of MART's business; or (iii) the payment or
distribution of dividends or other distributions to the
stockholders of MART, the redemption of such interests,
or the purchase or setting aside of any sums for the
purchase or payment of such interests; or
7.4 Transactions with Affiliates. Directly or indirectly,
----------------------------
pay any funds to or for the account of, make any
investment (whether by acquisition of stock or
indebtedness, by loan, advance, transfer of property,
guarantee or other agreement to pay, purchase or
service, directly or indirectly, any indebtedness, or
otherwise) in, lease, sell, transfer or otherwise
dispose of any assets, tangible or intangible, to, or
participate in, or effect any transaction in connection
with any joint enterprise or other joint arrangement
with, any Affiliate (as defined below) of Borrower,
except, on terms to Borrower, its subsidiary or MART no
less favorable than terms that could be obtained by
Borrower, such subsidiary or MART from a person that is
not an Affiliate of Borrower, as determined in good
faith by the Board of Directors of Borrower.
"Affiliate" means, with respect to any person, any
other person that directly, or indirectly through one
or more intermediaries, controls, is controlled by or
under common control with the subject person, including
without limitation all officers and directors of the
subject person.
8. Affirmative Covenants.
----------------------
From and after the date hereof and so long as any amount is
outstanding under the Loan or under this Agreement, except to the
extent compliance is in any case or cases waived in writing by
Lender, Borrower shall:
8.1 Continued Ownership of Collateral. Continue to own,
---------------------------------
without lien or encumbrance other than Permitted
Encumbrances, the Collateral.
8.2 Use of Proceeds. Use the proceeds of the Loan and the
---------------
Deere Park Loan only for purposes of providing
financing to MART except for approximately $2,500,000
thereof which may be used to repay outstanding
indebtedness owed to Deere Park.
8.3 Information. Maintain a standard and modern system of
-----------
accounting, on the accrual basis of accounting and in
all respects in accordance with GAAP; and shall furnish
to Lender or its authorized representatives (i) within
three business days of their filing, all annual,
quarterly and other reports and documents filed by
Borrower, any of its Subsidiaries or MART with the
Commission or the TSE and (ii) such other information
respecting the business affairs, operations and
financial condition of Borrower, its Subsidiaries and
MART as reasonably may be requested by Lender.
8.4 Access to Records. Allow Lender access to the books and
------------------
records of Borrower, its subsidiaries and MART, as
Lender may reasonably request.
8.5 Insurance. Insure and keep insured with good and
----------
responsible insurance companies, all insurable property
owned by it, its subsidiaries and MART which is of a
character usually insured by companies similarly
situated and operating like properties, against loss or
damage from fire and such other hazards or risks as are
customarily insured against by companies similarly
situated and operating like properties; and shall
similarly insure employers' and public liability risks
with good and responsible insurance companies; and
shall prior to the date hereof and from time to time
thereafter upon request of Lender furnish a certificate
setting forth in summary form the nature and extent of
the insurance maintained by Borrower, its Subsidiaries
and MART pursuant to this Section 8.5.
8.6 Notice of Proceedings. Immediately after the
----------------------
commencement thereof, give notice to Lender in writing
of all actions, suits and proceedings before any court
or governmental department, commission, board or other
administrative agency in Canada, the United States or
any other jurisdiction which may have a material effect
on the operations of Borrower, its Subsidiaries or
MART.
8.7 Notice of Default. Immediately after the commencement
------------------
thereof, give notice to Lender in writing of the
occurrence of a Default (as defined below) or an event
which with notice or lapse of time or both would
constitute a Default.
8.8 Payment of Obligations. Pay and discharge, and will
----------------------
cause each Subsidiary and MART to pay and discharge,
all their respective material obligations and
liabilities, including, without limitation, tax
liabilities, except where the same may be contested in
good faith by appropriate proceedings.
8.9 Maintenance of Property. Keep, and will cause each
-----------------------
Subsidiary and MART to keep, all property useful and
necessary in its business in good working order and
condition, ordinary wear and tear excepted.
8.10 Conduct of Business and Maintenance of Existence.
------------------------------------------------
Except as permitted by Section 7.1, continue, and will
cause each Subsidiary and MART to continue, to engage
in business of the same general type as now conducted
by each such entity, and will preserve, renew and keep
in full force and effect, and will cause each
subsidiary and MART to preserve, renew and keep in full
force and effect, their respective corporate existence
and their respective rights, privileges and franchises
necessary or desirable in the normal conduct of
business.
8.11 Compliance with Laws. Comply, and will cause each
--------------------
Subsidiary and MART to comply, in all material respects
with all applicable laws, ordinances, rules,
regulations, decisions, orders and requirements of
governmental authorities and courts (including, without
limitation, environmental laws) of and in the United
States, Canada and all other jurisdictions except (i)
where compliance therewith is contested in good faith
by appropriate proceedings or (ii) where non-compliance
therewith could not reasonably be expected to have a
material adverse effect on the business, condition
(financial or otherwise), operations, performance,
properties or prospects of Borrower and its
subsidiaries or of MART.
8.12 Toronto Stock Exchange. Borrower will promptly take all
-----------------------
actions necessary to obtain the approval by the TSE for
the issuance of the Warrants and the Shares and to
obtain the listing of the Shares on the TSE and will
thereafter take all actions necessary to maintain such
listing so that the Shares may be freely traded without
restriction on the TSE.
9. Financial Covenants.
--------------------
9.1 Initial Covenants. Subject to Section 9.2 below, from
------------------
and after the date of this Agreement and so long as any
amount is outstanding under the Loan or under this
Agreement, except to the extent compliance is in any
case or cases waived in writing by Lender, Borrower
covenants and agrees as follows:
(a) Current Ratio. Commencing on the first anniversary
-------------
of the date of this Agreement, Borrower shall maintain
a ratio of Current Assets (as defined below) to current
liabilities of at least 1:1, determined at the end of
each fiscal quarter. "Current Assets" means cash,
short-term cash investments, net trade receivables and
marketable securities not classified as long-term
investments.
(b) Tangible Net Worth. Borrower shall maintain on a
------------------
consolidated basis Tangible Net Worth (as defined
below), determined at the end of each fiscal quarter,
equal to at least $25,000,000. "Tangible Net Worth"
means the gross book value of the Borrower's assets
(excluding goodwill, patents, trademarks, trade names,
organization expense, treasury stock, unamortized debt
discount and expense, deferred research and development
costs, deferred marketing expenses, and other like
intangibles) less total liabilities, including but not
limited to accrued and deferred income taxes, and any
reserves against assets.
(c) Total Liabilities to Tangible Net Worth Ratio. To
----------------------------------------------
maintain on a consolidated basis a ratio of Total
Liabilities (as defined below) to Tangible Net Worth
not exceeding 4:1, determined at the end of each fiscal
quarter. "Total Liabilities" means the sum of current
liabilities plus long term liabilities.
(d) Dividends. Borrower shall not declare or pay any
---------
dividends or make any distributions on any of its
capital stock, except dividends payable in capital
stock of the Borrower, and shall not directly or
indirectly purchase, redeem or otherwise acquire for
value any of its capital stock, or create any sinking
fund in relation thereto; provided, however, that the
--------- -------
foregoing shall not apply to the redemption or
repurchase of common shares pursuant to the terms of
Borrower's employee stock option and benefit plans
existing on the date of this Agreement.
9.2 New Bank Facility. If during the three-month period
------------------
following the date of this Agreement, Borrower shall
enter into a long-term loan facility with one or more
banks pursuant to which Borrower may borrow up to
$50,000,000 for the principal purpose of refinancing
indebtedness of Borrower and its subsidiaries
outstanding on the date hereof (the "Bank Facility"),
Borrower and Lender agree to amend, supplement and/or
replace the financial covenants of Borrower set forth
in Section 9.1 to be consistent with the affirmative
and negative financial covenants of Borrower set forth
in the Bank Facility (the "New Covenants"). The New
Covenants to become applicable to the Loan and this
Agreement shall include, without limitation, all
covenants and obligations with respect to Borrower, its
Subsidiaries and other entities in which it has an
interest relating to (i) mergers, consolidations,
acquisitions or sales of assets or businesses or joint
ventures, (ii) the provision of financial and business
information to lenders, (iii) any matter referred to in
Section 9.1, (iv) incurrence of indebtedness and
guaranties, (v) creation of liens and encumbrances,
(vi) financial tests, ratios and covenants relating to
cash flow, working capital, earnings and losses, net
worth, short and long-term indebtedness and other
liabilities, capital expenditures, debt service and
dividends, (viii) issuances of capital stock and (ix)
changes in control of Borrower. Upon the closing of the
Bank Facility, the parties hereto agree to promptly
negotiate and deliver an amendment to this Agreement
(the "Amendment") to give effect to this Section 9.2.
In addition to the New Covenants, the Amendment will
contain grace periods and cure periods with respect to
the matters referred to in Sections 10.1 and 10.3
consistent with such periods set forth in the Bank
Facility. The parties acknowledge and agree that,
notwithstanding anything to the contrary in this
Section 9.2, the Amendment shall permit or contain such
covenants and other provisions which, as between the
provisions set forth herein and the provisions of the
Bank Facility, are the most favorable to Lender on a
"most favored nation" basis, provided that the
--------
provisions of this Agreement which are permitted to
continue by the Amendment do not violate or result in a
default under the Bank Facility.
10. Events of Default.
------------------
If any of the following shall occur, they shall be deemed
events of default hereunder (a "Default"):
10.1 Payment. The failure of Borrower to make any payment of
-------
principal or interest when due under the Note or any
other amount due under any other agreement with Lender,
including, without limitation, any of the other Loan
Documents, for a period of five (5) days following any
specified payment date;
10.2 Representations. Any representation or warranty in this
---------------
Agreement, the other Loan Documents or any agreement
with Lender shall be false when made or at any time
during the term of this Agreement or any extension
thereof;
10.3 Nonperformance. The failure of Borrower to perform any
--------------
covenant, condition or agreement contained in this
Agreement or any other agreement with Lender,
including, without limitation, any of the Loan
Documents, and Borrower does not cure such failure
within thirty (30) days of its occurrence;
10.4 Assignment For Creditors. An assignment by
------------------------
Borrower, any of its subsidiaries or MART for the
benefit of creditors, or if Borrower, any of its
Subsidiaries or MART fails to pay, or admits in writing
its inability to pay its debts as they mature; or if a
trustee of any substantial part of the assets of
Borrower, any of its Subsidiaries or MART is applied
for or appointed, and if appointed in a proceeding
brought against Borrower, any of its subsidiaries or
MART, any action or failure to act indicates its
approval of, consent to, or acquiescence in such
appointment, or within thirty (30) days after such
appointment, such appointment is not vacated or stayed
on appeal or otherwise, or shall not otherwise have
ceased to continue in effect;
10.5 Bankruptcy. Any proceedings involving Borrower, any of
----------
its Subsidiaries or MART are commenced by or against
Borrower, any of its subsidiaries or MART under any
bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law or
statute of the federal government or any state or
provincial government of the United States, Canada or
any other jurisdiction and if such proceedings are
instituted against Borrower, any of its Subsidiaries or
MART, Borrower, any of its Subsidiaries or MART by any
action or failure to act indicates its approval of,
consent to or acquiescence therein, or an order shall
be entered approving the petition in such proceedings
and within thirty (30) days after the entry thereof
such order is not vacated or stayed on appeal or
otherwise, or shall not otherwise have ceased to
continue in effect;
10.6 Other Agreements. Borrower, any of its Subsidiaries or
-----------------
MART defaults in any payment of principal or interest
relating to any other obligation in excess of $250,000
(including, without limitation, the Deere Park Loan) or
in the performance of any other term, condition or
covenant contained in any agreement beyond any period
of grace provided with respect thereto, under which any
such obligation is created the effect of which default
is to cause or permit the holder of such obligation to
cause such obligation to become due prior to its stated
maturity;
10.7 Judgments. There shall be entered against Borrower, any
----------
of its Subsidiaries or MART one or more judgments or
decrees involving in the aggregate a liability of
$100,000 or more, and any such judgment or decree shall
not have been vacated, discharged or stayed pending
appeal within thirty (30) days from the entry thereof;
10.8 Delivery of Warrants. Borrower fails to execute and
--------------------
deliver the Warrants to Lender (i) subject to clause
(ii), within 25 days after the date of this Agreement
or (ii) if such failure to deliver the Warrants is due
to the receipt by Borrower of notice from the TSE
immediately (a copy of which shall be provided to
Lender) requiring that Borrower obtain the prior
approval of its shareholders of the issuance of the
Warrants and Borrower promptly takes all actions
necessary to obtain such shareholder approval, 50 days
after the date such notice is received by Borrower.
Delivery of the Warrants after the applicable dates
specified in this Section 10.8 shall not be deemed to
cure such Default;
10.9 Listing. The common shares of Borrower or the Shares
-------
for any reason cease to be listed for trading on either
Nasdaq or the TSE; or
10.10 Registration Statement.
-----------------------
(a) the Registration Statement shall not have been
filed with the Commission by Borrower within 30 days
after the date of this Agreement;
(b) the Registration Statement shall not have been
declared effective by the Commission within 90 days
after the date of this Agreement; or
(c) the Lender, or any transferee thereof who holds the
Shares, shall for any reason, other than as a direct
result of an act or omission by a selling
securityholder named in the Registration Statement, be
unable to sell any or all of the Shares pursuant to the
Registration Statement for a period of 30 days (whether
or not consecutive) after the Registration Statement is
first declared effective by the Commission; provided,
---------
that in the event of an acquisition or disposition
requiring the filing by Borrower of a Current Report on
Form 8-KIA containing related financial statements,
such period shall be 60 days from the date the initial
Form 8-K for such acquisition or disposition is
required to be filed with the Commission.
Upon the occurrence of a Default, Lender shall have all
rights and remedies set forth in the Loan Documents or as
otherwise provided at law or in equity and, without limiting the
generality of the foregoing, may, at its option, declare the
Note, all interest thereon, and all other obligations to Lender
under the Loan Documents to be immediately due and payable in
full, without any presentment, demand, protest or other notice of
any kind, all of which are hereby expressly waived, anything
contained herein or in the Note to the contrary notwithstanding,
and may, also without limitation, exercise its rights with
respect to the Collateral and appropriate and apply toward the
payment of the Note any indebtedness of Lender to Borrower
however created or arising. There shall be no obligation to
exercise any remedy available to Lender in any order.
11. Hazardous Waste Indemnification.
--------------------------------
Borrower will indemnify and hold harmless Lender from any
loss or liability directly or indirectly arising out of the use,
generation, manufacture, production, storage, release, threatened
release, discharge, disposal or presence of a hazardous
substance. This indemnity will apply whether the hazardous
substance is on, under or about Borrower's, its Subsidiaries' or
MART's property or operations or property leased by or to
Borrower, any Subsidiary or MART. The indemnity includes but is
not limited to attorneys' fees. The indemnity extends to Lender,
its parent, subsidiaries and all of their directors, officers,
employees, agents, successors, attorneys and assigns. For these
purposes, the term "hazardous substances" means any substance
which is or becomes designated as "hazardous" or "toxic" under
any federal, state, provincial or local law in the United States,
Canada or any other jurisdiction. This indemnity will survive
repayment of Borrower's obligations to Lender.
12. Miscellaneous.
-------------
12.1 Waiver. No failure or delay on the part of Lender in
------
exercising any right, power or remedy hereunder shall
operate as a waiver thereof; nor shall any single or
partial exercise of any such right, power or remedy
preclude any other or further exercise thereof or the
exercise of any other right, power or remedy hereunder.
The remedies herein provided are cumulative and not
exclusive of any remedies provided at law or in equity.
12.2 Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the parties and there are no promises
expressed or implied unless contained herein. No
amendment, modification, termination or waiver of any
provision of this Agreement or any of the Loan
Documents or consent to any departure by Borrower
therefrom shall in any event be effective unless the
same shall be in writing and signed by Lender, and then
such waiver or consent shall be effective only for the
specific purpose for which given. No notice to or
demand on Borrower in any case shall entitle Borrower
to any other or further notice or demand in similar or
other circumstances.
12.3 Notices: Wire Instructions. (a) All notices, requests,
---------------------------
demands and other communications provided for hereunder
shall be in writing, and shall be sent by certified or
registered mail, by courier or by telephone line
facsimile transmission and addressed as follows:
If to BORROWER: American Eco Corporation
11011 Jones Road
Houston, Texas 77070
Attention: Mr. Michael E. McGinnis,
President and CEO
Fax No.: (281) 774-7005
If to LENDER: Refco Capital Markets, Ltd.
Rosebank Building
12 Bermudiana Road
Hamilton, HM 11
Bermuda
Attention: Mr. Gary Weiss
Fax No.: (441) 296-0693
With a copy to: Mr. Santo Maggio
c/o Refco Group, Ltd.
One World Financial Center - Tower
A
200 Liberty Street
New York, New York 10281
Fax No.: (212) 693-7611
or, as to each party, at such other address as shall be
designated by such party in a written notice to each other party
complying as to delivery with the terms of this subsection.
Notices shall be deemed given when actually received.
(b) All payments due Lender pursuant to the Note or
the other Loan Documents shall be made by wire transfer
of immediately available funds to the following
account:
Chase Manhattan Bank
ABA No.: 021000021
Account Name: Refco Capital
Markets
Account No.: 066290570
Further Credit Account: 4308
or to such other account or place designated in writing by
Lender.
12.4 Counterparts. This Agreement may be executed in any
-------------
number of counterparts and by different parties hereto
in separate counterparts, each of which when so
executed and delivered shall be deemed to be an
original and all of which taken together shall
constitute but one and the same instrument. A telephone
line facsimile transmission of this Agreement bearing a
signature on behalf of a party hereto shall be legal
and binding on such party.
12.5 Binding Effect. This Agreement shall become effective
--------------
when it shall have been executed by Borrower and Lender
and thereafter shall be binding upon and inure to the
benefit of Borrower and Lender and their respective
heirs, successors and assigns, except that Borrower
shall not have the right to assign its rights hereunder
or under the other Loan Documents or any interest
herein or therein without the prior written consent of
Lender.
12.6 Assignment. This Agreement may be assigned by Lender
----------
without prior notice to, or consent of, Borrower.
12.7 Governing~ Law. This Agreement has been, and the Note
--------------
shall be, delivered and accepted in and shall be deemed
to be contracts made under and governed by the internal
laws of the State of New York (without regard to its
conflict of laws doctrine) and for all purposes shall
be construed in accordance with the laws of such State.
12.8 Enforceability. Any provision of this Agreement which
---------------
is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the
extent of such prohibition or lack of enforceability
without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such
provision in any other jurisdiction; wherever possible,
each provision of this Agreement shall be interpreted
in such manner as to be effective and valid under
applicable law.
12.9 Survival. All covenants, agreements~ representations
---------
and warranties made by Borrower herein shall,
notwithstanding any investigation by Lender, be deemed
material and relied on by Lender and shall survive the
execution and delivery to Lender of this Agreement and
the Note.
12.10 Extensions. This Agreement shall secure and govern
-----------
the terms of any extensions or renewals of the Note.
12.11 Time of Essence. Time is of the essence in
---------------
connection with all matters -relating to this
Agreement.
12.12 Expenses. Borrower shall pay all costs and
--------
expenses, if any, in connection with the collection and
enforcement of, or any amendments or waivers requested
by Borrower of, this Agreement, the other Loan
Documents, the Note and the other instruments and
documents to be delivered hereunder including, without
limitation, reasonable attorney's fees. In addition,
Borrower shall pay any and all recording fees, stamp
and other taxes determined to be payable in connection
with the execution and delivery of this Agreement, the
Note and the other instruments and documents to be
delivered hereunder, and agrees to indemnify and save
Lender harmless from and against any and all
liabilities with respect to or resulting from any delay
in paying or omission to pay such taxes.
13. CONSENT TO JURISDICTION. BORROWER HEREBY CONSENTS TO THE
------------------------
EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT SITUATED IN
NEW YORK COUNTY, NEW YORK, AND WAIVES ANY OBJECTION BASED ON LACK
OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS,
---------------------
WITH REGARD TO ANY ACTIONS, CLAIMS, DISPUTES OR PROCEEDINGS
RELATING TO THIS AGREEMENT, OR ANY DOCUMENT DELIVERED HEREUNDER
OR IN CONNECTION HEREWITH, OR ANY TRANSACTION ARISING FROM OR
CONNECTED TO ANY OF THE FOREGOING. BORROWER WAIVES PERSONAL
SERVICE OF ANY AND ALL PROCESS, AND CONSENTS TO ALL SUCH SERVICE
OF PROCESS MADE BY MAIL OR BY MESSENGER DIRECTED TO THE ADDRESS
SPECIFIED HEREIN. Nothing herein shall affect Lender's right to
serve process in any manner permitted by law, or limit Lender's
right to bring proceedings against Borrower or its property or
assets in the competent courts of any other jurisdiction or
jurisdictions.
IN Witness WHEREOF, the parties hereto have caused this
Term Loan Agreement to be executed by their respective, duly
authorized officers, as of the date first above written.
AMERICAN ECO CORPORATION
By: /s/ David Norris
---------------------------------
Its: SVP & CFO
--------------------------------
REFCO CAPITAL MARKETS, LTD.
By: /s/ Maggio
---------------------------------
Its: Director
--------------------------------
<PAGE>
EXHIBIT A
---------
SECURED TERM NOTE
US $5,000,000 Dated: May 30, 1997
For value received, AMERICAN ECO CORPORATION, an
Ontario, Canada Corporation (the "Maker"), promises to pay to the
order of REFCO CAPITAL MARKETS, LTD., a Bermuda corporation (the
"Payee"), the principal sum of FIVE MILLION UNITED STATES DOLLARS
(US $5,000,000), together with interest payable on the principal
balance from time to time remaining outstanding, pursuant to the
terms of this Note.
Amounts due hereunder shall be payable monthly in
arrears on the first day of each calendar month, commencing on
the first day of the first full calendar month succeeding the
date of this Note. Payments shall be made as follows: (i) the
first twelve (12) installments shall consist of interest only;
(ii) the subsequent twenty-three (23) payments shall consist of
principal payments of US $83,333.33 each, plus interest accrued
thereon; and (iii) a final payment of all outstanding principal
and interest to be made on the third anniversary date of this
Note.
Interest shall be computed on the actual number of days
elapsed on the basis of a 360 day year from the date of borrowing
until payment at the rate of ten percent (10%) per annum.
Any amount of principal hereof or interest hereon which
is not paid when due whether at stated maturity, by acceleration,
or otherwise, shall bear interest payable on demand at the rate
of twelve percent (12%) per annum. All payments hereunder shall
be applied first to interest on the unpaid balance at the rate
herein specified and then to principal.
Principal and interest shall be paid to the Payee to
the account specified in the Term Loan Agreement (as defined
below), or to or at such other account or place as the holder of
this Secured Term Note may designate in writing to the Maker.
This Note may be prepaid in whole or in part without penalty,
subject to the terms of Section 2.5 of the Term Loan Agreement.
This Note is subject to the terms and conditions of the
Term Loan Agreement, dated as of the date hereof, by and between
the Maker and the Payee (the "Term Loan Agreement"), which is
incorporated herein by this reference. This Note is also secured
by a Stock Pledge Agreement, dated as of the date hereof, by and
between the Maker and the Payee (the "Pledge Agreement"). The
holder hereof is entitled to all the benefits and security
provided for in the Term Loan Agreement and the Pledge Agreement,
including without limitation the right to accelerate the balance
of this Note under the terms and conditions of the Term Loan
Agreement.
Without affecting the liability of any maker, endorser,
surety or guarantor, the Payee may, without notice, grant
renewals or extensions, accept partial payments, or agree not to
sue any party liable on this Note. This Note shall be binding
upon the Maker and its successors and assigns, and shall inure to
the benefit of the Payee and its successors and assigns. This
Note and the rights of the parties hereunder shall be governed by
and construed in accordance with the laws of the United States
and the internal laws of the State of New York.
This Note may be assigned by Payee without prior notice
to, or consent of, Maker.
The Maker agrees that if any action or proceeding is
instituted to collect or enforce collection of this Note, the
amount on the Payee's records shall be prima-facie evidence of
the unpaid principal balance of this Note.
AMERICAN ECO CORPORATION
By:
---------------------------
Its:
--------------------------
Duly Authorized Officer
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> MAY-31-1997
<CASH> 5,687
<SECURITIES> 0
<RECEIVABLES> 35,649
<ALLOWANCES> 0
<INVENTORY> 10,459
<CURRENT-ASSETS> 83,083
<PP&E> 50,331
<DEPRECIATION> 0
<TOTAL-ASSETS> 180,059
<CURRENT-LIABILITIES> 76,108
<BONDS> 11,285
0
0
<COMMON> 50,779
<OTHER-SE> 23,636
<TOTAL-LIABILITY-AND-EQUITY> 180,059
<SALES> 0
<TOTAL-REVENUES> 101,599
<CGS> 0
<TOTAL-COSTS> 89,891
<OTHER-EXPENSES> 1,862
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,864
<INCOME-PRETAX> 7,982
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,982
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<EXTRAORDINARY> 0
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<NET-INCOME> 7,982
<EPS-PRIMARY> .55
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