UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-10621
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AMERICAN ECO CORPORATION
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(Exact name of Registrant as specified in its charter)
ONTARIO, CANADA 52-1742490
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
11011 JONES ROAD, HOUSTON, TEXAS 77070
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(Address of principal executive offices)
(281) 774-7000
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Registrant's telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act.
Name of each exchange on
Title of each class which registered
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None None
Securities registered pursuant to Section 12(g) of the Act.
COMMON SHARES, NO PAR VALUE
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant was $87,347,189 at March 17, 1997.
At May 2, 1997, the number of Common Shares outstanding of the
Registrant was 14,787,246.
Documents Incorporated in Reference: None
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FORM 10-K
TABLE OF CONTENTS
Page
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . 18
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . 19
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . 20
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters . . . . . . . . . 21
Item 6. Selected Financial Data . . . . . . . . . . . . . . 23
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . . . 24
Item 8. Financial Statements and Supplementary Data . . . . 30
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . 52
PART III
Item 10. Directors and Executive Officers of the
Registrant . . . . . . . . . . . . . . . . . . . . 53
Item 11. Executive Compensation . . . . . . . . . . . . . . 57
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . 61
Item 13. Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . . . . 62
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . . . 63
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PART I
Unless otherwise indicated all dollar amounts are in United States
dollars. For a statement regarding forward looking statements
contained herein, see "Item 7. Management's Discussion and Analysis
of Results of Operations and Financial Condition Information Regarding
Forward Looking Statements."
ITEM 1. BUSINESS
GENERAL
American Eco Corporation (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 environmental services include
hazardous material remediation and abatement, emergency hazardous
spill containment and cleanup and hazardous material packaging and
transportation. 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 specialty
fabrication services typically involve the construction of custom
steel and metal alloy products used in refineries, pulp mills and
offshore oil drilling platforms.
Management believes that several factors characterize the market
for industrial support services. The industries served by the Company
increasingly hire independent contractors to provide industrial
support services that had once been provided by their internal
maintenance employees. In addition, the market for environmental
remediation services has been characterized by level to low growth
over the past five years which has contributed to a general
consolidation in the market as small, regional environmental service
providers have been acquired or go out of business. By expanding its
capabilities and geographic presence through acquisitions and internal
growth, the Company hopes to capitalize on these market trends and
become a leading single-source industrial support service provider in
the United States and Canada.
At March 31, 1997, the Company operated primarily through the
following first and second tier subsidiaries: Eco Environmental,
Inc., a Delaware corporation ("Eco Environmental"); C.A. Turner
Construction Company, a Delaware corporation ("C.A. Turner" and,
together with Action Contract Services, Inc., a Delaware corporation,
the "Turner Group"); Cambridge Construction Services Corp., a Nevada
corporation ("Cambridge"); Lake Charles Construction Company, a
Louisiana corporation ("Lake Charles Construction" and, together with
its wholly-owned subsidiaries, the "Lake Charles Group");
Environmental Evolutions, Inc., a Texas corporation ("Environmental
Evolutions" or "EE"); Industra Service Corporation, a British
Columbia, Canada corporation ("Industra Service"); MM Industra, Ltd.,
a Nova Scotia, Canada corporation ("MM Industra"); United Eco Systems,
Inc., a Delaware corporation ("United Eco"); Separation and Recovery
Systems, Inc., a Nevada corporation ("SRS"); and Chempower, Inc., an
Ohio corporation ("Chempower").
The following table lists the Company's subsidiaries by business
segment:
INDUSTRIAL ENVIRONMENTAL SPECIALTY
MAINTENANCE REMEDIATION FABRICATION
SERVICES SERVICES SERVICES
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Turner Group Eco Environmental Turner Group
Lake Charles EE Lake Charles Group
Group United Eco MM Industra
Industra Service Chempower Industra Service
Chempower SRS Chempower
SRS Cambridge
Industra Service
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DEVELOPMENT OF THE BUSINESS
The Company was organized under the laws of Ontario, Canada in
1969 and entered the environmental business in 1987 under the name ECO
Corp. Between 1987 and 1992, the Company developed and marketed
certain environmental technologies, including commercial and
residential food waste composting systems. The Company discontinued
its composter operations, which resulted in the eventual write-down or
sale of substantially all of the assets associated with such
operations by 1993. The Company continues to license these
environmental technologies to other companies, but revenues derived
from the licensing of such environmental technologies accounted for
less than one percent of the Company's total revenues during fiscal
1996.
The Company has entered its current lines of business and has
grown substantially through the acquisition of other companies. The
Company acquired nine companies between fiscal 1993 and fiscal 1996,
and its revenues grew from $7.6 million to $119.5 million during such
period.
The Company first entered the environmental remediation business
in fiscal 1993, with the acquisition of Eco Environmental, a provider
of such services based in Houston, Texas. Subsequent to this
acquisition, Michael McGinnis, who had been the President of Eco
Environmental, became President and Chief Executive Officer of the
Company.
In November 1993, the Company purchased the operating assets and
businesses of the Turner Group, which is located in Port Arthur, Texas
and provides construction, maintenance, demolition, and industrial
maintenance services to petroleum and petrochemical refineries along
the Gulf Coastal region of the United States. Management believes
that as a result of the acquisition of the Turner Group, the Company
is well positioned to provide industrial maintenance services to the
petroleum and petrochemical refining industry. The Turner Group has a
50-year operating history and is located in a region that has the
largest crude refinery capacities in the United States.
In June 1994, the Company acquired Cambridge, a construction
management company located in Dallas, Texas which provides project
management consulting services to small contractors.
In July 1995, the Company acquired the Lake Charles Group, a
construction company located in Lake Charles, Louisiana. The Lake
Charles Group commenced operations in 1986 and provides general
contracting, industrial maintenance, heating and air conditioning and
industrial sheet metal services to commercial and light industrial
clients.
The Company accelerated its acquisition program during fiscal
1996 by adding five new subsidiaries to the Company. The Company's
revenues increased 156% to $119.5 million in fiscal 1996 from $46.6
million in fiscal 1995, primarily as a result of such acquisitions.
On January 1, 1996, the Company acquired all of the outstanding
capital stock of Environmental Evolutions in exchange for 400,000
shares of the Company's Common Shares, which had a fair market value
of approximately $2.4 million. Environmental Evolutions is based in
Corpus Christi, Texas and provides hazardous spill response services
to the pipeline and power generation industries located primarily
along the Gulf Coast of Texas.
On January 31, 1996, the Company acquired certain assets of
Petrocon Construction Resources, Inc., Petrocon Plant Services, Inc.
and Petrocon Instrumentation and Electrical Inc., which provided
industrial support services to the petroleum and petrochemical
refining and forest products industries from facilities located in
Beaumont, Texas. The Company transferred these operations to the
Turner Group.
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Effective May 31, 1996, the Company acquired United Eco, a
construction company which is headquartered in High Point, North
Carolina and provides environmental contracting, remediation, waste
water, ground contamination treatment and recycling services to
clients in the eastern and southeastern regions of the United States.
United Eco operates two thermal desorption treatment facilities. The
consideration for United Eco consisted of 315,000 shares of the
Company's Common Shares, which had a fair market value of
approximately $2.5 million.
Effective July 1, 1996, the Company acquired all of the issued
and outstanding shares of capital stock of SRS, which is based in
Irvine, California. SRS manufactures and distributes a proprietary
line of Sarex oil filtration and separation systems. There are
approximately 30,000 such systems currently installed in one-half of
the world's oil and petrochemical tankers as well as in major oil
refineries. The Company hopes that the addition of SRS's proprietary
technology and waste treatment expertise will enhance its ability to
win contract bids for turnkey projects as aging petroleum refineries
are replaced or upgraded. The Company acquired the capital stock of
SRS by exchanging 736,667 shares of the Company's Common Shares, which
had a fair market value of $5.6 million.
Effective July 22, 1996, the Company acquired Industra Service,
which is based in Vancouver, British Columbia, Canada. Industra
Service is an industrial engineering and environmental services
company which provides industrial support services to the power
generation, petroleum and petrochemical refining and forest products
industries principally in western Canada and the northwestern United
States. The Company effected a take-over bid for Industra Service by
exchanging 1,486,997 shares of the Company's Common Shares, which had
a fair market value of $10.7 million, for 94% of the outstanding
shares of Industra common stock. In December 1996, the Company
received authorization to acquire the remaining 6% shares of Industra
Service capital stock, pursuant to an Arrangement Agreement.
On September 3, 1996, the Company acquired certain assets of M &
M Manufacturing Limited Partnership of Dartmouth, Nova Scotia, which
provided pipefitting, assembling, machining and fabrication services
to the petroleum and petrochemical refining, power generation, forest
products and offshore oil exploration industries. The Company
transferred the operations of M & M Manufacturing Limited Partnership
to MM Industra, a newly formed, wholly-owned subsidiary of the
Company. Prior to their acquisition by the Company, the operations of
M & M Manufacturing Limited Partnership had been idle and in
receivership. The Province of Nova Scotia awarded the Company its bid
to purchase and operate the assets of the bankrupt company, and MM
Industra commenced operations in October 1996.
On March 4, 1997, the Company completed its acquisition of
Chempower, a manufacturing, construction and environmental services
company for the power generation and chemical processing industries,
headquartered in Akron, Ohio. 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 (the "Principal Shareholders"), received $6.20 in cash
for each of their Chempower shares, and all Chempower optionholders
received, in cash, the difference between $6.20 and the exercise price
per share for their outstanding options. The Principal Shareholders
received a portion of the merger consideration in cash and the balance
in the form of a $15.9 million promissory note of Chempower (the
"Shareholder Note"), payable on February 28, 1998. The Shareholder
Note was secured by all of Chempower's assets, subject to the prior
security interest of Chempower's bank, and guaranteed by the Company,
which guaranty was secured by a pledge of its Chempower shares. See
"Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations." The acquisition was financed through an
increase in the $15.0 million Chempower bank line of credit and
borrowings of approximately $6 million plus the sale by the Company of
$15.0 million in 9.5% convertible debentures due 2007. Pending
repayment of the Shareholder Note, certain restrictions were imposed
upon Chempower's business. See "Item 5. Market for Registrant's
Common Equity and Related Stockholder matters -- Private Placements of
Common Shares." Based on the total 7,565,113 Chempower shares
outstanding on the effective date of the merger and the amounts due to
Chempower optionholders, the total acquisition cost was approximately
$50.0 million.
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The following table sets forth the years in which the Company
acquired its principal operating subsidiaries and the market segments
served by such subsidiaries.
INDUSTRIAL ENVIRONMENTAL SPECIALTY
MAINTENANCE REMEDIATION FABRICATION
YEAR SERVICES SERVICES SERVICES
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1992 Eco
Environmental
1993 Turner Group Turner Group
1994 Cambridge
1995 Lake Charles Lake Charles
Group Group
1996 Industra Industra Industra
Service Service Service
SRS SRS MM Industra
Environmental
Evolution
United Eco
1997 Chempower Chempower Chempower
The Company has made a strategic investment in EIF Holdings, Inc.
("EIF"), an asbestos and lead removal company based in California
whose common stock is traded over the counter through The Nasdaq
Bulletin Board under the trading symbol "EIFH." On November 20, 1996,
the Company completed its purchase of 4,000,000 shares of EIF common
stock from Julbin International Ltd. for $70,000 in cash and 300,000
Common Shares of the Company pursuant to a Purchase Agreement, dated
March 7, 1996. The Company purchased an additional 4,600,000 shares
of EIF common stock in open market transactions effected in June 1996
and 200,000 shares of EIF common stock in November 1996 in connection
with the settlement of a legal dispute with a subsidiary of EIF. At
March 31, 1997, the Company owned 8,800,000 shares of EIF common
stock, representing approximately 36% of the outstanding shares. The
Company also entered into a stock purchase agreement with EIF pursuant
to which the Company will purchase an additional 10,000,000 shares of
EIF common stock for $1,000,000, which purchase is conditioned upon
the shareholders of EIF authorizing an increase in EIF's authorized
capital stock. When completed the purchase would result in the
Company owning approximately 53% of the outstanding shares of EIF
common stock. It is anticipated that the shareholders of EIF will
vote upon the increase in authorized capital stock at a shareholders
meeting to be held sometime in fiscal 1997. There can be no assurance
that the shareholders of EIF will approve the increase in the number
of shares of EIF's authorized capital stock. The Company also has
provided a $5,250,000 line of credit to EIF, of which approximately
$4,908,000 was outstanding at November 30, 1996, and has guaranteed
certain indebtedness and leases of EIF and its subsidiaries.
EIF and the Company have agreed that during the interim period
between the execution and the closing of its purchase of an additional
10,000,000 shares of EIF common stock, a management team, primarily
comprised of the Company's managers, will assist in the management of
EIF's operations.
In February 1997, the Company signed a letter of intent to form a
joint venture with CVG International America to provide industrial,
environmental, engineering and health and safety services to
Corporacion Venezolana de Guyana.
CHANGE IN REPORTING STATUS
Until the filing of this Annual Report on Form 10-K, the Company
had filed periodic reports with the Securities and Exchange Commission
(the "SEC") pursuant to the United States securities regulations
governing foreign private
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<PAGE>
issuers. Foreign issuers are required to file an annual report on
Form 20F with the SEC within 180 days after the end of each fiscal
year. In addition, foreign private issuers are not subject to the
SEC quarterly reporting requirements or proxy rules, but are required
to file reports on Form 6K whenever a significant public announcement
is made or a report is filed in accordance with the laws of the
issuer's home jurisdiction. The Company filed quarterly reports
that complied with the securities laws of the Province of Ontario
under cover of Form 6-K. As a domestic issuer, the Company will
begin to file annual, quarterly and current reports and distribute
proxy materials in compliance with United States securities
regulations governing domestic issuers.
OVERVIEW OF BUSINESS AND GEOGRAPHICAL SEGMENTS
The Company is pursuing a strategy of becoming a single-source,
industrial support services provider for 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 following table provides information with respect to the
Company's three principal business segments.
ENVIRONMENTAL INDUSTRIAL SPECIALTY
REMEDIATION MAINTENANCE FABRICATION
SERVICES SERVICES SERVICES
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(In thousands)
FISCAL 1996
Contract income from
customers . . . . . . . . . $31,897 $86,975 $657
Operating income . . . . . 2,118 5,617 218
Depreciation and
amortization . . . . . . . 1,132 1,100 -
Capital expenditures during
the year . . . . . . . . . 516 1,336 6,155
Identifiable assets . . . . 38,488 28,425 4,865
FISCAL 1995
Contract income from customers. . .$ 5,362 $41,322 -
Operating income . . . . . . . . . 505 2,555 -
Depreciation and amortization . . . 214 893 -
Capital expenditures
during the year . . . . . . . . . . 54 1,675 -
Identifiable assets . . . . . . . . 4,636 17,163 -
FISCAL 1994
Contract income from customers . . $ 8,040 $26,951 -
Operating income . . . . . . . . . 451 615 -
Depreciation and amortization . . . 196 848 -
Capital expenditures during
the year . . . . . . . . . . . . . 47 686 -
Identifiable assets . . . . . . . . 5,246 11,447 -
The acquisition of Industra Service, based in Vancouver, British
Columbia, and MM Industra, based in Dartmouth, Nova Scotia, increased
the amount of revenues generated from Canadian operations in fiscal
1996. At November 30, 1996, approximately 30% of the Company's
tangible assets were located in Canada.
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The following table provides information with respect to the
geographic segmentation of the Company's business.
CANADA UNITED STATES
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(IN THOUSANDS)
FISCAL 1996
Contract income . . . . . . . $6,509 $113,020
Operating income . . . . . . 89 7,864
Depreciation and
amortization . . . . . . . . 166 2,066
Capital expenditures during
the year . . . . . . . . . . 6,151 1,856
Identifiable assets . . . . . 20,988 50,789
FISCAL 1995
Contract income . . . . . . . - $46,684
Operating income . . . . . . - 3,060
Depreciation and
amortization . . . . . . . . - 1,107
Capital expenditures during
the year . . . . . . . . . . - 1,729
Identifiable assets . . . . . - 21,799
FISCAL 1994
Contract income . . . . . . . - $34,991
Operating income . . . . . . - 1,066
Depreciation and - 1,044
amortization . . . . . . . .
Capital expenditures during - 733
the year . . . . . . . . . .
Identifiable assets . . . . . - 16,693
The Company is attempting to cross market its services so that it
may win single-source, turnkey projects to repair, clean and refurbish
clients' facilities in the petroleum and petrochemical refining, power
generation and forest products industries. Such cross-selling efforts
have included training the staff and, in particular, the business
development personnel from each of the Company's acquired subsidiaries
so that they understand the capabilities of all of the Company's other
subsidiaries. During fiscal 1996, SRS, Industra Service and United
Eco were awarded a contract to construct a facility in New Jersey that
will treat soils contaminated by hydrocarbons, heavy coal tars and
polychlorinated biphenyls. The facility, which is expected to serve
utilities, environmental contractors and heavy manufacturing
industries throughout the region, will incorporate remediation
technologies provided by United Eco and SRS to treat contaminated
soil.
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INDUSTRIAL MAINTENANCE SERVICES
The Company provides industrial maintenance services to clients
in the petroleum and petrochemical refining, power generation and
forest products industries through the Turner Group, the Lake Charles
Group, Industra Service, Chempower and SRS. The industrial
maintenance service business segment generated approximately 73% of
the Company's revenues during fiscal 1996.
INDUSTRIAL MAINTENANCE SERVICES MARKET
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Petroleum refiners must replace and repair process equipment and
piping systems on an on-going basis in order to maintain the
operability and efficiency of their facilities and to ensure that such
facilities comply with safety and environmental regulations. Refinery
maintenance projects vary in scope from routine repairs to major
capital improvements. Petroleum refiners must continually make
routine repairs to equipment and piping systems. Other repair and
maintenance projects require the shutdown of operating units or the
entire refinery. In addition to routine maintenance, refiners
undertake capital improvement projects to refurbish their refining
facilities. Such projects take from between six months to three years
to complete depending upon the type, utilization rate and operating
efficiency of the particular refinery.
There are approximately 175 operating refineries in the United
States. Texas and Louisiana have an aggregate of 50 operating
refineries and management believes that the Gulf Coastal region of the
United States accounts for approximately 43% of the United States'
petrochemical and petroleum refining capacity. The Company believes
that the typical refinery in the United States is an aging facility
that must process petroleum at high utilization rates while complying
with stringent environmental regulations. High utilization rates
accelerate a facility's rate of deterioration and increase the need
for repair and maintenance work. The Company also believes that any
increase in utilization capacity is likely to involve primarily the
refurbishing and expanding existing facilities due to the high cost
and environmental opposition associated with the construction of new
facilities. In addition, refiners have reduced internal maintenance
personnel.
These trends have encouraged refiners to increase their reliance
on outside contractors which can perform specialized maintenance
services within strict time constraints, minimizing the downtime
associated with routine maintenance and major capital expenditure
programs. According to HYDROCARBON PROCESSING MAGAZINE, a trade
publication, refineries in the United States spent $5.7 billion on
maintenance out of an aggregate of $23.1 billion for operating budgets
in 1994. Management estimates that independent contractors currently
perform approximately half of the maintenance work in the petroleum
refining industry.
The power generation industry in the United States has become
more competitive as the Federal Energy Regulatory Commission begins to
implement the provisions of the Energy Policy Act of 1992, which
deregulates the electric power generation industry by allowing
independent power producers and other companies access to its
transmission and distribution systems. The anticipation of such
deregulation has forced utilities to reduce their operating costs in
order to produce power at more competitive rates. Utilities have
attempted to accomplish this in part by deferring repairs and
refurbishing existing power plants. In the near term, such deferred
maintenance could reduce the amount of contract business available.
However, management believes that in the longer term power generation
companies will be forced to make needed repairs, and they may
increasingly outsource such services.
The forest products industry experienced a recession between 1992
and 1995, resulting in deferred plant maintenance and the cancellation
of major capital improvement projects. Management believes than an
upturn in this industry may result in an increase in plant maintenance
projects. In addition, the EPA has instituted new environmental
standards which will require pulp and paper manufacturers to make
capital improvements.
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MARKETING
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The Company provides industrial maintenance services to clients
in the petrochemical and petroleum refining industries located in the
Gulf Coastal and midwestern regions of the United States and in Nova
Scotia, British Columbia and Alberta, Canada. Many of the Company's
customers operate multiple refineries, and, in general, decisions to
award work are made at each operating facility. In most cases, bids
are prepared by the Company on a job-by-job basis. Fee arrangements
for their services are bid either fixed-price or based on detailed
time and material billing schedules. Bids generally are awarded based
on price considerations, although scheduling, efficiency, quality and
safety are also factors in the customer's determination. Although the
Company performed a significant amount of work for certain refining
facilities, performance on any given project does not ensure
subsequent work at that facility or other facilities of that customer.
Conversely, the loss of a bid for any one project does not affect the
Company's ability to obtain additional work from that customer.
Historically, the Turner Group has derived much of its revenues
from long-term contracts with major petroleum and petrochemical
refining facilities in and around the Beaumont/Port Arthur, Texas
area. The Turner Group has also provided services to companies in the
chemical, gas processing pipeline and liquid terminal industries.
Since its acquisition by the Company in 1993, the Turner Group's
marketing efforts have been expanded geographically to include the
entire Gulf Coastal region from Pascagoula, Mississippi to Corpus
Christi, Texas.
The Lake Charles Group typically bids for its construction and
industrial maintenance projects on a project-by-project basis and, in
the past, it has not won long-term industrial maintenance contracts.
Management will attempt to win long-term industrial maintenance
contracts from petrochemical and petroleum refineries located in the
Baton Rouge and Lake Charles, Louisiana areas. Because the management
of each refinery typically selects its own maintenance contractors,
management believes that it is important to be perceived as a local
contractor. Based upon the Company's existing contacts, it is hoped
that the Lake Charles Group will give the Company a local presence in
the Baton Rouge and Lake Charles areas, which have a high
concentration of petrochemical and petroleum refining facilities.
Industra Service markets to the pulp and paper industry in
western Canada and the northwestern United States. It offers turnkey
services for projects from the engineering through the construction
and manufacturing phases. These services include insulation, asbestos
removal and fireproofing, and normally are obtained through
competitive bidding. Industra Service also offers these services, as
well as oil sands extraction services to the oil/gas and petrochemical
industry, in Alberta, Canada.
The major customers of Chempower are in the electric power
generation and chemical industries located in Ohio and other
midwestern states. To service its customers, Chempower has
established a network of facilities in Ohio, Pennsylvania, Tennessee
and West Virginia. In anticipation of the deregulation in the
electric power generation industry, some utilities are outsourcing
some of the repairs and refurbishments of their power plants.
Chempower is seeking these outsourced projects.
SERVICES
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TOTAL UNIT TURNAROUNDS. The Company performs turnaround services
-----------------------
involving maintenance of crude distillation units, catalytic reformer
units, delayed coker units, alkylation units, platformers, fluid
catalytic cracking units and butamer units as part of one project.
These services also involve the maintenance and modification of heat
exchangers, heaters, vessels, and piping.
PLANNING AND MANAGEMENT SERVICES. The Company has developed the
---------------------------------
planning capabilities, operation skills and field supervision
techniques necessary to manage all aspects of turnaround projects and
other maintenance services. When managing a turnaround project, the
Company is responsible for cost control procedures, resource planning
and scheduling, safety control, hazardous material handling, hiring
and training of personnel, procuring
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equipment and tools, performing field inspections and coordinating
the entire project. Certain aspects of the turnaround project and
certain specialized types of welding often are provided directly by
the Company. Other aspects of a turnaround project are performed by
subcontractors under the supervision of the Turner Group. In
addition, the Company develops suggested maintenance programs that
incorporate its experience from prior projects.
PROCESS HEATER MAINTENANCE. The Company repairs process heaters.
---------------------------
The installation and maintenance of process heaters requires skilled
craftsmen and supervisors and specialized construction techniques.
FLUID CATALYTIC CRACKING UNIT TURNAROUNDS. Fluid Catalytic
-----------------------------------------
Cracking Units ("FCCU") require a high level of maintenance because of
extremely high temperatures inside the unit in excess of 1000 degrees
F and due to their many internal parts, which consist generally of
stainless steel components and refractory lining systems. Refractory
is a heat resistant lining that insulates the inner shell of the
cracking unit vessels. The main pieces of equipment in a FCCU are
the reactor, the regenerator and the flue gas exhaust system. Most
of the repair and revamp work required during a turnaround project is
performed on this equipment. Major revamp work is required to
increase efficiencies of the FCCU and to reduce air pollution from
the unit. In most cases, the mechanical work involving the
disassembly and repair of the unit components and the refractory work
involving the "spraying" of the refractory material onto the inside
of the units' vessels is performed by different contractors. The
Company provides all of these services.
EMERGENCY RESPONSE SERVICES. The Company provides temporary
----------------------------
workers for fast response situations such as repair and revamp
services in connection with refinery fires, explosions and other
accidents. Management believes that the Turner Group has enhanced its
relationships with customers by responding quickly to these types of
emergencies and by providing timely repair services.
DISMANTLING AND DEMOLITION SERVICES. The Company provides
------------------------------------
dismantling and demolition services when a client has decommissioned
an entire facility or unit within its plant. A typical dismantling
project begins by identifying potential safety hazards and preparing a
work plan, including an estimate of the number and type of personnel
and equipment necessary to complete the project. Personnel then
examine and, if necessary, drain refinery pipelines or remove asbestos
or other hazardous materials. Dismantling services are often
performed using cranes which are equipped with torches or hydraulic
guillotine shears. In addition, the Company may use explosives in
performing demolition work. Dismantled equipment is cut into scrap
pieces and sold in the scrap market. Sometimes dismantled equipment
can be salvaged and sold.
ABOVEGROUND STORAGE TANK SERVICES. The Company provides its
----------------------------------
customers with maintenance and modification services for aboveground
storage tanks ("AST"). Maintenance and modification services involve
the design, construction, and installation of pollution control
devices such as floating roof and seal assemblies,secondary
containment systems (double bottoms), and a variety of underground and
aboveground piping systems in existing AST's. The Company also
installs, maintains and modifies tank appurtenances, including spiral
stairways, platforms, gauging systems, fire protection systems,
rolling ladders, and structural supports.
ASME CODE STAMP SERVICES. The Turner Group is qualified to
-------------------------
perform services on equipment that contain American Society of
Mechanical Engineer Code Stamps ("ASME Codes"). Many state agencies
and insurance companies require that qualified ASME code installers
perform services on ASME coded equipment. Many of the Turner Group's
competitors are not ASME code qualified, which requires them to
subcontract portions of a project involving work with coded equipment.
INSTRUMENTATION AND ELECTRICAL. The Company provides lighting,
------------------------------
power and instrumentation wiring for electrical systems of up to 5,000
volts. It also installs, terminates, troubleshoots and commissions
switches, transformers and associated control and monitoring equipment
and is qualified to calibrate and commission both electrical and
pneumatic instrument systems. The Turner Group has had extensive
experience with the conversion and physical design of distribution
control systems.
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<PAGE>
OIL SEPARATION AND REMOVAL SYSTEMS. The Company installs SRS's
----------------------------------
proprietary Sarex oil separation and removal systems which extract
reusable oils from sludges and oily water. Approximately 30,000 of
SRS's Sarex oil separation and removal systems have been installed in
oil tankers and petroleum refineries around the world.
COMPETITION
-----------
The market for industrial maintenance services is highly
competitive. Many competitors have greater financial and other
resources than the Company. Additionally, the Company competes with
numerous small, independent contractors which, collectively, have a
significant share of the market for these services. Competitive
factors for these services include price considerations, performance
record, quality, and safety. Construction orders are customarily
awarded after competitive bids have been submitted as proposals based
on the estimated cost of each job.
ENVIRONMENTAL SERVICES
The Company provides environmental remediation and waste services
through United Eco, Industra Service, Chempower, Cambridge, Eco
Environmental, Environmental Evolutions and SRS. Remediation includes
the on-site clean-up and treatment of hazardous and non-hazardous
organic and inorganic contaminants utilizing a number of technologies.
Waste services include removal, encapsulation, stabilization,
treatment and disposal services. The environmental remediation
services business segment (excluding Chempower which was acquired
subsequent to year end) generated approximately 27% of the Company's
revenues during fiscal 1996.
THE ENVIRONMENTAL REMEDIATION MARKET
------------------------------------
Growth in the environmental remediation industry has been
influenced by the following legislation:
CERCLA-The Comprehensive Environmental Response, Compensation and
Liability Act of 1990 ("CERCLA" or the "Superfund Act"). The
Superfund Act authorizes the Environmental Protection Agency (the
"EPA") to coordinate responses to environmental emergencies and
establishes liability for cleanup costs and environmental damages
on present and/or previous owners and operators of treatment
facilities and disposal sites, and persons who generated,
transported or arranged for the disposal or transportation of
wastes to such facilities. These provisions are enforceable by
lawsuits initiated by either the EPA or private citizens.
RCRA-The Resource Conservation and Recovery Act of 1976 ("RCRA")
established a comprehensive set of regulations for the treatment,
storage and disposal of hazardous wastes. RCRA mandated
"cradletograve" tracking systems for the transportation and
disposal of hazardous wastes and instituted pretreatment
requirements for a list of 500 hazardous wastes prior to land
disposal. More important, RCRA imposed restrictions on and
established required treatment standards for land disposal of
certain wastes in order to minimize or eliminate reliance on
offsite disposal. RCRA has served to enhance the attractiveness
of onsite remediation techniques such as those provided by Eco
Environmental.
FFCA-The Federal Facilities Compliance Act of 1992 allows states
and the EPA to enforce solid and hazardous waste violations
against federal facilities, including those operated by the
Department of Defense ("DOD") and the Department of Energy
("DOE"), the primary federal hazardous waste generators, which
the Company believes should encourage remediation at these
facilities.
Demand for hazardous waste remediation work is increasing as the
nature and extent of certain waste problems become known. According
to an EPA study, the Superfund Act program has been progressing from
the evaluation of sites into the design and cleanup phases. The study
stated that as of September 1992, the EPA had conducted preliminary
assessments of over 95% of the 36,814 potentially hazardous sites
listed on the EPA database, of which
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<PAGE>
approximately 1,200 have been placed on the National Priorities List
("NPL"). The EPA study also reported that the 123 remedial actions
started at NPL sites during the year ended September 30, 1992 was a
20% increase over 1991, and a 60% increase over 1990. Increasing
demand for remediation services is also expected from the DOD and
DOE. The EPA study stated that as of September 30, 1991, the DOD
had identified 17,660 sites located at 1,877 DOD installations and
6,786 "Formerly Used Defense Sites" with potential hazardous
waste contamination involving soil or groundwater, and that
the DOD estimates that 7,313 sites will require cleanup.
Cleanup and restoration work at most DOE installations is in the very
early stages, but according to the EPA study, the DOE estimates that
about 4,000 contaminated sites, covering more than 26,000 acres at DOE
and nonDOE locations, require some remediation.
Management recognizes that the environmental remediation
industry, which is largely the creation of federal legislation, is
sensitive to shifts in public opinion and legislation. While there is
growing anti-regulatory sentiment in the United States, management
does not believe that this political trend will have a substantial
impact on the Company's environmental services business. The Company
has targeted projects involving soil remediation, ground water
cleanup, and lead and asbestos abatement. The cleanup projects on
which the Company typically works have already been designed and
planned and, management believes, are unlikely to be delayed or
canceled in the near term as a result of deregulation, if any.
MARKETING
---------
The Company derives revenues in its environmental remediation
segment from a variety of customers, including owners and tenants of
commercial and industrial property, insurance companies, real estate
development companies, and state and municipal entities. The Company
typically contracts directly with owners, operators, or tenants of
properties and works closely with the client's environmental
consultants in performing its services. Fee arrangements for its
services are bid either fixed-price or based on detailed time and
material billing schedules. Bids are typically awarded based on
price, scheduling, experience, efficiency, quality, and safety
considerations. The Company markets its services directly to
companies that are in need of remediation, abatement, or renovation
services as well as consulting firms. During the year ended November
30, 1996, the Company provided environmental remediation services to
clients in Texas, Louisiana, Wyoming, North Carolina, South Carolina,
Virginia, Georgia and Tennessee. The Company provides emergency spill
response services to utility, petrochemical and petroleum refining
clients located in Texas. Environmental Evolutions services this
market through business development personnel and by field
representatives at project sites located throughout the Gulf Coastal
region. The SRS Sarex System is offered worldwide for on-site
treatment of refinery, petrochemical, marine and other industrial
waste materials.
In February 1997, the Company signed a letter of intent to form a
strategic alliance with CVG International America, Inc. in part to
provide environmental services to Corporacion Venezolana de Guayana.
SERVICES
--------
The environmental services segment provides the following
specialized environmental remediation services:
SOIL REMEDIATION. The Company employs bioremediation, vapor
-----------------
extraction, thermal desorption and other techniques to degrade
hazardous and non-hazardous contaminates in soil. Areas of
application include soils, sludges, slurries, and liquids contaminated
with hydrocarbons, creosote, pentachlorophenol, pentachloroethylene,
PCB's, digester sulfides, phenols, benzene, toluene, chlorinated
aliphatic solvents and raw sewage.
UNDERGROUND STORAGE TANK REMOVAL. The Company provides tank
---------------------------------
management, subsurface investigation, tank and line integrity testing,
tank removal and replacement, removal and treatment of contaminated
soils and site closure services.
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<PAGE>
ASBESTOS ABATEMENT AND LEAD ABATEMENT. The Company's licensed
--------------------------------------
supervisors and workers remove or encapsulate materials which contain
asbestos and materials contaminated with lead.
SPILL RESPONSE. The Company's Spill Response Division provides
---------------
incident-specific, on-site services for the release or spill of PCB's
or other chemicals which may pose health or environmental risks such
as fuels, oils, acids, caustics and solvents.
TRAINING. The Company's Incident Response Preparation School
----------
provides safety and response training to organizations and individuals
on spill prevention and control. Training is administered at clients'
locations.
EQUIPMENT RENTAL. The Company rents to third parties certain
----------------
equipment used in the environmental and remediation industry,
including air filtration devices, vacuums and sprayers.
PROPRIETARY TECHNOLOGIES
------------------------
The Company has developed and licenses certain proprietary
technologies that it uses in its environmental remediation business.
United Eco has entered into an agreement to deploy a technology for
the chemical stabilization of materials contaminated with heavy
metals. The Molecular Bonding System ("MBS") is a patented technology
of Solucorp Industries Ltd. The MBS technology uses a mobile facility
to process large quantities of soils, ash, sediments and sludges. The
agreement permits United Eco to use this technology throughout North
America.
COMPETITION
-----------
The environmental services industry is highly competitive with
numerous companies of various sizes, geographic presence and
capabilities participating. The principal competitive factors for
these services are operational experience, technical proficiency,
scope of services offered, local presence and price. To offer certain
of Eco Environmental's and Environmental Evolutions' services,
significant capital investment is required for equipment. Certain
competitors have greater financial resources or offer specialized
techniques or services not provided by the Company. Additionally, the
relatively recent entry of aerospace and defense contractors, as well
as large construction and engineering firms into the environmental
services industry has increased competition. Management believes that
the demand for environmental services is still developing and
expanding and, as a result, many small and large firms will continue
to be attracted to the industry.
SPECIALTY FABRICATION SERVICES
------------------------------
The Company provides specialty fabrication services to clients in
the petroleum and petrochemical refining, forest products and offshore
oil exploration industries through the Turner Group, the Lake Charles
Group, Industra Service, Chempower and MM Industra. The Company's
specialty fabrication service business segment generated approximately
$657,000 during fiscal 1996, or less than one percent of the Company's
total revenues for that period. However, the Company's results of
operations for fiscal 1996 only reflect four months of operations for
Industra Service and one month of operations for MM Industra, and do
not include the operations of Chempower which was acquired in March
1997.
SPECIALTY FABRICATION SERVICES MARKET
-------------------------------------
The specialty fabrication services market includes general
industrial and offshore construction projects, ranging greatly in size
and complexity of the project. The market in which the Company
participates is affected by the state of the economy in general as
well as the levels of capital expenditures in the chemical,
petrochemical and refining industries.
-14-
<PAGE>
MARKETING
---------
The Company typically obtains specialty fabrication business by
submitting proposals to local plant managers on a project-by-project
basis. If the Company is engaged by a customer for a specialty
fabrication project, the services usually are provided pursuant to a
fixed-price contract. The Company also will negotiate fee
arrangements and cost reimbursements, although such arrangements are
less frequently obtained than fixed-price contracts. The Company has
found that plant managers award contracts based primarily upon price,
but scheduling, product and service quality and safety also contribute
to a customer's determination. Each of the Company's subsidiaries
prepares and submits its own contract proposals. The Company directs
broader marketing efforts such as placing advertisements in trade
publications. In addition to these efforts, the Company encourages
each subsidiary to generate cross-selling opportunities for the
Company's other subsidiaries.
SERVICES
--------
The Company owns and operates approximately 687,000 square feet
of specialty fabrication facilities in the United States and Canada
where it constructs piping, power boiler assemblies, pressure vessels,
reactors, drums, towers, precipitators, tanks, exchanger retubing,
heater coils, and components, and various equipment used in connection
with process industries. The Company also performs emergency
fabrication at facilities when necessary to assist their customers.
In many instances, the facilities are operated 24 hours per day to
assist a turnaround project. The Company also provides machining
services used to rework pumps, turbines, compressors, tail shafts,
rudder shafts, couplings, hydraulic cylinders and other refinery
components. The Company erects structural steel support systems such
as pipe racks and scaffolding, components which the Company sometimes
fabricates according to customized specifications. The Chempower
manufacturing services include design and fabrication of pre-insulated
panels for industrial equipment applications, of metal casings for
machines used in the gaming industry and of electrical switch gear,
power distribution systems and bus duct systems for mass transit
authorities, utilities, chemical and other industrial facilities.
COMPETITION
-----------
The companies competing in the specialty fabrication services
market are widely segmented, with few large participants. Many of the
competitors are local entities. The Company seeks to offer a full
range of services to potential customers, and, where necessary, to
enter into strategic alliances and joint ventures with competitors
that provide complementary services in bidding on projects.
Competitive factors include price, quality, product availability and
delivery.
RESEARCH AND DEVELOPMENT
The Company does not have a research and development program.
CUSTOMERS
During fiscal 1996, the Company generated 73% of its revenues
from industrial customers in general and 20% of its revenues from
customers in the petroleum and petrochemical refining business in
particular. Huntsman Corporation, Star Enterprises, Goodyear Tire and
Rubber and BioLab together accounted for approximately 18% of the
Company's total revenues in fiscal 1996, compared to 75% of total
revenues in fiscal 1995. No single customer accounted for more than
5% of the Company's revenues during fiscal 1996. Nevertheless, the
loss of any one of these key customers could have a material adverse
impact on the Company's results of operations and financial condition.
Management believes that the Company's continued efforts to expand and
diversify its customer base in addition to the effects of a full year
of operations from its newly acquired operating subsidiaries will further
-15-
<PAGE>
reduce the Company's dependence on certain key customers. See
"Item 7. Management's Discussion and Analysis of Financial Condition
and Resutls of Operations."
BACKLOG
At November 30, 1996, the Company's backlog was approximately
$125 million, which included backlog of approximately $70 million at
November 30, 1996 of entities acquired by the Company in fiscal 1996.
This compares to approximately $47 million of backlog for such
contract work at November 30, 1995. Between December 1, 1996 and
January 31, 1997 the Company entered into additional contracts with an
estimated value of $67.0 million. Backlog represents the amount of
revenue that the Company expects to realize from work to be performed
on uncompleted contracts in progress and from contractual agreements
upon which work has not commenced. Contracts included in backlog may
have provisions which permit cancellation or delay in their
performance and there can be no assurance that any work orders
included in backlog will not be canceled or delayed.
EMPLOYEES
At March 31, 1997, the Company employed 365 full-time employees
and 1,700 hourly workers, some of whom were represented by labor
unions under agreements expiring at various dates. Total employment
levels ranged from 1,300 to 3,300 workers per week during fiscal 1996.
Management believes that it maintains good relations with its
employees.
It has been the Company's experience that hourly-rate employees
are generally available in the quantity required for its projects over
an extended period of time. The Company has not experienced a
significant work stoppage and considers its employee relations to be
good.
RAW MATERIALS
The Company has not experienced any difficulties obtaining the
raw materials needed by its operating segments.
GOVERNMENT REGULATION AND RISK MANAGEMENT
Certain of the Company's services involve contact with crude oil,
refined petroleum products, asbestos and other substances classified
as hazardous material under the various federal, state and local
environmental laws. Under these laws, hazardous material is regulated
from the point of generation to the point of disposal. In addition,
the United States Environmental Protection Agency has issued
regulations for hazardous waste remediation contractors. To
management's knowledge, the operating segments have obtained all
required permits and licenses in the states in which they operate.
All of the Company's operations are subject to regulations issued
by the United States Department of Labor under the Occupational Safety
and Health Act ("OSHA"). These regulations set forth strict
requirements for protecting personnel involved with any materials that
are classified as hazardous, which includes materials encountered when
performing many of the Company's services. Violations of these rules
can result in fines and suspension of licenses. To management's
knowledge, the Company and all of its subsidiaries are in material
compliance with OSHA.
The Company's safety and training efforts are directed through
its subsidiaries. In addition to training designed to advance the
skill level of individual employees, the Company uses entry level
screening and broad-based skills development programs to improve the
overall quality and technical competence of its work force. The
Company has a designated safety officer at each of its subsidiaries
who is responsible for compliance with applicable governmental
procedures and the Company's internal policies and practices. All of
the Company's technicians are
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<PAGE>
subject to pre-employment, scheduled and random drug testing. The
Company's operations and personnel are subject to significant
regulations and certification requirements imposed by federal,
state and other authorities.
The Company maintains worker's compensation insurance in
accordance with statutory requirements and contractors' general
liability insurance with an annual aggregate coverage limit that
varies with each subsidiary. The Company's general liability
insurance specifically excludes all pollution related claims and fines
levied against the Company as a result of any violations by the
Company of the regulations issued by the Department of Labor under
OSHA. To date, the Company has not incurred any significant fines or
penalties or any liability for pollution, environmental damage, toxic
torts or personal injury from exposure to hazardous wastes. However,
a successful liability claim for which the Company is only partially
insured or completely uninsured could have a material adverse effect
on the Company. In addition, if the Company experiences a significant
amount of such claims, increases in the Company's insurance premiums
could materially and adversely affect the Company. Any difficulty in
obtaining insurance coverage consistent with industry practice may
also impair the Company's ability to obtain future contracts, which in
most cases are conditioned upon the availability of specified
insurance coverage. The Company has not experienced any difficulty in
obtaining adequate insurance coverage for its businesses. Management
has been advised by its insurance carriers that access to such
insurance coverage is not likely to change in the near future.
Asbestos abatement projects, and to a lesser extent, industrial
cleaning and maintenance projects generally require the Company to
maintain appropriate levels and types of insurance and, in certain
instances, require the Company to post surety bonds or letters of
credit in lieu thereof. Building owners require insurance to protect
against third party, asbestos related liabilities arising from the
work performed at an asbestos abatement site and may require
performance and payment bonds, or letters of credit in lieu thereof,
to assure completion of the project and payment of all subcontractors.
To date, the Company has not had any significant difficulty in
obtaining such bonds or letters of credit.
SEASONALITY
The Company's revenues from its industrial and environmental
segments may be affected by the timing and planned outages at its
industrial customers' facilities and by weather with respect to
outside projects. The effects of this seasonality may be offset by
the timing of large individual contracts, particularly if all or a
substantial portion of the contracts fall within one or two quarters.
Accordingly, the Company's quarterly results may fluctuate and the
results of one quarter should not be deemed to be representative of
the results of any other quarter or for the year. The Company
believes revenues derived from its industrial segment long-term
maintenance contracts provide a more consistent revenue base.
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<PAGE>
ITEM 2. PROPERTIES
The location, ownership, primary use and approximate square
footage of the facilities of the Company are set forth in the
following table. The Company believes that its existing facilities
are adequate to meet current requirements and that suitable additional
or substitute space would be available as needed to accommodate any
expansion of operations.
APPROXIMATE
Primary SQUARE
BUSINESS UNIT AND OWNERSHIP USE (1) FEET
SITE LOCATION OF FLOOR
SPACE
------------------------------ ------------ ------------ --------
AMERICAN ECO
Toronto, Ontario . . . . . Leased Adm. 2,000
Houston, Texas . . . . . . Leased Adm. 14,000
CHEMPOWER
Akron, Ohio . . . . . . . Owned(2) Adm./Const. 36,000(3)
Canton, Ohio . . . . . . . Owned(2) Adm./Mfg. 205,000
Cincinnati, Ohio . . . . . Owned(2) Adm./Const. 25,000
Las Vegas, Nevada . . . . Leased Adm./Mfg. 47,000
Washington, Pennsylvania . Owned(2) Adm./Const./Mfg. 112,000(3)
Knoxville, Tennessee . . . Leased Adm. 1,000
Waverly, Tennessee . . . . Owned(2) Adm./Const./Mfg 95,000(3)
Hurricane, West Virginia . Leased Adm. 2,000
Winfield, West Virginia . Owned(2) Adm./Const. 90,000
ECO ENVIRONMENTAL
Houston, Texas . . . . . . Leased Adm./Const. 26,000
ENVIRONMENTAL EVOLUTIONS
Corpus Christi, Texas . . Leased Adm./Const. 2,000
San Antonio, Texas . . . . Leased Adm./Const. 1,000
INDUSTRA SERVICE
Edmonton, Alberta . . . . Owned Adm. 14,000
New Westminster, British Owned Adm./Const./Mfg. 74,000
Columbia . . . . . . . . .
Portland, Oregon . . . . . Leased Adm. 6,000
Seattle, Washington . . . Leased Adm. 11,000
LAKE CHARLES GROUP
Lake Charles, Louisiana . Owned(2) Adm./Const./Mfg. 10,000
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<PAGE>
APPROXIMATE
Primary SQUARE
BUSINESS UNIT AND OWNERSHIP USE (1) FEET
SITE LOCATION OF FLOOR
SPACE
------------------------------ ------------ ------------ --------
MM INDUSTRA
Dartmouth, Nova Scotia . . Owned Adm./Mfg. 60,000
Dartmouth, Nova Scotia . . Leased Mfg./Const. 180,000
SRS
Irvine, California . . . . Leased Adm./Mfg. 24,000
TURNER GROUP
Bridge City, Texas . . . . Owned(2) Adm./Mfg. 2,750
Bridge City, Texas . . . . Owned(2) Adm./Const. 4,293
Port Arthur, Texas(4) . . Owned Adm./Const./Mfg. 29,000
UNITED ECO
Highpoint, North Carolina Owned Adm./Const. 75,000
Apex, North Carolina . . . Leased Adm. 5,000
Blacksburg, Virginia . . . Leased Lab. 5,000
----------------
(1) Adm. = Administration; Const. = Construction warehouse; Mfg. =
Manufacturing facility.
(2) Subject to mortgage.
(3) Amount includes approximately 9,000, 30,000 and 10,000 square
feet of floor space leased to unaffiliated tenants at the Akron,
Washington and Waverly facilities, respectively,
(4) This facility is situated on 6.5 acres and contains 15,000 square
feet of office and warehouse space and 14,000 square feet of
covered fabrication area. The facility is in close proximity to
the Intercoastal Waterway where piping and other fabricated
components can be shipped.
ITEM 3. LEGAL PROCEEDINGS
SRS is engaged in a dispute with a customer which was submitted
to arbitration in May 1996 before the American Arbitration Association
in Cincinnati, Ohio. The customer claimed that certain equipment did
not perform as represented after it had been delivered to a waste
cleanup site by SRS. The customer seeks $19.3 million in compensatory
damages for delays and the cost of completing the project. SRS has
responded to the customer's charges by claiming that the equipment
could not work as represented because of conditions at the cleanup
site and the customer's interference with SRS's operation of such
equipment. SRS has submitted counterclaims to the arbitrator against
the customer seeking $4.9 million in compensatory damages and an
additional $5 million in punitive damages. The hearing has concluded,
and post-hearing briefs were filed in April 1997. The decision is
expected to be rendered in June. Although the outcome of this dispute
cannot be determined, the Company does not believe that the financial
condition or results of operation of the Company will be materially
affected by the final outcome of this arbitration.
The Company's operating subsidiaries are each currently involved
in various claims and disputes in the normal course of business.
Management believes that the disposition of all such claims,
individually or in the aggregate, will not have a material adverse
effect on the Company's financial condition or results of operation.
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<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company did not submit any matter to a vote of shareholders
during the last quarter of fiscal 1996 through the solicitation of
proxies or otherwise.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
PUBLIC MARKET FOR COMMON SHARES
The Company's Common Shares are traded on The Toronto Stock
Exchange and The Nasdaq National Market under the trading symbols ECX
and ECGOF, respectively. The Company's Common Shares were traded on
the American Stock Exchange under the symbol ECG until November 16,
1995 when the Company delisted from such exchange and listed its
Common Shares on The Nasdaq National Market. As of March 17, 1997,
there were 586 shareholders of record. The Company believes that the
number of beneficial holders is significantly greater than the number
of record holders as a large number of shares are held of record in
nominee or broker names.
The following table provides the quarterly high-ask and low-bid
prices for the Company's Common Shares on The American Stock Exchange,
The Nasdaq National Market and The Toronto Stock Exchange for the two
years ended November 30, 1996.
AMERICAN THE NASDAQ
STOCK EXCHANGE NATIONAL MARKET
------------- --------------
(US$) (US$)
HIGH LOW HIGH ASK LOW BID
------- --- -------- -------
Fiscal year ended
November 30, 1995
First quarter . . $2.62 $1.62 $- $-
Second quarter . . 4.75 1.94 - -
Third quarter . . 4.44 3.12 - -
Fourth quarter . . 4.12 2.87 - -
Fiscal year ended
November 30, 1996
First quarter . . - - 6.25 3.25
Second quarter . . - - 9.19 5.50
Third quarter . . - - 11.50 7.25
Fourth quarter . . - - 11.25 6.38
TORONTO
STOCK EXCHANGE
----------
(CDN$)
--------
HIGH LOW
------- ---
Fiscal year ended
November 30, 1995
First quarter . . $3.50 $2.39
Second quarter . . 6.50 2.39
Third quarter . . 6.00 4.25
Fourth quarter . . 5.37 4.00
Fiscal year ended
November 30, 1996
First quarter . . 8.37 4.44
Second quarter . . 12.45 7.25
Third quarter . . 15.50 10.00
Fourth quarter . . 15.10 8.75
The Company is subject to covenants in loan agreements which
restrict or limit the payment of cash dividends on its Common Shares.
Notwithstanding such restrictions and limitations, it is the Company's
present policy to retain future earnings for use in its business.
PRIVATE PLACEMENTS OF COMMON SHARES
The Company effected a number of its acquisitions and strategic
investments during fiscal 1996 by exchanging shares of Common Shares
for shares of capital stock of the respective target companies. The
Company issued an aggregate of 2,938,204 shares of Common Shares with
a market value of $21.2 million in exchange for all of the issued and
outstanding shares of capital stock of Environmental Evolutions,
United Eco and for 94% of the outstanding shares of Industra Service.
The exchanges of Common Shares for shares of capital stock of each of
Environmental Evolutions, United Eco and Industra Service were exempt
from registration under the Securities Act by virtue of Section 4(2)
therein and Regulation D promulgated thereunder. The exchange of
Common Shares for the capital stock of SRS was exempt from
registration under the Securities Act by virtue of Section 3(a)(10) of
the Securities Act. See "Item 1. Description of Business Development
of Business."
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<PAGE>
Effective January 24, 1997, the Company closed the sale of $15
million aggregate principal amount of 9.5% 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
would be eliminated if shareholders ratify the placement at the May 7,
1997 shareholders meeting. Each Warrant is exercisable for one Common
Share, subject to customary anti-dilution provisions, at an exercise
price of $9.56 per share (110% of the closing market price for the
Common Shares on January 23, 1997) for a period of five years. The
purchasers have certain rights for the registration under the
Securities Act of the Common Shares underlying the Debentures and the
Warrants. 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. The sale of the Debentures and the
Warrants was exempt from registration under the Securities Act by
virtue of Section 4(2) therein and Regulation D promulgated
thereunder.
Effective March 3, 1997, the Company closed the sale of $3
million aggregate principal amount of Debentures 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, subject to customary anti-dilution
provisions, at an exercise price of $9.21 per share (110% of the
closing market price for the Common Shares on February 28, 1997) for a
period of five years. The purchasers have certain rights for the
registration under the Securities Act of the Common Shares underlying
the Debentures and the Warrants. The sale of the Debentures and the
Warrants was exempt from registration under the Securities Act by
virtue of Section 4(2) therein and Regulation D promulgated
thereunder.
-22-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The results of operations prior to fiscal 1993 do not reflect the
Company's current or planned business activities with the exception of
the licensing and consulting services provided by the Company. Eco
Environmental was acquired by the Company in November 1992, the Turner
Group was acquired in October 1993, Cambridge was acquired in June
1994, the Lake Charles Group was acquired in July 1995, Environmental
Evolutions was acquired in January 1996, the assets of Petrocon
Construction Resources, Inc. were acquired in May 1996, both SRS and
Industra Service were acquired in July 1996 and MM Industra was
acquired in September 1996. Accordingly, the statement of operations
for the year ended November 30, 1993 reflects twelve months of
operations for Eco Environmental and only one month of operations for
the Turner Group. The statement of operations for the year ended
November 30, 1994 reflects six months of operations for Cambridge.
The statement of operations for the year ended November 30, 1995
reflects five months of operations for the Lake Charles Group. The
statement of operations for the year ended November 30, 1996 reflects
eleven months of operations for Environmental Evolutions, six months
of operations for United Eco, four months of operations for SRS and
Industra Service and one month of operations for MM Industra. The
following information should be read in conjunction with the
Consolidated Financial Statements and the notes thereto and "Item 7.
Management's Discussion and Analysis of Financial Condition and
Results of Operations," included elsewhere herein.
FISCAL YEAR ENDED
NOVEMBER 30
--------
1996 1995 1994
------- ---- ----
(IN THOUSANDS EXCEPT
PER SHARE INFORMATION)
STATEMENT OF
OPERATIONS DATA:
Total revenue . . $119,529 $46,684 $ 34,991
Operating income
(loss) . . . . . 9,701 3,773 1,747
Interest expense 1,747 713 681
Pretax income
(loss) . . . . . 7,954 3,060 1,066
Net income (loss) $8,763 $2,852 $903
======== ======= ========
Net income (loss)
per share . . . . $0.81 $0.40 $0.15
======= ======= ========
Weighted average
shares
outstanding(3) . 10,846 7,217 6,191
BALANCE SHEET
DATA:
Working capital . $3,280 $6,639 $6,441
Total assets . . 104,484 31,061 22,947
Current debt . . 40,975 10,054 6,350
Long-term debt . 6,720 2,100 4,977
Shareholders' 55,043 18,736 11,299
equity . . . . .
1993 1992(1) 1992(2)
---- ----- ------
(unaudited) (audited)
(IN THOUSANDS EXCEPT
PER SHARE INFORMATION)
STATEMENT OF OPERATIONS DATA:
Total revenue . . . . . . . . . . .
$7,565 $650 CDN$875
Operating income
(loss) . . . . . . . . . . . . . . 604 (901) (1,218)
Interest expense . . . . . . . . . 229 29 39
Pretax income (loss) . . . . . . . 375 (934) (1,257)
Net income (loss) . . . . . . . . .$322 $(934)CDN$(1,257)
====== ========= ========
Net income (loss) per share . . . .
$0.07 $ (0.11) CDN$(0.15)
=========== ========= ========
Weighted average shares
outstanding(3) . . . . . . . . . .
4,680 612 824
BALANCE SHEET DATA:
Working capital . . . . . . . . . .
$3,639 $253 CDN$345
Total assets . . . . . . . . . . .
15,007 753 1,014
Current debt . . . . . . . . . . .
2,634 403 543
Long-term debt . . . . . . . . . .
9,031 0 0
Shareholders' equity . . . . . . .
3,288 350 471
-------------------
(1) Dollar amounts have been converted from Canadian dollars into
United States dollars using the exchange rate at November 30,
1992 of one United States dollar to 1.3461 Canadian dollars.
(2) Prior to fiscal 1993, the Company recorded amounts in Canadian
dollars.
(3) Reflects 1-for-10 reverse stock split in November 1993.
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company entered into its current lines of business in
November 1992 when it acquired Eco Environmental, 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
primarily as a result of such acquisitions. The Company accelerated
its acquisition program in fiscal 1996 by adding the following
operating subsidiaries: Industra Service, SRS, Environmental
Evolutions, United Eco and MM Industra. In March 1997, the Company
completed its $50 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.
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.
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 oneto 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 know. 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. See Note A to Consolidated Financial
Statements.
-24-
<PAGE>
RESULTS OF OPERATIONS
FISCAL 1996 COMPARED TO FISCAL 1995
REVENUES
--------
The Company's revenues grew 156% to $119.5 million in fiscal 1996
from $46.6 million in fiscal 1995, primarily as a result of acquiring
five new subsidiaries during fiscal 1996. Because these acquisitions
were completed at different times during fiscal 1996, the Company's
results of operations do not reflect the full effect of such
acquisitions. The Company's results of operations for fiscal 1996
reflect eleven months of operations for Environmental Evolutions, six
months of operations for United Eco, four months of operations of each
of SRS and Industra Service and one month of operations for MM
Industra.
Prior to fiscal 1996, the Company had generated relatively
insignificant revenues in Canada at the holding company level from the
licensing of certain environmental technologies and the provision of
consulting services. The Company acquired Industra Service and MM
Industra, two Canadian businesses, in fiscal 1996. As a result of
these acquisitions, the Company's Canadian operations generated $6.5
million, or 5% of the Company's total revenues, in fiscal 1996.
Management anticipates that the Company will generate a larger
percentage of its total revenues from its Canadian operations as it
benefits from a full fiscal year of operations of Industra Service and
MM Industra. The Company may expand its operations in Canada through
future acquisitions, although the Company has no immediate plans to
do so. Management anticipates that the increase in revenues generated
by the Company's Canadian operating subsidiaries will increase the
Company's exposure to potential foreign currency exchange gains or
losses.
During fiscal 1996, the Company generated approximately 73% of
its revenues from the provision of industrial maintenance services and
20% of its revenues from the provisions of such services to petroleum
and petrochemical refining customers. Huntsman Corporation, Star
Enterprising, Goodyear Tire and Rubber and BioLab together accounted
for approximately 18% of the Company's total revenues in fiscal 1996,
compared to 75% of total revenue in fiscal 1995. No single customer
accounted for more than 5% of the Company's total revenues during
fiscal 1996. Nevertheless, the loss of any one or more key customers
could have a material adverse effect on the Company's results of
operation and financial condition. Management believes that the
Company's continued efforts to expand and diversify its customer base
in addition to the effects of a full year of operations from its newly
acquired operating subsidiaries will further reduce the Company's
dependence on certain key customers.
The Company's industrial maintenance segment generated $87.0
million, or 73%, of the Company's total revenues in fiscal 1996
compared to $41.3 million, or 88%, in fiscal 1995. This 110% increase
in revenues reflects, in part, the addition of four months of
operations of Industra Service and SRS. The revenues generated by the
Company's industrial maintenance operations that were in place at
November 30, 1995 grew 105% in fiscal 1996. This internal growth was
due, in part, to revenues generated on a single project that concluded
in fiscal 1996. Management anticipates that the revenues generated by
its industrial maintenance service segment will represent a smaller
percentage of its total revenues in fiscal 1997 as the Company
benefits form a full year of operations form MM Industra, SRS, United
Eco and Environmental Evolutions.
The revenues generated from the Company's environmental services
segment increased 491% to $31.9 million in fiscal 1996 from $5.4
million in fiscal 1995. This growth primarily reflects the effects of
four months of operations of each of Industra Service and SRS and six
months of operations of United Eco. Prior to fiscal 1996, only Eco
Environmental provided environmental remediation services. As a
percentage of total revenues, the Company's environmental remediation
service segment contributed approximately 26.7% to total revenues in
fiscal 1996 as compared to 11.5% of total revenues in fiscal 1995.
Management believes that this trend may continue in fiscal 1997 as
such new subsidiaries are included in the Company's results of
operations for a full fiscal year.
-25-
<PAGE>
The Company significantly expanded its specialty fabrication
service business in fiscal 1996 through the acquisition of Industra
Service and MM Industra, and this business segment generated $657,000,
or less than 1%, of the Company's total revenues in fiscal 1996.
Management anticipates that the Company's specialty fabrication
services segment will generate more revenues and will contribute a
greater percentage of the Company's total revenues in fiscal 1997.
Prior to fiscal 1996, the Company had provided specialty fabrication
services through the Turner Group and the Lake Charles Group as part
of those subsidiaries' industrial maintenance services, and the
Company did not separately report revenues for specialty fabrication
services. The Company will report revenues generated from the
provision of such services by the Turner Group and the Lake Charles
Group in the specialty fabrication service segment. The Company will
benefit from a full fiscal year of operations of Industra Service and
MM Industra as well as nine months of operations of Chempower. M & M
Manufacturing Limited Partnership, the predecessor to MM Industra, had
been idle and in receivership, but MM Industra commenced operations in
October 1996, and, at April 29, 1997, it had been awarded CDN$35.0
million ($25.5 million) in contracts to perform specialty fabrication
services.
OPERATING EXPENSES.
------------------
The Company's total operating expenses increased approximately
156% to $111.6 million in fiscal 1996 from $43.6 million in fiscal
1995 primarily as a result of adding the operations of five new
subsidiaries during fiscal 1996. Expressed as a percentage of total
revenues, operating expenses were approximately 93.3% in fiscal 1996
compared to 93.4% in fiscal 1995. The Company's interest expense on
long-term debt increased to $1.7 million from $713,000 but, as a
percentage of total revenue, interest expense remained unchanged at
1.5%. Depreciation and amortization increased to $2.2 million in
fiscal 1996 from $1.1 million in fiscal 1995. As a percentage of
total revenues, depreciation and amortization decreased slightly to
1.7% in fiscal 1996 from 2.4% in fiscal 1995. Management believes
that the Company has been able to contain operating expenses through a
program instituted in fiscal 1994 pursuant to which project managers
are required to track such cost control indicators as labor
productivity and potential project cost overruns. Management believes
that the Company will continue to be able to control operating
expenses, but there can be no assurance that the Company's cost
control policies will be as effective in the future as they have been
in the past.
PROVISION FOR INCOME TAX.
------------------------
The Company has net loss carry forwards in Canada with which it
is able to reduce its tax liabilities. In fiscal 1996, the
application of $786,000 in such net loss carry forwards contributed to
a tax recovery of $809,000 in fiscal 1996. The Company paid $208,000
in taxes in fiscal 1995. 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.
NET INCOME.
----------
Net income from continuing operations increased approximately
207% to $8.8 million, or $0.81 per share, in fiscal 1996 from $2.9
million, or $0.40 per share, in fiscal 1996 from $2.9 million, or
$0.40 per share, in fiscal 1995. A tax recovery of $809,000
contributed approximately 9.2% of the Company's net income, or $0.07
per share, in fiscal 1996.
FISCAL 1995 COMPARED TO FISCAL 1994
REVENUES
--------
Revenues increased to $46,684,000 in fiscal 1995 from $34,991,000
in fiscal 1994. The growth in revenues is attributable to the
Company's industrial maintenance segment, primarily from the benefits
of the July 1995 acquisition of the Lake Charles Group. Revenues
generated from the Company's industrial maintenance segment increased
to $41,322,000 in fiscal 1995 from $26,951,000 in fiscal 1994. The
53% growth in revenues in this
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<PAGE>
segment reflects the addition of the Lake Charles Group, which
contributed five months of operating income, or $10,554,000. The
construction project for Players International, Inc. accounted for
much of the operating income generated by the Lake Charles Group in
fiscal 1995. Revenues generated from the Company's environmental
service segment decreased to $5,171,000 in fiscal 1995 from $8,040,000
in fiscal 1994. The decrease in revenues from the Company's
environmental service segment reflected a temporary softening of the
market for environmental remediation services coupled with a delay in
the start of a major project until late in fiscal 1995.
OPERATING EXPENSES
------------------
The Company realized a gross margin of $3,060,000 in fiscal 1995.
Operating expenses, which included interest expense on long-term debt
and depreciation and amortization, were $43,624,000 in fiscal 1995
compared to $33,925,000 in the prior fiscal year. Management believes
that this increase in operating expense was modest relative to the
increase in the Company's revenues. As a percentage of revenues,
operating expenses decreased to 93% in fiscal 1995 from 97% in fiscal
1994. In December 1994, the Company instituted new project cost
reporting guidelines and management has continued to follow these
guidelines. The Company's project managers track such cost control
indicators as labor productivity and potential project cost overruns.
Management believes that the Company will continue to be able to
control selling, general and administrative expenses and other
operating expenses during fiscal 1996 and that the Company's favorable
results of operations in fiscal 1995 will be achievable in fiscal
1996.
PROVISION FOR INCOME TAX
------------------------
The Company incurred substantial net operating losses between
fiscal 1989 and 1992, and the Company has used such net operating
losses to reduce its tax liabilities. The use of Canadian tax loss
carry forwards is limited to earnings generated from the same or
similar products or services from businesses without any break in
service to which these loss carry forwards are attributable. The
Company uses these loss carry forwards to offset income generated from
its consulting business. The Company paid taxes of $208,000 in fiscal
1995 compared to $58,000 in fiscal 1994 after the application of
$104,000 and $285,000, respectively.
NET INCOME.
----------
Net income was $2.9 million, or $0.40 per share, for fiscal 1995
as compared to $903,000, or $0.15 per share, for fiscal 1994. These
numbers reflect a 82% increase in net income on a 133% increase in
revenues from fiscal 1994 to fiscal 1995. Net income in fiscal 1994
reflects the writeoff of $105,000 from discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and shortterm investments decreased to
$497,000 at November 30, 1996 from $1.1 million at November 30, 1995,
as a result of the increased cash requirements of the Company's
expanded operations. Typically the Company maintains cash levels of
between $1.0 million and $2.0 million for general corporate needs,
with any excess cash used to reduce borrowings under the Company's
lines of credit. The Company's existing capital resources consist of
cash, cash provided by its operating subsidiaries and funds available
under its lines of credit. In fiscal 1996, the Company's operating
activities provided net cash of $3.8 million compared to $2.6 million
in fiscal 1995. The Company's financing activities in fiscal 1996
provided $7.1 million of net cash compared to the use of $663,000 in
cash during fiscal 1995. The major factors contributing to the
Company's improved cash flow during fiscal 1996 were a $6.0 million
dollar increase in income from continuing operations over the prior
fiscal year and the Company's ability to incur an additional
$15.0 million in debt.
At November 30, 1996, the Company and its operating subsidiaries
had an aggregate of $19.4 million in lines of credit, $5.6 million of
which remained available to certain operating subsidiaries. The
Company has a $10.0 million line of credit with Merrill Lynch Business
Financial Services, Inc. which bears interest at a floating
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<PAGE>
interest rate equal to 2.75% per year above the interest rate for
30day commercial paper and is secured by all of the Company's assets.
The Company had no availability under this line of credit at
November 30, 1996. Industra Service has a $5.9 million line of credit
with Hongkong Bank of Canada, $3.2 million of which remained available
at November 30, 1996. Industra Service also has a $2.3 million line
of credit with SeaFirst Bank, $2.0 million of which remained available
at November 30, 1996. United Eco has a $1 million line of credit with
Branch Banking and Trust, $300,000 of which remained available at
November 30, 1996. Hubbard Electric Company, a subsidiary of the
Turner Group, has a $250,000 line of credit with Bridge City Bank,
$25,000 of which remained available at November 30, 1996.
The Company incurred additional debt in fiscal 1997 in connection
with the acquisition of Chempower. The Company issued $15.0 million
aggregate principal amount of 9.5% convertible subordinated debentures
due January 24, 2007 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 principal shareholders of Chempower
as partial payment for such shareholders' equity interest in
Chempower. In addition, Chempower borrowed $6.0 million under an
unsecured Chempower line of credit.
The Company's cash requirements consist of working capital needs,
obligations under its leases and promissory notes and the funding of
potential acquisitions. 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 the Company 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 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 November 30, 1996 increased to $20.9
million from $5.5 million at November 30, 1995, after deducting
allowances of $346,000 and $60,000 for doubtful accounts at year-end
fiscal 1996 and fiscal 1995, respectively. This increase in accounts
receivables reflects the addition of five new operating subsidiaries
during fiscal 1996, which had, in the aggregate, accounts receivables
of $12.1 million at November 30, 1996. The current portion of notes
receivable increased to $6.8 million at November 30, 1996 from $1.8
million at November 30, 1995 largely as a result of a loan made by the
Company to EIF, an asbestos and lead removal company in which the
Company holds a 36% equity interest. Inventory increased to $6.8
million at November 30, 1996 from $1.9 million at November 30, 1995.
This increase in inventory reflects that addition of five new
subsidiaries during fiscal 1996, which had, in the aggregate,
inventory of $3.6 million at November 30, 1996.
Property, plant and equipment increased significantly to $33.2
million at November 30, 1996 from $5.8 million at November 30, 1995 as
a result of the Company's acquisition effected during fiscal 1996.
The Company's investments increased to $7.6 million at November
30, 1996 from $1.4 million at November 30, 1995 as a result of the
Company's additional strategic investments made in EIF during fiscal
1996. At November 30, 1996, the Company's recorded investment in EIF
was $5.2 million.
Accounts payable and other accrued liabilities increased to $18.4
million at November 30, 1996 from $5.1 million from November 30, 1995
primarily due to the addition of new operations.
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<PAGE>
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K includes forward looking
statements within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934. Although
the Company believes that its expectations are based on reasonable
assumptions, it can give no assurance that such expectations will be
achieved. Important factors that could cause actual results to differ
materially from those in the forward looking statements made herein
include 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.
-29-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
AMERICAN ECO CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996
-30-
<PAGE>
[Letterhead of Karlins Fuller Arnold & Klodosky, P.C.]
To the Shareholders and Directors of
AMERICAN ECO CORPORATION
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying consolidated balance sheet of
AMERICAN ECO CORPORATION as of November 30, 1996 and 1995 and the
related consolidated statements of income, retained earnings and
changes in financial position for each of the three years in the
period ended November 30, 1996, which, as described in Note O, have
been prepared on the basis of accounting principles generally accepted
in Canada. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based
on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States (and in Canada). U.S. standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of AMERICAN ECO CORPORATION as of November 30, 1996 and 1995, and the
results of its operations and its changes in financial position for
each of the three years in the period ended November 30, 1996, in
conformity with accounting principles generally accepted in Canada.
/s/ Karlins Fuller Arnold & Klodosky, P.C.
Houston, Texas
January 31, 1997
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<PAGE>
AMERICAN ECO CORPORATION
CONSOLIDATED BALANCE SHEET
NOVEMBER 30, 1996 AND 1995
(United States Dollars in thousands)
1996 1995
---- ----
ASSETS
-----
CURRENT ASSETS
Cash $317 $898
Certificate of Deposit,
restricted 180 172
Accounts receivable, trade,
less allowance for doubtful
accounts of $346 and $60
at November 30, 1996 and 1995,
respectively 20,918 5,535
Current portion of notes
receivable (Note B) 6,695 1,870
Costs and estimated earnings
in excess of billings on
jobs in progress (Note I) 3,446 2,996
Inventory 6,807 1,923
Deferred income tax (Note L) 1,393 442
Prepaid expenses, other $4,499 $2,857
-------- -------
TOTAL CURRENT ASSETS $44,255 $16,693
-------- -------
PROPERTY, PLANT AND EQUIPMENT,
net (Note C) $33,238 $5,844
OTHER ASSETS
Goodwill (Note D), net
of accumulated amortization
of $762 and $225 at
November 30, 1996 and 1995,
respectively 18,969 7,123
Debenture issue costs 97 7
Notes receivable (Note B) 280 --
Investments (Note E) $7,645 $1,394
-------- -------
TOTAL OTHER ASSETS $26,991 $8,524
-------- -------
TOTAL ASSETS $104,484 $31,061
======== =======
The accompanying notes are an integral part of
these financial statements.
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<PAGE>
AMERICAN ECO CORPORATION
CONSOLIDATED BALANCE SHEET
NOVEMBER 30, 1996 AND 1995
(United States Dollars in thousands)
1996 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
-------------------------------------
CURRENT LIABILITIES
Accounts payable and
accrued liabilities $ 18,449 $ 5,144
Notes payable (Note F) 20,399 3,971
Current portion of long-term debt (Note G) 1,595 451
Current portion of obligations under
capital leases (Note H) 113 75
Deferred income taxes -- 219
Billings in excess of costs and
estimated earnings on jobs
in progress (Note I) 419 194
-------- -------
TOTAL CURRENT LIABILITIES 40,975 10,054
-------- -------
LONG-TERM LIABILITIES
Long-term debt (Note G) 6,618 1,931
Obligations under capital
leases (Note H) 102 169
Deferred income tax
liability (Note L) 1,373 171
-------- -------
8,093 2,271
-------- -------
TOTAL LIABILITIES 49,068 12,325
-------- -------
MINORITY INTEREST 373
--
-------- -------
COMMITMENTS AND CONTINGENCIES (Note R)
SHAREHOLDERS' EQUITY
Share capital (Note M) 39,411 11,803
Share capital subscribed 34 98
Contributed surplus 2,845 2,845
Retained earnings 12,753 3,990
-------- -------
55,043 18,736
-------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $104,484 $31,061
======== =======
On behalf on the Board
Michael E. McGinnis Barry Cracower
Director Director
January 31, 1997
The accompanying notes are an integral part of
these financial statements.
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<PAGE>
AMERICAN ECO CORPORATION
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
FOR THE YEARS ENDED NOVEMBER 30, 1996, 1995 AND 1994
(United States Dollars in thousands)
Balance, November 30, 1993 $ 235
Net income, for the year ended
November 30, 1994 903
------
Balance, November 30, 1994 1,138
Net income, for the year ended
November 30, 1995 2,852
------
Balance, November 30, 1995 3,990
Net income, for the year ended
November 30, 1996 8,763
------
Balance, November 30, 1996 $12,753
=======
The accompanying notes are an integral part of
these financial statements.
-34-
<PAGE>
AMERICAN ECO CORPORATION
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED NOVEMBER 30, 1996, 1995 AND 1994
(United States Dollars in thousands)
1996 1995 1994
-------- ------- -------
REVENUE $119,529 $46,684 $34,991
-------- ------- -------
COSTS AND EXPENSES
Costs of contracts, sales
and other operating
expenses 107,819 42,270 32,318
Interest expense on
long-term debt 1,747 713 681
Depreciation and amortization 2,232 1,107 1,044
Gain on sale of equipment (2) (370) --
Foreign exchange (income) (221) (96) (118)
-------- ------- --------
111,575 43,624 33,925
-------- ------- -------
INCOME FROM CONTINUING OPERATIONS
BEFORE RECOVERY OF (PROVISION
FOR) INCOME TAX 7,954 3,060 1,066
RECOVERY OF (PROVISION FOR)
INCOME TAX (Note L) 809 (208) (58)
-------- ------- -------
INCOME FROM CONTINUING
OPERATIONS 8,763 2,852 1,008
-------- ------- -------
DISCONTINUED OPERATIONS (Note Q)
Loss from operations of
discontinued division
(less applicable tax
benefit of $49) -- -- (95)
Loss on equipment held for
sale (less applicable
tax benefit of $5) -- -- (10)
-------- ------- -------
-- -- (105)
-------- ------- -------
NET INCOME $ 8,763 $2,852 $ 903
======== ======= =======
Earnings per common share:
Income from continuing
operations $.81 $.40 $.16
=== === ===
Net income $.81 $.40 $.15
=== === ===
Weighted average number of shares
used in computing
income per common
share (Note M) 10,846,516 7,217,005 6,191,296
========== ========= =========
The accompanying notes are an integral part of
these financial statements.
-35-
<PAGE>
AMERICAN ECO CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
FOR THE YEARS ENDED NOVEMBER 30, 1996, 1995 AND 1994
(United States Dollars in thousands)
1996 1995 1994
---------- -----------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing
operations $ 8,763 $ 2,852 $ 1,008
Adjustments to reconcile net
income to net cash provided by
operating activities:
Loss from discontinued operations -- -- (105)
Gain on sale of equipment (2) (370) --
Depreciation and amortization 2,232 1,107 1,044
Change in deferred income taxes 490 (64) 4
Change in certificate of deposit,
restricted (8) (6) (166)
Change in accounts receivable (1,823) (1,356) (1,553)
Change in costs and estimated
earnings in excess of billings
on jobs in progress (363) (1,059) (981)
Change in inventory (2,511) 189 2
Change in prepaid expenses (748) 256 72
Change in accounts payable (2,312) 981 683
Change in billings in excess
of costs and estimated
earnings on jobs in progress
34 75 (13)
------- ------- -------
Net cash provided by (used in)
operating activities 3,752 2,605
(5)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,803) (386) (121)
Proceeds from sale of equipment 53 -- --
Increase in goodwill (586) (219) (640)
Acquisition of business, net of
cash acquired 18 (586) --
Increase in investment (6,156) (727) (633)
------- ------- -------
Net cash used in investing activities
(11,474) (1,918) (1,394)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes receivable 3,257 288 582
Disbursements for notes receivable
(8,350) (625) (1,051)
Proceeds from notes payable 14,920 800 3,182
Proceeds from long-term debt 428 -- --
Principal payments on notes payable
(7,412) (739) (321)
Principal payments on long-term debt
(927) (325) (438)
Principal payments on obligations
under capital leases (88) (139) (135)
Deferred foreign exchange -- (27) (18)
Debenture issuance costs (193) -- --
Stock issuance costs (125) --
Issuance of common stock 5,506 229 118
------- ------- -------
Net cash provided by (used in)
financing activities 7,141 (663) 1,919
------- ------- -------
NET INCREASE (DECREASE) IN CASH (581) 24 520
CASH AT BEGINNING OF YEAR 898 874 354
------- ------- -------
CASH AT END OF YEAR $ 317 $ 898 $ 874
======= ======= =======
The accompanying notes are an integral part of
these financial statements.
-36-
<PAGE>
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
American Eco Corporation and its wholly-owned subsidiaries ( the
Company" or "AEC") provide industrial services, environmental services
and specialty manufacturing to the petrochemical, refining, forest
products and offshore fabrication industries.
NOTE A BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The accompanying consolidated financial statements include the Company
and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated.
The consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in Canada. There are no
material differences, except as described in Note O, between the
accounting principles applied by the Company and those that would be
applied under accounting principles generally accepted in the United
States.
REVENUE RECOGNITION - The Company recognizes revenues and profits on
-------------------
contracts using the percentage-of-completion method. Under the
percentage-of-completion method, contract revenues are accrued based
upon the percentage that accrued costs to date bear to total estimated
costs. As contracts can extend over more than one accounting period,
revisions in estimated total costs and profits during the course of
work are reflected during the period in which the facts requiring the
revisions become known. Losses on contracts are charged to income in
the period in which such losses are first determined.
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 accompanying balance sheet. The
current asset account represents costs incurred and profits earned
that have not been billed to the customer on uncompleted construction
contracts. The current liability account represents deferred income
on uncompleted construction contracts. Generally accepted accounting
principles for percentage-of-completion accounting require the
classifications as current assets and liabilities.
INVENTORY - Inventory of raw material is valued at the lower of cost
---------
or market method, with cost determined on the first-in, first-out
method. Inventory consists primarily of supplies and consumables used
in conjunction with construction projects.
PROPERTY, PLANT AND EQUIPMENT - Property and equipment are stated at
------------------------------
cost. Depreciation of plant and equipment is provided over the
estimated useful lives of the respective assets using the straight-
line method over the following periods based on their estimated useful
lives:
Buildings 40 years
Fabrication machinery, mobile and other equipment 3-10 years
Expenditures for additions, major renewals and betterments are
capitalized and expenditures for maintenance and repairs are charged
to earnings as incurred. When property and equipment are retired or
otherwise disposed of, the cost thereof and the applicable accumulated
depreciation are removed from the respective accounts and the
resulting gain or loss is reflected in earnings.
AMORTIZATION - The cost in excess of net assets of businesses acquired
------------
at their respective acquisition dates are amortized on a straight-line
basis over 40 years. On an annual basis, the Company assesses the
carrying value in order to determine whether an impairment has
occurred, taking into account both historical and forecasted results
of operations.
DEBENTURE FINANCING COSTS - The costs of debenture financing are
-------------------------
deferred and are amortized over the life of the related debt.
PREPAID EXPENSES - Included in prepaid expenses is deferred financing
----------------
costs in the amount of $1,145,000 and $805,000 at November 30, 1996
and 1995, respectively. This represents costs incurred with brokerage
investment houses and other expenses in the Company s quest to raise
capital. These costs have been deferred and will serve as an offset
to the funds raised subsequent to November 30, 1996 (Refer to Note
S).
-37-
<PAGE>
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
INCOME TAXES - The Company reflects income taxes based on the tax
-------------
allocation method. Under this method, timing differences between
reported and taxable income result in provisions for taxes not
currently payable. Such timing differences arise principally as a
result of claiming depreciation and amortization for tax purposes at
amounts differing from those charged to income.
EARNINGS PER SHARE - Per share data is calculated using the weighted
-------------------
average number of shares outstanding for the year. Warrants and other
stock options have not been included in earnings per share data as
they are anti-dilutive.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION -
-------------------------------------------------
1996 1995 1994
-------- -------- --------
Cash paid during the
years for:
Interest $1,614,000 $713,000 $712,000
Income taxes $ -- $ 66,000 $ 5,000
TRANSLATION OF FINANCIAL STATEMENTS INTO UNITED STATES DOLLARS - The
--------------------------------------------------------------
consolidated financial statements are expressed in United States
dollars using foreign currency translation procedures established by
the Canadian Institute of Chartered Accountants. All of the Company's
operations are classified as integrated operations for purposes of
applying the translation procedures, and the functional currency is
United States dollars.
For integrated purposes, cash, accounts and notes receivable, costs
and estimated earnings in excess of billings, current liabilities and
long term debt are translated into United States dollars using year
end rates of exchange; all other assets and liabilities are translated
at applicable historical rates of exchange. Revenues, expenses and
certain costs are translated at annual average exchange rates except
for inventory, depreciation and amortization which are translated at
historical rates. Realized exchange gains and losses and currency
translation adjustments relative to long-term monetary items with a
fixed and ascertainable life are deferred and amortized on a straight-
line basis over the life of the item.
USE OF ESTIMATES - The preparation of financial statements in
-----------------
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE B NOTES RECEIVABLE
1996 1995
-------- -------
(United States Dollars in thousands)
EIF Holdings, Inc., receivable on July 31, 1997,
maximum borrowings with under this
agreement are $5,250,000, interest
at the rate of prime plus 2%, unsecured. $4,908 $ --
Impala Development, Ltd., interest at 12%
secured by 144,500 shares AEC of stock,
this note was repaid in February, 1997. 775 --
Michael McGinnis, President of AEC, receivable
March through April, 1997, with
interest at 10%, secured by 268,000
shares of AEC stock and 140,000
share options of AEC stock. 490 --
Frank Fradella, Chief Operating Officer of
AEC, receivable $70,000 per annum,
non-interest bearing, unsecured. 350 --
-38-
<PAGE>
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B NOTES RECEIVABLE (continued)
Kam Biotechnology International, LLC,
receivable on December 31, 1997,
with interest at the rate of 6%,
unsecured. 200 200
Network Capital Management Group, Inc.,
("Network") due on September 15,
1996, with interest at the rate of 7%.,
secured by fees and commissions
to be earned by Network from the Company. -- 675
Turner Holdings, Inc., with interest at
the rate of 8%, unsecured. 20 20
Longview Industries, Inc., non-interest
bearing, secured by equipment. -- 675
Miscellaneous notes receivable 232 300
------- -------
6,975 1,870
Current portion 6,695 1,870
Long-term portion $ 280 $ --
======= =======
NOTE C PROPERTY , PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
1996 1995
---------- ----------
(United States Dollars in thousands)
Land $ 1,965 $ 56
Buildings 7,345 861
Fabrication machinery, mobile
and other equipment 28,940 6,142
Furniture and fixtures 1,645 257
Equipment under capital leases 626 580
Leasehold improvements 908 69
-------- --------
41,429 7,965
Accumulated depreciation
and amortization 8,191 2,121
-------- --------
$33,238 $5,844
======== ========
NOTE D GOODWILL
1996
----
Effective January 1, 1996, the Company acquired all of the outstanding
common stock of Environmental Evolutions, Inc., a Corpus Christi,
Texas, company, in exchange for 400,000 shares of Company common stock
with a fair market value of $2.4 million. The purchase price and
expenses associated with the acquisition exceeded the fair value of
net assets acquired by approximately $3.3 million and has been
included in intangible assets. Pro forma results were not material
to the Company's financial position or results of operations.
Effective May 31, 1996, the Company acquired substantially all the
assets and assumed certain liabilities of United Eco Systems
("United"), a construction company located in High Point, North
Carolina. The purchase price consisted of
-39-
<PAGE>
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE D GOODWILL (continued)
315,000 shares of Company common stock with a fair market value of
$2.5 million. The purchase price and expenses associated with the
acquisition exceeded the fair market value of net assets acquired
by approximately $2.8 million and has been included in intangible
assets. Pro forma results were not material to the Company's
financial position or results of operations.
Effective July 1, 1996, the Company acquired all of the outstanding
common stock of Separation and Recovery Systems, Inc. ("SRS"), a
California company. The purchase price consisted primarily of 736,667
shares of Company common stock with a fair market value of $5.6
million, which approximated the book value of SRS.
Effective July 22, 1996, the Company acquired all of the outstanding
common stock of Industra Service Corporation ("Industra"), a British
Columbia, Canada company. AEC exchanged 0.425 common shares for each
common share of Industra, or 1,486,997 shares of AEC common shares.
The purchase price and expenses associated with the acquisition
exceeded the fair value of net assets of the business acquired by
approximately $4.4 million and has been included in intangible assets.
All acquisitions have been accounted for using the purchase method;
accordingly, the assets and liabilities have been recorded at their
estimated fair values at the date of acquisition. The excess purchase
price and related expenses over the fair value of net assets acquired
is included in "Goodwill". Under the purchase method of accounting,
the results of operations are included in the consolidated financial
statements from their acquisition dates.
The unaudited pro forma results, assuming the SRS and Industra
acquisitions had occurred at December 1, 1993, are as follows:
1995 1994
---- ----
United States Dollars
in thousands, except
per share data:
--------------
Revenues $112,000 $94,033
Net income $ 3,069 $ 12
Earnings per share $ .33 $ .00
The unaudited pro forma summary is not necessarily indicative either
of results of operations that would have occurred had the acquisitions
been made at the beginning of the periods presented, or of future
results of operations of the combined companies.
1995
----
In July, 1995, the Company acquired all of the outstanding capital
stock of Lake Charles Construction Corporation, in exchange for
issuance of 520,000 shares of the Company's common stock valued at $2
million. The purchase price and expenses associated with the
acquisition exceeded the fair value of net assets acquired by
approximately $2.8 million.
-40-
<PAGE>
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E INVESTMENT IN EIF HOLDINGS, INC.
For the period, August 9, 1996 through November 7, 1996, the Company
owned approximately 18% of EIF Holdings, Inc. ("EIF"). On November 7,
1996, the Company completed a transaction to acquire approximately
another 20% of EIF. Since November 7, 1996, the Company accounts for
its 38% ownership interest in EIF using the equity method of
accounting. As of November 30, 1996, the Company's recorded
investment in EIF was $5.2 million. No other investment made during
fiscal 1996 exceeded $500,000.
NOTE F NOTES PAYABLE
1996 1995
---------- -----------
(United States Dollars in
thousands)
Note payable to Merrill Lynch Business
Financial Services, Inc., revolving
line of credit, maximum borrowing of
$10,000,000, interest at 30-day
Commercial paper rate plus 2.75%,
secured by all accounts, chattel
paper, contract rights, inventory,
equipment, fixtures, general
intangibles, deposit accounts,
documents and instruments of
the Company. $10,000 $ --
Note payable to Hongkong Bank of
Canada, revolving line of
credit, maximum borrowings
of $5,900,000, interest at
prime plus 3/8%; secured
by general assignment of
accounts receivable and
inventory and a floating
charge debenture on all
the assets of Industra
Service Corporation,
Canada, a subsidiary of
the Company. 2,688 --
Note payable to Branch Banking & Trust,
payable $48,000 per month, including
interest at prime plus 1.50%, maturing
May, 1997, secured by deed of trust
on real property and all personal
property of United Eco Systems,
Inc. a subsidiary of the Company. 2,200 --
8% convertible callable secured debentures,
maturing May, 1997, convertible
into common shares of the Company
at a price of 85% of the greater
of (a) the 20-day weighted average
trading price of the common shares
on NASDAQ, immediately prior to
conversion and (b) the 1-day
weighted average trading price
of the common shares on NASDAQ
immediately prior to conversion,
unsecured. Refer to Note M. 1,850 --
Note payable to Bank of America, payable
$100,000 per month, including
interest at the bank's reference
rate plus .75%, maturing August,
1997, secured by accounts receivable,
inventory and machinery and equipment
of SRS. 998 --
Note payable to Bank of America, due August,
1997, including interest at the
bank's reference rate plus
.75%, maturing August, 1997,
secured by accounts receivable,
inventory, and machinery and
equipment of SRS. 900 --
-41-
<PAGE>
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F NOTES PAYABLE (continued)
Note payable to Branch Banking & Trust,
revolving line of credit, interest
at prime plus 1.5%, maturing May,
1997, secured by a deed of trust
on real property and a lien on
all personal property of United
Eco Systems. 700 --
Note payable to AICCO for insurance premiums,
payable $61,400 (1996) and $82,000
(1995) per month, including interest
at 6.19% (1996) and 7.8% (1995),
secured by insurance premiums. 480 356
Note payable to SeaFirst Bank, revolving
line of credit, maximum borrowings
of $2,250,000, interest at prime
plus .75%, secured by accounts
receivable and equipment of
Industra, Inc. 250 --
Note payable to Bridge City Bank, revolving
line of credit, maximum borrowings
of $250,000, interest at prime plus
2.50%, maturing June, 1997; secured
by accounts receivable, equipment
and inventory of Hubbard Electric
Company, a subsidiary of
the Company. 225 --
Note payable to Pacific Southwest Bank, payable
$8,500 monthly, including interest
at 11.25%, maturing March, 1998,
secured by transportation and
other equipment. 85 --
Note payable to First Interstate Bank,
revolving line of credit, maximum
borrowings of $4,000,000, interest
at prime plus 1.50%. Aggregate
amounts available under the line
of credit were limited to 75%
of total eligible accounts receivable
from completed contracts and
maintenance billings plus 60%
of accounts receivable from
progress billings, collateralized
by accounts receivable and
inventory of the Company. The
line of credit expired in
October, 1996. -- 3,450
Note payable to individual, payable on
February 24, 1996, non-interest
bearing, secured by real estate. -- 165
Other miscellaneous 23
-------- --------
$20,399 $ 3,971
======== ========
NOTE G LONG-TERM DEBT
1996 1995
---- ----
(United States Dollars in thousands)
Note payable to Bank of America, payable
$83,000 per month beginning
January, 1997, plus interest at
bank's reference rate plus .75%,
secured by receivables, inventory,
machinery and equipment of SRS. $3,000 $ --
Note payable to Hongkong Bank of Canada,
payable $23,000 per month, including
interest at 9.00%, secured by real
estate of Industra. 2,062 --
-42-
<PAGE>
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G LONG-TERM DEBT (continued)
Note payable to The C.A. Turner Construction
Company, Texas, payable $92,000
quarterly including interest at
8.00%, secured by substantially
all of the fixed assets of C.A.
Turner Construction, Inc. and
Action Contract Services, Inc.,
two subsidiaries of the Company,
maturing December, 2000. 1,240 1,495
Note payable to Hongkong Bank of Canada,
payable $4,000 per month,
including interest at 9.00%,
secured by real estate of
Industra. 368 --
Notes payable to four individuals, interest
only through May, 1999, then
quarterly payments of $38,000
including interest at 8%, unsecured. 398 --
Note payable to Metlife Capital Corporation,
payable $8,000 monthly including
interest at 8.50%, secured by equipment
of C.A. Turner Construction, Inc. 262 337
Note payable to Bridge City Bank, payable
$4,000 per month including interest
at prime plus 1.00%, maturing July,
2110, secured by real estate of
Hubbard Electric, a subsidiary
of the Company. 242 --
Note payable to Cameron State Bank, payable
$2,700 per month including interest
at 9.125%, secured by real estate. 153 --
Note payable to Bridge City Bank, payable
$1,000 per month including
interest at prime plus 1.00%,
maturing June, 2001, secured
by real estate. 87 --
8.00% convertible callable secured
debentures Series A, maturing
October 14, 1998, convertible
into common shares of the
Company at a conversion price
of $4.50 per share in Canadian
dollars, secured by the assets
of Eco Environmental, Inc., a
subsidiary of the Company. -- 134
Note payable to Madison Trading International
Ltd., payable $80,000 on
February 28, 1996 and the
remaining balance on February 28,
1997, Interest is at 7.00%,
payable annually, unsecured. -- 297
Notes payable, other 401 119
-------- --------
8,213 2,382
Current portion 1,595 451
------- --------
Long-term portion $6,618 $1,931
======== ========
The aggregate principal payments on long-term debt during the years
subsequent to November 30, 1996 are: 1997 - $1,595,000; 1998 -
$1,726,000; 1999 - $1,779,000; 2000 - $785,000; 2001 -$467,000;
thereafter - $1,861,000.
-43-
<PAGE>
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE H LEASE AGREEMENTS
The Company leases equipment and office and warehouse space under
capital and operating leases that expire at various times through
September 1999 and September 2001, respectively. Imputed interest on
the capital leases range from 9.00% to 17.50%.
Future minimum payments, by year and in the aggregate, under these
capital and operating leases, consisted of the following at November
30, 1996.
Capital Operating
Leases Leases
---------- ---------
(United States Dollars
in thousands)
1997 $139 $1,319
1998 94 1,043
1999 14 767
2000 -- 562
2001 -- 406
------- -------
Total minimum lease payment 247 $4,097
======= =======
Amounts representing interest
and executory costs 32
-------
Present value of net minimum
lease payments 215
Current portion 113
-------
Long-term portion $102
=======
Rent expense for the years ended November 30, 1996 and 1995 amounted
to $538,000 and $181,000, respectively.
NOTE I COSTS AND ESTIMATED EARNINGS ON JOBS IN PROGRESS
1996 1995
--------- -------
(United States Dollars in thousands)
Costs, estimated earnings and billings are summarized as follows:
Costs incurred on uncompleted jobs $66,476 $44,971
Estimated earnings 8,417 6,720
------- -------
74,893 51,691
Billings to date 71,866 48,889
------- -------
$ 3,027 $ 2,802
======= =======
Included in the accompanying
balance sheet under the
following captions:
Costs and estimated earnings in excess
of billings on jobs in progress $ 3,446 $2,996
Billings in excess of costs and estimated
earnings on jobs in progress (419) (194)
------- -------
$ 3,027 $ 2,802
======= =======
-44-
<PAGE>
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J BACKLOG (unaudited)
The following schedule summarizes changes in backlog on contracts
during the year ended November 30, 1996. Backlog represents the
amount of revenue the Company expects to realize from work to be
performed on uncompleted contracts in progress at November 30, 1996
and from contractual agreements on which work has not yet begun.
(United States Dollars in thousands)
Backlog balance at November 30, 1995 $46,951
Contracts entered into during the period 197,578
Less revenue earned during the year (119,529)
--------
Backlog balance at November 30, 1996 $125,000
========
The Company also entered into additional contracts with estimated
revenues of $67,000 between December 1, 1996 and January 31, 1997.
NOTE K RELATED PARTY TRANSACTIONS
For the years ended November 30, 1996 and 1995, the Company had
business transactions with related parties. The details of these
transactions and balances owing from and to these parties are as
follows:
Green Cone Limited (U.K.) ("Green Cone")
----------------------------------------
1996 - During 1996, the Company converted it's receivable in Green
Cone to equity and assigned the Company's Green Cone Patent to Green
Cone. The Company recognized income of $130,000 on this transaction.
1995 - During 1995, the Company had sales to Green Cone in the amount
of $8,000. At November 30, 1995, $11,000 is included in accounts
receivable and $136,000 in notes receivable.
Legal Fees
----------
During the years ended November 30, 1996 and 1995, the Company
incurred legal fees in the amount of $13,000 and $2,000, respectively,
with a firm in which a director of the Company is a partner.
Consulting Fees
---------------
1996 - During the year ended November 30, 1996, fees aggregating
$120,000 were paid to a director, in his capacity as an officer of the
Company. Of this amount, $80,000 is included in deferred financing
costs, $30,000 is included in share issue costs, as a reduction to
common stock, and $10,000 is included in administrative expenses.
Additionally, another director was paid $109,000 for services rendered
during the year, of which $27,000 is included in deferred financing
costs, $18,000 is included in share issue costs, as a reduction to
common stock, and $64,000 is included in administrative expenses.
1995 - During the year ended November 30, 1995, fees aggregating
$84,000 were paid to a Director, in his capacity as an officer of the
Company. Of this amount, $75,000 is included in share issue costs, as
a reduction to common stock, and $9,000 is included in administrative
expenses. Additionally, another Director was paid $140,000 for
services rendered during the year, of which $110,000 is included in
deferred bid costs and $30,000 is included in deferred financing
costs.
-45-
<PAGE>
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE K RELATED PARTY TRANSACTIONS (continued)
Turner Holdings, Inc. ("THI")
-----------------------------
At November 30, 1996 and 1995, a note receivable in the amount of
$20,000 was due from THI.
Sandhills Industries, Inc.
--------------------------
During 1996, the Company earned gross revenues of $537,000 from a
construction agreement with a company in which an employee of the
Company has an equity interest.
EIF Holdings, Inc.
------------------
1996 - The Company has a note receivable from EIF as of November 30,
1996, with accrued interest of $248,000. Refer to Notes B and E.
In conjunction with the above investment, the Company has entered into
the following guarantees:
Employment agreements with the new President and Chief Operating
Officer of EIF, through December 31, 2000.
The Company has guaranteed $800,000 of EIF bank debt with Farmers
and Merchants Bank.
On December 13, 1996 EIF borrowed $300,000 from Truman Harty, Inc.,
which is guaranteed by the Company.
The Company has also guaranteed $22,481 to a vendor of EIF and the
payment of November and December rent due to EIF's landlord.
OTHER ITEMS - At November 30, 1995, accounts payable include $88,000,
-----------
which was advanced to Cambridge Construction Service Company ("CCSC"),
a subsidiary of the Company, by a former officer of CCSC. Also CCSC
leased office space from a company owned by an officer of CCSC. For
the year ended November 30, 1995, rent expense amounted to $31,000 for
such office space.
NOTE L INCOME TAXES
Canada - Income tax expense varies from the amount that would be
--------
computed by applying the basic combined Canadian federal and
provincial rate of 44.34%, as follows:
1996 1995 1994
------ ------ --------
(United States Dollars in thousands)
Basic rate applied to pre-tax income $3,526 $ 419 $ 473
Reduction due to timing differences (137) (315) (164)
Reduction due to income taxed
in other jurisdictions (2,603) -- (24)
Reduction of income taxes due to
application of loss
carryforwards (786) (104) (285)
------------- ------- --------
Effective Canadian tax expense $ -- $ -- $ --
========== ====== ====
-46-
<PAGE>
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE L INCOME TAXES (continued)
The Company has Canadian tax operating loss carryforwards expiring in:
Year ended November 30,
1999 $ 555
2000 111
2001 1,521
2002 144
2003 884
-------
$3,215
=======
UNITED STATES - The components of the recovery of (provision for)
-------------
income taxes are as follows:
1996 1995 1994
------- ----- --------
(United States Dollars in thousands)
Federal $865 $ (16) $(54)
State (50) (128) --
-------- -------- --------
815 (144) (54)
Deferred (6) ( 64) (4)
------- -------- --------
Recovery of (provision for) income tax $809 $(208) $(58)
======= ======== ========
The significant components of the net deferred tax asset (liability)
are as follows:
1996 1995 1994
------- ------ -----
Depreciation of plant and
equipment $(1,204) $(400) $(291)
Reduction of income taxes due
to application of loss
carryforwards 1,415 565 281
Gain on sale of equipment,
recognized on the installment
method for income tax purposes -- (125) --
Other (30) 12 (3)
Valuation allowance (161) -- --
-------- -------- --------
Net deferred tax asset (liability) $ 20 $ 52 $ (13)
======== ======== ========
The liability method of accounting for deferred income taxes requires
a valuation allowance against deferred income taxes against the net
income tax losses available to be carried forward. The Company
established a valuation allowance against deferred tax assets of
$161,000 at November 30, 1996.
NOTE M SHARE CAPITAL
AUTHORIZED SHARE CAPITAL - The authorized share capital consists of
------------------------
unlimited Class A Preference shares and unlimited, no par value Common
shares.
ISSUED SHARE CAPITAL -
--------------------
Number of Total
Common Consider-
Shares ation
--------- ---------
(Total Consideration in United States
Dollars in thousands)
Outstanding, November 30, 1993 4,789,510 $ 208
Conversion of debentures 950,430 3,130
Purchase of insurance deposits 369,849 1,187
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<PAGE>
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE M SHARE CAPITAL (continued)
Number of Total
Common Consider-
Shares ation
-------- ---------
(Total Consideration in United States
Dollars in thousands)
Purchase of Cambridge Construction
Service Corporation 400,000 1,200
Issued for debenture costs 20,000 64
Issued in settlement of debt 30,000 92
Issued for cash 262,552 862
Share issue cost (232)
Outstanding, November 30, 1994 6,822,341 6,511
Conversion of debentures 1,147,250 3,454
Purchase of Lake Charles
Construction Corporation 520,000 2,080
Purchase of Reclamation Management, Inc. 9,000 33
Issued for cash 78,500 145
Issued for services 130,000 460
Issued for real estate acquisition 152,381 400
Share issue cost - (1,280)
--------- ---------
Outstanding, November 30, 1995 8,859,472 11,803
Conversion of debentures 198,820 1,284
Issued for acquisitions 4,283,204 27,269
Issued for cash 594,940 1,743
Issued for services 281,000 1,753
Share issue cost
-- (4,441)
--------- ---------
Outstanding, November 30, 1996 14,217,436 $39,411
========== =========
SHARE WARRANTS - As of November 30, 1996, the Company had 876,000
---------------
outstanding share warrants, which call for the issuance of one common
share upon presentation of the warrant at issue prices of $4.50
(Canadian dollars) to $6.00 (United States dollars) . These warrants
expire at various times through November, 2001.
STOCK OPTIONS - The Company has options outstanding to certain
-------------
officers, consultants, directors and employees of the Company and its
subsidiaries, to issue a total of 615,163 common shares at prices
ranging from $2.50 to $8.30 (Canadian dollars). These options expire
through March, 2001.
CONVERTIBLE SECURED DEBENTURES - 265,107 common shares are reserved
------------------------------
for issue on the conversion of convertible secured debentures of
$1,850,000, maturing May, 1997.
WEIGHTED AVERAGE - The weighted average number of shares outstanding
-----------------
used in the calculation of earnings per share was 10,846,516,
7,217,005 and 6,191,296, for the years ended November 30, 1996, 1995
and 1994, respectively. See
Note O.
NOTE N ECONOMIC DEPENDENCE
The Company had revenues from ten, four and four customers that
represented 68%, 75% and 48% of total revenue for the years ended
November 30, 1996, 1995 and 1994, respectively.
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<PAGE>
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE O DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES AND PRACTICES
United States accounting practices relating to foreign currency
translation are not entirely compatible with Canadian accounting
practices which the Company follows, and which are described in Note
A. Under United States practices, where the functional currency is
United States dollars, all currency translation adjustments related to
assets and liabilities are included in earnings currently, whereas
Canadian practices for integrated operations require that currency
translation adjustments related to long term monetary items with a
fixed and ascertainable life be deferred and amortized over the life
of the item.
Deferred income taxes are translated at year-end rates of exchange
under United States practices rather than historical rates of exchange
which are required by Canadian practices.
Under the United States basis, income tax losses available to be
carried forward are recognized when it is more likely than not that
they will be realized. Under the Canadian basis, income tax losses
available to be carried forward are recognized only when there is
virtual certainty that they will be realized. For the years ended
November 30, 1996, 1995 and 1994, there were no significant
differences between these two methods.
Under accounting principles generally accepted in the United States,
earnings per share would be calculated based upon the weighted average
number of shares outstanding during the year plus common stock
equivalents, such as common stock purchase options, unless they are
antidilutive. Earnings per share would be computed as if common share
purchase options and warrants were exercised at the beginning of the
year, as if funds obtained thereby were used to purchase common shares
of the Company at the average market price during the year. Fully
diluted earnings per share would be calculated as if the proceeds from
the exercise of common share purchase options and warrants were used
to purchase the company's common shares at its average market price
during the year or its market value at the end of the year, whichever
is higher.
NOTE P RETIREMENT PLANS
The Company has a profit-sharing plan (defined contribution)
retirement plan covering substantially all employees, except employees
who are members of a union who bargained separately for retirement
benefits. Employees are eligible upon attaining the age of twenty-
one (21) and completing one (1) year of service. The amount of
contribution to the plan is determined annually by the Board of
Directors and may vary from zero to fifteen percent of covered
compensation.
The Company, through it's collective bargaining agreements with
various unions, contributes to the unions' retirement plans. For the
years ended November 30, 1996, 1995 and 1994, an expense of
$1,454,000, $560,000 and $1,029,000, respectively, was incurred for
these retirement plans.
NOTE Q DISCONTINUED OPERATIONS
During 1994, the Company's management made a decision to cease
operations of Action Machine Shop, a division of Action. At November
30, 1994 the net assets held for sale consisted of plant and
equipment, with a cost of $374,000 and accumulated depreciation of
$66,000. In August, 1995, these assets were sold for $675,000 to
Longview Industries, Inc. and is included in notes receivable at
November 30, 1995. The Company collected the receivables and
liquidated the liabilities. Discontinued operations of Action Machine
Shop for the year ended November 30, 1994 were as follows:
Revenues $441,000
Cost of sales and general expenses (600,000)
--------
Loss from operations (159,000)
Income tax benefit 54,000
--------
Net loss $(105,000)
========
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<PAGE>
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE R CONTINGENCIES AND COMMITMENTS
EMPLOYMENT AGREEMENT - The Company has an employment agreement with
the chief executive officer through November 30, 2000 with annual base
compensation of $250,000. The chief executive officer is entitled to
an annual bonus equal to five percent of net income and stock options
have been granted that allow for the purchase of up to 20,000 shares
of Company common stock per year pursuant to the currently effective
Employee Stock Option Plan.
LITIGATION - The Company is involved in arbitration with a customer.
The Company claims that equipment supplied to a clean-up site would
not perform properly, due to conditions at the site and the customer's
actions interfering with the Company's ability to work efficiently.
The customer has claimed the equipment did not perform as represented.
This matter is currently in arbitration. The customer claims damages
from the Company totalling $19.3 million, consisting of delay damages
and costs of completion. The Company counter-claims damages totalling
$2.4 million for breach of subcontract and $10 million for the
customers bad faith and intentional misconduct. Although the outcome
is not determinable, it is the best judgement of management that
neither the financial position nor results of operations of the
Company will be materially affected by the final outcome of this
arbitration.
At November 30, 1996, there were various claims and disputes
incidental to its business. The Company believes that the disposition
of all such claims and disputes, individually or in the aggregate,
should not have a material adverse affect upon the Company's financial
position, results of operations or cash flows.
NOTE S SUBSEQUENT EVENTS
The Company has entered into an agreement pursuant to which AEC would
acquire Chempower, Inc. The transaction is anticipated to take the
form of a merger, with an estimated purchase price of $48.36 million
in a combination of cash and debt. In conjunction with this merger,
the Company has consummated a private placement for $15 million of
convertible debentures. The acquisition is subject to various
conditions including negotiation and execution of a definitive
agreement and completion of due diligence.
In February, 1997, the Company signed a letter of intent to form a
joint venture with CVG International America ("CVG"). The joint
venture is to provide industrial, environmental, engineering, and
health and safety services to Corporacion Venezolana de Guyana.
NOTE T SEGMENTED INFORMATION
The Company operates in Canada and the United States in three primary
industry segments: (1) Environmental Services which involves asbestos
removal, insulation and other environmental services, (2) Industrial
Services which involves the repair, maintenance and modification of
boilers, pressure vessels and tubing used in industrial facilities and
the provision of engineering services and (3) Manufacturing Services
which involves construction of high-quality custom steel and alloy
products. It is the Company's policy to price intersegment contracts
on an equivalent basis to that used for pricing external contracts.
The following is a summary of selected data for these business
segments:
Industry
Segmentation
Environmental Industrial
Services Services
-------------- ----------
(United States Dollars in thousands)
1996
Contract income from customers $31,897 $86,975
Operating income 2,118 5,617
Depreciation and amortization 1,132 1,100
Capital expenditures during the year 516 1,336
Identifiable assets 38,488 28,425
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<PAGE>
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE T SEGMENTED INFORMATION (continued)
Environmental Industrial
Services Services
-------------- ----------
(United States Dollars in thousands)
1995
Contract income from customers $5,362 $41,322
Operating income 505 2,555
Depreciation and amortization 214 893
Capital expenditures during the year 54 1,675
Identifiable assets 4,636 17,163
1994
Contract income from customers $8,040 $26,951
Operating income 451 615
Depreciation and amortization 196 848
Capital expenditures during the year 47 686
Identifiable assets 5,246 11,447
Industry
Segmentation
Manufacturing
Services Consolidated
-------------- -----------------
(United States Dollars in thousands)
1996
Contract income from customers $657 $119,529
Operating income 218 7,953
Depreciation and amortization -- 2,232
Capital expenditures during the year 6,155 8,007
Identifiable assets 4,864 71,777
1995
Contract income from customers $ -- $46,684
Operating income -- 3,060
Depreciation and amortization -- 1,107
Capital expenditures during the year -- 1,729
Identifiable assets -- 21,799
1994
Contract income from customers $ -- $34,991
Operating income -- 1,066
Depreciation and amortization -- 1,044
Capital expenditures
during the year -- 733
Identifiable assets -- 16,693
Geographic Segmentation
United Consoli-
States Canada dated
-------- -------- ---------
1996
Contract income $ 6,509 $113,020 $119,529
Operating income 89 7,864 7,953
Depreciation and amortization 166 2,066 2,232
Capital expenditures during the year 6,151 1,856 8,007
Identifiable assets 20,988 50,789 71,777
1995
Contract income
$ -- $46,684 $46,684
Operating income -- 3,060 3,060
Depreciation and amortization -- 1,107 1,107
Capital expenditures during the year -- 1,729 1,729
Identifiable assets -- 21,799 21,799
1994
Contract income
$ -- $34,991 $34,991
Operating income -- 1,066 1,066
Depreciation and amortization -- 1,044 1,044
Capital expenditures during the year -- 733 733
Identifiable assets -- 16,693 16,693
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<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
The Company has had no disagreements with Karlins Fuller
Arnold & Klodosky PC., the Company's independent accountants, or such
firm's predecessor during the prior three fiscal years. In March
1997, the Board of Directors selected Coopers & Lybrand, L.L.P. as
auditors of the Company effective May 7, 1997, subject to the
ratification of the shareholders at the Annual Shareholders Meeting
scheduled to be held on May 7, 1997. Accordingly, Karlins Fuller
Arnold & Klodosky P.C. has resigned effective May 7, 1997.
-52-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The names of the executive officers, directors and certain
significant employees are set forth below, together with the positions
held by each such person in the Company and their ages as of March 31,
1997. All directors are elected annually by the shareholders of the
Company and serve until their successors are duly elected and
qualified. Officers are elected by the Board of Directors and serve
at the will of the Board of Directors.
NAME AGE POSITIONS
---- --- --------
Mark White 57 Chairman
Michael E. 47 President, Chief
McGinnis Executive
Officer and
Director
John C. Pennie 58 Vice-Chairman of
the Board of
Directors
Frank Fradella 42 Executive Vice
President and
Chief Operating
Officer
David L. 47 Vice President
Norris and Chief
Financial
Officer
John H. Craig 49 Secretary
Barry Cracower 59 Director
William A. 69 Director
Dimma
Tyrrell Garth 48 Director
Donald Getty 63 Director
Joseph D. 75 Division
DeFranco President, SRS
Besim Halef 41 Division
President, MM
Industra
John Hoyle 50 Division
President,
United Eco
Toomas Kukk 56 Division
President,
Chempower
Donald Scott 38 Division
Manager, Eco
Environmental
James Wright 35 Division
President,
Environmental
Evolutions
EXECUTIVE OFFICERS
MARK WHITE has been a director of the Company since July 1993 and
was elected Chairman of the Board in July 1994. Since 1986, Mr. White
has practiced law and has acted as an independent consultant. From
1983 to 1986, he served as the Governor of the State of Texas. His
career in public service also included serving as the Attorney General
of Texas, Secretary of State and Assistant Attorney General. He
serves on the board of
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<PAGE>
directors of the John Gray Foundation at Lamar University, and the
boards of regents of Hardin Simmons University, the Houston
Educational Excellence Foundation, and the Houston Read Foundation.
Mr. White is a member of the National Association of Attorneys'
General and the National Governors' Association.
MICHAEL E. MCGINNIS has been the President and Chief Executive
Officer of the Company since 1993 and a director since 1994. He was
the President and Chief Executive Officer of Eco Environmental, Inc.,
a provider of environmental remediation services to industrial
clients, when it was acquired by the Company in 1993. Prior to
joining Eco Environmental, Inc. in 1992, Mr. McGinnis was employed
with The Brand Companies, Inc., one of the largest asbestos abatement
contractors in the United States. Mr. McGinnis joined The Brand
Companies in 1965 and served in various operational and administrative
capacities for over 27 years. Mr. McGinnis serves as the Chairman of
the Board of EIF Holdings, Inc., an asbestos abatement and lead
removal contractor based in California in which the Company holds a
minority interest, and he has held that position since June 1996,
having been President of EIF from March 1996 until August 1996.
JOHN C. PENNIE has been a director of the Company since February
1992 and the Vice-Chairman of the Board of Directors since October
1993. Mr. Pennie served as the Company's President and Chief
Executive Officer in 1992 in order to execute the downsizing and
reorganization of the Company. Prior to joining the Company, Mr.
Pennie was a business consultant with over 25 years of experience in
assisting turnaround and start-up companies. He also serves as a
director of Innovadent Technologies, Inc., a manufacturing company.
FRANK FREDELLA has been Executive Vice President and Chief
Operating Officer since October 1996. For more than five years prior
thereto he was an executive of NSC Corporation, with his last position
as President. NSC Corporation provides asbestos abatement and other
specialty contracting services.
DAVID L. NORRIS has been Vice President and Chief Financial Officer
of the Company since March 1997. He also has been President and Chief
Executive Officer and a director of EIF since August 1996. Prior
thereto, Mr. Norris was the President of Tonopah Resources
International, Inc. and Citadel Environmental Group, Inc., which
owned and operated several abatement and remediation companies in
the environmental industry. From 1994 to 1996, Mr. Norris was the
President and Managing Member of WNH Investments, L.L.C., which is a
private investment banking company investing principally in companies
in the environmental and energy industries. From 1992 to 1994, Mr.
Norris was the President and Chief Operating Officer of North
American Recycling Systems, Inc. Prior thereto, from 1972 to 1992,
Mr. Norris was employed by Evergren Bankcorp, Inc., most recently as
Executive Vice President in charge of corporate banking.
JOHN CRAIG has been as Secretary of the Company for more than five
years. He has been a partner in Cassels, Brock & Blackwell, a
Toronto, Ontario law firm since 1994, and for at least three years
prior thereto, he was a partner in Holden, Day & Wilson. His law
firms have performed legal services for the Company.
OUTSIDE DIRECTORS
BARRY CRACOWER has been a director of the Company since December
1996. Mr. Cracower has been the President of Pharmx Rexall Drug
Stores Ltd., a drug store chain based in Concord, Ontario, since 1990.
Prior to 1990, he held senior executive positions at several major
Canadian corporations. Mr. Cracower served on the Board of Directors
of the predecessor corporation to the Company, ECO Corp., in 1992
during its restructuring. He also is as a director of Algonquin
Mercantile Corporation, a Canadian company.
WILLIAM A. DIMMA has been a director of the Company since January
1997. Mr. Dimma has served as the Chairman of the Board of Canadian
Business Media Ltd since 1992, and York University since 1991. For
more than five years through 1993, Mr. Dimma served as the Deputy
Chairman and also as the President and Chief
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<PAGE>
Executive Officer of Royal LePage Limited, a Canadian real estate
company. In addition to the companies mentioned above, Mr. Dimma
is a director of the Greater Toronto Airport Authority, Magellan
Aerospace Corporation, IPL Energy Inc., a pipeline and gas
distribution company, London Life Insurance Company, Sears
Canada Inc. and Trilon Financial Corporation, a financial services
company.
TYRRELL L. GARTH has been a director of the Company since December
1996 and previously was as a director from 1993 to 1995. Mr. Garth
has been the President of Cheyenne Capital Inc., a provider of
merchant banking services located in Beaumont, Texas, since 1996.
Prior to joining Cheyenne Capital, Mr. Garth was a partner of Moore
Landrey Garth Jones Burmeister & Hulett, L.L.P., a law firm in
Beaumont, Texas, for more than five years. In addition to serving as
a director of the Company, Mr. Garth is a director of Unison
HealthCare Corp., a long-term healthcare provider (Nasdaq National
Market).
HON. DONALD R. GETTY has been a director of the Company since
January 1997. Mr. Getty has been the President and Chief Executive
Officer of Sunnybank Investments Ltd., an investment and consulting
company located in Edmonton, Alberta, since December 1992. Mr. Getty
has held elected and appointive offices in Canadian government, most
recently as the Premier of the Province of Alberta from 1985 to 1992
and as the Minister of Energy and Natural Resources for the federal
government of Canada between 1971 and 1979. Mr. Getty currently
serves on the boards of directors of Mera Petroleum, an oil and gas
company, Cen Pro Technologies, an engineering company, Farm Energy
Corporation, an ethanol production company, and Guyanor Resources, a
mining company, all located in Canada.
SIGNIFICANT EMPLOYEES
JOSEPH D. DEFRANCO has been as the Division President of SRS since
July 1996 when SRS was acquired by the Company. Mr. DeFranco had
served as the President, Chief Executive Officer, Treasurer and a
director of SRS since 1973.
DESIM HALEF has been the Division President of MM Industra since
June 1996. Between April 1994 and May 1996, Mr. Halef served as a
project general manager for National Heavy Industries Limited, Saudi
Arabia in connection with a project to build specialty fabrication
facilities in the Kingdom of Saudi Arabia. Mr. Halef had served in
various capacities at M&M Manufacturing Limited Partnership, the
predecessor of MM Industra, between 1994 and 1985, most recently as
the Executive Vice President and General Manager of that company from
March 1991 to April 1994.
JOHN HOYLE has been as the Division President of United Eco since
November 1996. Mr. Hoyle had been the President of Four Seasons
Environmental, Inc., an environmental services company, between July
1996 and August 1993, and served as the Vice President of that
corporation between August 1993 and September 1990.
TOOMAS KUKK has served as the Division President of Chempower since
its acquisition in March 1997. Mr. Kukk founded Chempower and
Powerhouse Equipment, Inc., the predecessor to Chempower, and he
served as the Chief Executive Officer and Chairman of the Board of
Directors of Chempower since its organization in 1985.
DONALD SCOTT has served as the Division Manager of Eco
Environmental since April 1996. Mr. Scott served as Project Manager
for Eco Environmental since January 1993. He previously worked as a
project manager for T.G.I Stephens, a provider of environmental
services.
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<PAGE>
JAMES WRIGHT has served as the Division President of Environmental
Evolutions since January 1996. Prior to the acquisition of
Environmental Evolutions, Mr. Wright had served as the President of
that corporation since April 1992.
BOARD OF DIRECTORS MATTERS
The Board of Directors has an Audit Committee and a Compensation
Committee. The Audit Committee reviews the annual and quarterly
financial statements, and material investments and transactions, and
meets with the outside accountants and senior management regarding,
among other items, internal control procedures established by the
Company. The Compensation Committee sets the level of compensation of
the Company's executive officers.
During the 1996 fiscal year, the Board of Directors met in person
or telephonically four times, and each director attended at least 75%
of the meetings. The Board of Directors also authorized corporate
actions through written consents.
COMPLIANCE WITH CERTAIN REPORTING REQUIREMENTS
Section 16(a) of the Securities Exchange Act of 1934 requires that
the officers, directors and 10% shareholders of a domestic issuer
report the ownership and purchase or sale of the equity securities of
such issuer to the SEC. Officers, directors and 10% shareholders of
foreign private issuers are not required to report such ownership or
transactions. The Company has become a "domestic issuer" for the
purposes of United States securities regulations. The officers and
directors of the Company will file Initial Statements of Beneficial
Interest with the SEC. See Item 1. "Description of Business Change
in Reporting Status."
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<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
The following table discloses the compensation awarded to or earned
by the Chief Executive Officer and the other most highly compensated
executive officers of the Company as of the end of fiscal 1996 whose
annual salary plus other forms of compensation exceeded $100,000 (the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
Annual Compensation
-------------------
Name Other Annual
and Bonus Compensation
Position Year Salary ($) ($) ($)
-------- ---- --------- ----- -------
Michael E. McGinnis
President and 1996 252,276 (1) 0 6,439 (2)
Chief Executive 1995 102,201 (1) 0 6,440 (2)
Officer 1994 90,012 0 0
Mark White 1996 0 0 120,000 (3)
Chairman of 1995 0 0 140,000 (3)
the Board 1994 0 0 87,500
John C. Pennie 1996 0 0 109,140 (4)
Vice-Chairman 1995 0 0 119,100 (4)
of the Board 1994 0 0 80,785 (4)
---------------------
SUMMARY COMPENSATION TABLE
Long-Term All Other
Compensation Compensation
-------- ------------
Name
and Securities
Position Year Underlying
-------- ---- Options (#)
Michael E. McGinnis
President and 1996 20,000 0
Chief Executive 1995 50,000 0
Officer 1994 50,000 0
Mark White 1996 0 0
Chairman of 1995 65,000 0
the Board 1994 10,000 0
John C. Pennie 1996 0 0
Vice-Chairman 1995 50,000 0
of the Board 1994 0 0
---------------------
(1) Includes $1,138 and $1,158 of deferred compensation
contributed by the Company to Mr. McGinnis' 401K Plan in
fiscal 1996 and fiscal 1995, respectively.
(2) Represents automobile lease payments paid by the Company.
(3) Represents amounts paid as a retainer to Mr. White for
services rendered to the Company.
(4) Represents fees paid to Windrush Corporation, a company
50% of which is owned by Mr. Pennie, for executive
services including rent and secretarial services for the
Company's Toronto office.
EMPLOYMENT CONTRACTS
The Company and Michael E. McGinnis have entered into an employment
agreement pursuant to which Mr. McGinnis receives an annual base
salary of $250,000 and is entitled to participate in an annual bonus
pool equal to 5% of the Company's net income and to receive annual
grants of stock options for the purchase of 20,000 Common Shares. The
agreement provides for up to two years compensation if he is
terminated without cause, or upon his death or disability, subject to
certain limitations. The employment agreement terminates on November
30, 2000.
The Company and Frank Fradella have entered into an employment
agreement, effective October 1, 1996, pursuant to which Mr. Fradella
will be paid an annual base salary of $250,000 and an automobile
allowance of $750 per month plus any operating and maintenance
expenses associated with such vehicle. The agreement also provides
that Mr. Fradella is entitled to receive a non-discretionary bonus of
$70,000 per year, to participate in an annual bonus pool equal to 5%
of the Company's net income, to receive 50,000 stock options to
purchase Common Shares, and to receive an additional $250,000 as a
signing bonus. In addition, the Company has agreed to reimburse Mr.
Fradella for certain costs associated with his relocating to Houston,
Texas. The agreement provides that the Company will pay up to six
months salary to Mr. Fradella or his estate if he dies, is permanently
disabled or is
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<PAGE>
terminated by the Company without cause, subject to certain
limitations. Mr. Fradella's employment agreement with the
Company terminates on September 30, 2001. See "Item 13. Certain
Relationships and Related Transactions Indebtedness of Management or
Affiliates of Management."
The Company and David L. Norris entered into an employment
agreement effective August 1, 1996 pursuant to which Mr. Norris will
be paid an annual base salary of $175,000, an automobile allowance of
$700 per month plus any operating and maintenance expenses associated
with such vehicle, and he is entitled to participate in an annual
bonus pool equal to 5% of the Company's income and to receive up to
25,000 options to purchase Common Shares per year based upon his
performance. The agreement provides for up to two years compensation
if Mr. Norris is terminated by the Company without cause subject to
certain limitations. Mr. Norris' employment agreement with the
Company terminates on December 31, 2000.
COMPENSATION OF DIRECTORS
The directors of the Company who are not otherwise employees or
consultants of the Company receive CDN$20,000 per year. In addition,
all reasonable expenses incurred by the directors in respect of their
duties are reimbursed by the Company. None of the directors of the
Company receives compensation in his capacity as a director pursuant
to any other arrangement or in lieu of any standard arrangement except
through the granting of stock options.
The following table provides information with respect to stock
options granted to the Named Executive Officers during fiscal 1996.
Stock Options Granted
in Fiscal Year Ended November 30, 1996
--------------------------------------
% of Total
Options
Securities Granted to
Under Employees Exercise
Options in Financial Price
Name Granted (#) Year (CDN$)
---- ------------ ----------- ---------
Michael E. McGinnis 20,000 4% $4.60
Mark White 0 -- --
John C. Pennie 0 -- --
Market Value
of Securities
Underlying
Options on
the Date of
Grant Expiration
Name (CDN$) Date
---- ------------ ----------
Michael E. McGinnis $4.60 12/1/2000
Mark White -- --
John C. Pennie -- --
The following table provides information with respect to stock
options exercised by the Named Executive Officers during the fiscal
year ended November 30, 1996 and the balance of stock options
remaining after such exercises. All stock options described below
were presently exercisable at November 30, 1996.
-58-
<PAGE>
Aggregated Stock Options Exercised
in Fiscal Year Ended November 30, 1996
and Fiscal Year-End Values
--------------------------------------
Securities
Acquired
Upon
Name Exercise(#) Value Realized (US$)
---- ----------- --------------------
Michael E.
McGinnis 0 --
Mark White 0 --
John C. 50,000 214,925
Pennie
Number of Securities
Underlying Value of Unexercised
Unexercised Options In-the-Money Stock
at Fiscal Options at Fiscal
Year-End Year-End
(#) (CDN$)(1)
-------------------- -------------------
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
---- ------------------- --------------------
Michael E. McGinnis 108,000/12,000 707,200/55,800
Mark White 75,000/0 502,500/0
John C. Pennie 0 --
(1) Based on the closing price of the Common Shares on The Toronto
Stock Exchange on November 30, 1996 of CDN$9.25.
REPORT OF COMPENSATION COMMITTEE
During fiscal 1996, the Compensation Committee of the Board of
Directors of the Company was comprised of Henry Knowles, Ronald Mann
and A. Murray Sinclair, all of whom were independent directors. All
three directors resigned as a member of the Board of Directors during
fiscal 1996.
It is the responsibility of the Compensation Committee to determine
the level of compensation in respect of the Company's executives
officers with a view to providing such executives with a competitive
compensation package having regard to performance. Performance is
defined to include achievement of the Company's strategic objective of
growth and the enhancement of shareholder value through increases in
the stock price resulting from a stronger balance sheet and increased
earnings.
Compensation for executive officers is composed primarily of three
components; namely, base salary, performance bonuses and the granting
of stock options. Performance bonuses are considered from time to
time having regard to the above referenced objectives.
In establishing the levels of base salary, the award of stock
options and performance bonuses, the Compensation Committee takes into
consideration individual performance, responsibilities, length of
service and levels of compensation provided by industry competitors.
In the case of Mr. McGinnis, the Chief Executive Officer, he will be
entitled to participate in an annual bonus pool equal to 5% of the net
income under his employment contract entered into on December 1, 1995
and as subsequently amended. In determining the Chairman's retainer,
the Committee considered that the Chairman was devoting over 50% of
his time to the affairs of the Company and had made a significant
contribution to the success of the Company.
The Compensation Committee is also responsible for reviewing the
Company's manpower and succession plans to ensure that adequate plans
are in place.
This report was furnished by the Compensation Committee.
-59-
<PAGE>
STOCK PERFORMANCE CHART
The following graph compares the yearly percentage change at
November 30 of the indicated year in the Company's cumulative total
shareholder return on its Common Shares with the cumulative total
shareholder return on (i) securities traded on the Toronto Stock
Exchange, and (ii) publicly traded companies which are part of the
Pollution Control Index. Although the Company believes this graph
reflects favorably on the Company, it does not believe that the
comparison is necessarily useful in determining the quality of the
Company's performance or in establishing executive compensation.
[performance graph depicting information
contained in the following chart]
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
Pollution Control
Industry Index 100 100 80 60 145 130
TSE 300 Total
Return Index 100 98 129 129 151 199
American Eco 100 123 164 92 137 264
Corporation
Share Price
(Canadian) $3.50 $4.30 $5.75 $3.25 $4.80 $9.25
-60-
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth as of May 2, 1997 the number of
Common Shares beneficially owned by (i) each person known to be the
beneficial owner of more than five percent of the outstanding Common
Shares, (ii) each director of the Company, (iii) each Named Executive
Officer and (iv) all officers and directors of the Company as a group
as known by the Company or as reflected on the records of the transfer
agent.
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership(1)
------------------- -----------------------
Number Percentage
------ ----------
Vision Holdings, Inc. . .
3,052,611 21%
14 Parlaville Road
P.O. Box HM 2257
Hamilton, Bermuda HMJX
Barry Cracower . . . . .20,000(2) *
William Dimma . . . . .20,000(2) *
Tyrrell Garth . . . . . .
102,300(3) *
Donald Getty . . . . . .20,000(2) *
Michael E. McGinnis . . .
435,000(4) 3%
John C. Pennie . . . . .22,500(5) *
Mark White . . . . . . .
112,000(6) *
Directors and executive
officers as a group (7 731,800 5%
persons) . . . . . . . .
----------------------------
* Represents less than one percent of the issued and outstanding
Common Shares.
(1) Unless otherwise indicated, all persons have sole voting and
investment power over the Common Shares.
(2) Represents Common Shares underlying presently exercisable stock
options.
(3) Includes 20,000 Common Shares underlying presently exercisable
stock options.
(4) Includes (i) 142,000 Common Shares underlying presently
exercisable stock options and (ii) 90,500 shares owned by his
wife.
(5) Includes 20,000 Common Shares underlying presently exercisable
stock options.
(6) Includes 75,000 Common Shares underlying presently exercisable
stock options.
(7) Includes Common Shares disclosed in notes (2), (3), (4), (5), (6)
above.
-61-
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
TRANSACTIONS WITH MANAGEMENT OR AFFILIATES OF MANAGEMENT
Pursuant to an agreement between the Company and Windrush
Corporation ("Windrush"), dated October 5, 1994, Windrush receives a
fee of $5,000 per month in consideration for executive services for
administration, strategic and marketing planning and public investor
relations provided to the Company plus fees which are negotiated on a
project-by-project basis for other specific services rendered. This
agreement may be terminated by the Company on 30 days' prior written
notice. Mr. Pennie, the Vice-Chairman of the Board of Directors,
holds a 50% interest in Windrush.
INDEBTEDNESS OF MANAGEMENT OR AFFILIATES OF MANAGEMENT
During fiscal 1996, the Company loaned $490,355 to Michael E.
McGinnis for the purpose of purchasing Common Shares of the Company in
the open market. The loan matures on May 7, 1997, bears interest at
the rate of 10% per annum and is secured by the purchased shares. On
September 6, 1996, the Company loaned $475,000 to Mark White, who was
then Chairman of the Board, which loan was non-interest bearing and
unsecured. Mr. White repaid the loan on October 16, 1996. The
Company also loaned $350,000 to Frank J. Fradella, Executive Vice
President and Chief Operating Officer, for the purpose of purchasing a
home upon his joining the Company, repayable, without interest, at the
rate of $70,000 per year while Mr. Fradella is employed by the
Company. This loan becomes due upon the termination of Mr. Fradella's
employment with the Company.
-62-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K.
(a) Financial Statements:
--------------------
The following audited consolidated financial statements of
American Eco Corporation and subsidiaries are included in Item 8:
Index to Consolidated Financial Statements
Report of Independent Auditors
Consolidated Balance Sheet as of November 30, 1996 and 1995
Consolidated Statement of Retained Earnings for the years ended
November 30, 1996, 1995 and 1994
Consolidated Statement of Income for the years ended November 30,
1996, 1995 and 1994
Consolidated Statement of Cash Flows for the years ended November
30, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
The following consolidated financial statement schedules of
American Eco Corporation and subsidiaries are included in
Item 14(d):
All schedules to the consolidated financial statements required
by Article 7 of Regulation S-X are not required under related
instructions or are not applicable and, therefore, have been
omitted.
(b) REPORTS ON FORM 8-K
Not applicable
(c) EXHIBITS
INDEX TO EXHIBITS
Exhibit Number Document
3.1.1 Letters Patent (Certificate of Incorporation) filed February
6, 1969, incorporated by reference to Exhibit 3.1.1 to the
Company registration statement on Form 10, dated September 19,
1990.
3.1.2 Supplementary Letters Patent, dated June 26, 1970
(incorporated by reference to Exhibit 3.1.2 to the Company's
Form 10).
3.1.3 Articles of Amendment, filed June 16, 1975 (incorporated by
reference to Exhibit 3.1.3 to the Company's Form 10).
3.1.4 Articles of Amendment, filed June 23, 1978 (incorporated by
reference to Exhibit 3.1.4 to the Company's Form 10).
3.1.5 Articles of Amendment, filed June 20, 1986 (incorporated by
reference to Exhibit 3.1.5 to the Company's Form 10).
-63-
<PAGE>
3.1.6 Articles of Amendment, filed June 17, 1987 (incorporated by
reference to Exhibit 3.1.6 to the Company's Form 10).
*3.1.7 Articles of Amendment, certified on November 19, 1993
3.2.1 By-Laws (incorporated by reference to Exhibit 3.2 to the
Company's Form 10.).
*3.2.2 By-Law Number 10.
4.1 Share Option Plan (incorporated by reference to Exhibit to
Management Information Circular to the Company's Form 6-K,
dated September 27, 1995).
4.2 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).
4.3 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).
4.4 Form of Stock Purchase Warrant (incorporated by reference to
Exhibit 3 to the Company's Form 6-K, dated February 7, 1997).
10.1 Memorandum, dated October 5, 1995, between the Company and
Windrush Corporation (incorporated by reference to Exhibit
10.6 to the 1994 Form 20-F).
10.2 Share Exchange Agreement, dated June 1, 1994, among Westlake
Interests, Ltd., Cambridge, the Company and Marc A. Sparks
(incorporated by reference to Exhibit 10.7.1 to the 1994 Form
20-F).
10.3 Acquisition Agreement, dated July 31, 1995, between the
Company and Kenneth Hagan and Janet Hagan. (incorporated by
reference to Exhibit 2.7.1 to the 1995 Form 20-F).
*10.4.1 Agreement and Plan of Merger dated as of April 26, 1996, among
the Company SRS Acquisition Corporation and Separation and
Recovery Systems, Inc. ("SRS").
*10.4.2 Business Loan Agreement, dated as of February 7, 1996, between
Bank of America National Trust and Savings Association ("BA")
and SRS.
*10.4.3
Amendment No. 1 to Business Loan Agreement, dated as of July
3, 1996, between SRS and BA.
*10.4.4 Continuing Guarantee, dated as of July 3, 1996 from the
Company to BA.
*10.4.5 Subordination Agreement, dated July 3, 1996, among American
Eco, SRS and BA.
*10.5 Acquisition Agreement, dated as of May 31, 1996, between the
Company and United Eco Systems, Inc.
*10.6.1 WCMA Note, Loan and Security Agreement, dated as of August 23,
1996 between American Eco/SP Corporation and Merrill Lynch
Business Financial Services, Inc. ("MLBFS")
*10.6.2 Security Agreement, dated as of August 26, 1996 between C.A.
Turner Maintenance, Inc. ("Turner") and MLBFS.
*10.6.3 Unconditional Guaranty, dated as of August 26, 1996 of Turner
in favor of MLBFS.
-64-
<PAGE>
*10.6.4 Unconditional Guaranty, dated as of August 26, 1996 of
American Eco/SP Corporation in favor of MLBFS.
*10.7 Acquisition Agreement and Plan of Reorganization, dated as of
January 1, 1996 between Jim Wright, Mark L. Crawford and Aaron
Fine (as shareholders of Environmental Evolutions, Inc.) and
the Company, as amended March 15, 1996.
10.8.1 Agreement, dated April 9, 1996 between the Company and Wayne
E. Shaw, and as amended on April 17, 1996, April 18, 1996, May
23, 1996 and June 12, 1996 (incorporated by reference to
Exhibit 1 to the Company's Registration Statement on Form F-
8).
*10.8.2 Arrangement Agreement, dated November 13, 1996, among Industra
Service Corporation, 519742 B.C. Ltd. and the Company.
*10.9.1 Agreement and Plan of Merger, dated as of September 10, 1996,
among the Company, Sub Acquisition Corp. and Chempower, Inc.
("Chempower").
*10.9.2 Financing Agreement, dated February 28, 1997, among the
Company, Chempower, Toomas J. Kukk and
Mark L. Rochester.
*10.9.3 Letter Agreement, dated February 28, 1997, between the Company
and Toomas J. Kukk, as agent (the
"Agent").
*10.9.4 Guaranty, dated February 28, 1997, by the Company in favor of
the Agent.
*10.9.5 Pledge Agreement, dated February 28, 1997, between the Company
and the Agent.
*10.9.6 Security Agreement, dated February 28, 1997, between the
Company and the Agent.
*10.9.7 Loan Agreement, dated as of February 28, 1997, by and between
Chempower, Inc. and First National Bank of Ohio ("FNBO").
*10.9.8 Promissory Note, dated February 28, 1997, of Chempower in
favor of the Agent.
*10.9.9 Purchase Agreement, dated as of February 28, 1997, between
Chempower and Holiday Properties ("Holiday").
*10.9.10 Commercial Guaranty, dated February 28, 1997, by the Company
in favor of FNBO.
*10.9.11 Promissory Note, dated February 28, 1997, of Chempower in
favor of FNBO.
*10.9.12 Subordination Agreement, dated as od February 28, 1997, among
Chempower, FNBO, Thomas J. Kukk, Mark L. Rochester and the
Agent.
*10.9.13 Commercial Security Agreement, dated as of February 28, 1997,
between Chempower and FNBO.
*10.10 Lease, dated as of August 15, 1996, between 1011 Jones Road
Joint Venture Group and the Company.
-65-
<PAGE>
*10.11.1 Employment Agreement, dated December 1, 1995, between the
Company and Michael E. McGinnis, as amended May 1, 1996.
*10.11.2 Employment Agreement, effective as of October 1, 1996, between
the Company and Frank Fradella.
*10.11.3 Employment Agreement, effective as of August 1, 1996, between
the Company and David L. Norris.
*16 Letter of Karlins Fuller Arnold & Klodosky regarding such
account firm's resignation as independent auditors of the
Company.
*21. Subsidiaries of the Company.
*24. Power of Attorney
*27. Financial Data Schedule
------------------------
*Filed herewith
(d) FINANCIAL STATEMENT SCHEDULES
The financial statement schedules required by Regulation S-K are
incorporated by reference to Item 14(a).
-66-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AMERICAN ECO CORPORATION
Dated: May 2, 1997 By: /s/ Michael E. McGinnis
---------------------------
Michael E. McGinnis, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
Signature Title Date
--------- ----- ----
/s/Michael E. McGinnis President and Chief
---------------------- Executive Officer and
Michael E. McGinnis Director (Principal May 2, 1997
Executive Officer)
/s/John C. Pennie Vice-Chairman of the
---------------------- Board of Directors May 2, 1997
John C. Pennie
/s/David L. Norris Chief Financial Officer
---------------------- (Principal Financial May 2, 1997
David L. Norris and Accounting Officer)
/s/Barry Cracower
---------------------- Director May 2, 1997
Barry Cracower
---------------------- Director May 2, 1997
William Dimma
/s/Tyrrell Garth
---------------------- Director May 2, 1997
Tyrrell Garth
----------------------
Donald Getty Director May 2, 1997
----------------------
Mark White Director May 2, 1997
-67-
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Document
------- ---------
3.1.1 Letters Patent (Certificate of Incorporation) filed February
6, 1969, incorporated by reference to Exhibit 3.1.1 to the
Company registration statement on Form 10, dated September 19,
1990.
3.1.2 Supplementary Letters Patent, dated June 26, 1970
(incorporated by reference to Exhibit 3.1.2 to the Company's
Form 10).
3.1.3 Articles of Amendment, filed June 16, 1975 (incorporated by
reference to Exhibit 3.1.3 to the Company's Form 10).
3.1.4 Articles of Amendment, filed June 23, 1978 (incorporated by
reference to Exhibit 3.1.4 to the Company's Form 10).
3.1.5 Articles of Amendment, filed June 20, 1986 (incorporated by
reference to Exhibit 3.1.5 to the Company's Form 10).
3.1.6 Articles of Amendment, filed June 17, 1987 (incorporated by
reference to Exhibit 3.1.6 to the Company's Form 10).
*3.1.7 Articles of Amendment, certified on November 19, 1993
3.2.1 By-Laws (incorporated by reference to Exhibit 3.2 to the
Company's Form 10.).
*3.2.2 By-Law Number 10.
4.1 Share Option Plan (incorporated by reference to Exhibit to
Management Information Circular to the Company's Form 6-K,
dated September 27, 1995).
4.2 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).
4.3 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).
4.4 Form of Stock Purchase Warrant (incorporated by reference to
Exhibit 3 to the Company's Form 6-K, dated February 7, 1997).
10.1 Memorandum, dated October 5, 1995, between the Company and
Windrush Corporation (incorporated by reference to Exhibit
10.6 to the 1994 Form 20-F).
10.2 Share Exchange Agreement, dated June 1, 1994, among Westlake
Interests, Ltd., Cambridge, the Company and Marc A. Sparks
(incorporated by reference to Exhibit 10.7.1 to the 1994 Form
20-F).
10.3 Acquisition Agreement, dated July 31, 1995, between the
Company and Kenneth Hagan and Janet Hagan. (incorporated by
reference to Exhibit 2.7.1 to the 1995 Form 20-F).
*10.4.1 Agreement and Plan of Merger dated as of April 26, 1996, among
the Company SRS Acquisition Corporation and Separation and
Recovery Systems, Inc. ("SRS").
-68-
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DOCUMENT
------- ---------
*10.4.2 Business Loan Agreement, dated as of February 7, 1996, between
Bank of America National Trust and Savings Association ("BA")
and SRS.
*10.4.3 Amendment No. 1 to Business Loan Agreement, dated as of July
3, 1996, between SRS and BA.
*10.4.4 Continuing Guarantee, dated as of July 3, 1996 from the
Company to BA.
*10.4.5 Subordination Agreement, dated July 3, 1996, among American
Eco, SRS and BA.
*10.5 Acquisition Agreement, dated as of May 31, 1996, between the
Company and United Eco Systems, Inc.
*10.6.1 WCMA Note, Loan and Security Agreement, dated as of August 23,
1996 between American Eco/SP Corporation and Merrill Lynch
Business Financial Services, Inc. ("MLBFS")
*10.6.2 Security Agreement, dated as of August 26, 1996 between C.A.
Turner Maintenance, Inc. ("Turner") and MLBFS.
*10.6.3 Unconditional Guaranty, dated as of August 26, 1996 of Turner
in favor of MLBFS.
*10.6.4 Unconditional Guaranty, dated as of August 26, 1996 of
American Eco/SP Corporation in favor of MLBFS.
*10.7 Acquisition Agreement and Plan of Reorganization, dated as of
January 1, 1996 between Jim Wright, Mark L. Crawford and Aaron
Fine (as shareholders of Environmental Evolutions, Inc.) and
the Company, as amended March 15, 1996.
10.8.1 Agreement, dated April 9, 1996 between the Company and Wayne
E. Shaw, and as amended on April 17, 1996, April 18, 1996, May
23, 1996 and June 12, 1996 (incorporated by reference to
Exhibit 1 to the Company's Registration Statement on Form F-
8).
*10.8.2 Arrangement Agreement, dated November 13, 1996, among Industra
Service Corporation, 519742 B.C. Ltd. and the Company.
*10.9.1 Agreement and Plan of Merger, dated as of September 10, 1996,
among the Company, Sub Acquisition Corp. and Chempower, Inc.
("Chempower").
*10.9.2 Financing Agreement, dated February 28, 1997, among the
Company, Chempower, Toomas J. Kukk and Mark L. Rochester.
*10.9.3 Letter Agreement, dated February 28, 1997, between the Company
and Toomas J. Kukk, as agent (the "Agent").
*10.9.4 Guaranty, dated February 28, 1997, by the Company in favor of
the Agent.
-68-
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DOCUMENT
------- ---------
*10.9.5 Pledge Agreement, dated February 28, 1997, between the Company
and the Agent.
*10.9.6 Security Agreement, dated February 28, 1997, between the
Company and the Agent.
*10.9.7 Loan Agreement, dated as of February 28, 1997, by and between
Chempower, Inc. and First National Bank of Ohio ("FNBO").
*10.9.8 Promissory Note, dated February 28, 1997, of Chempower in
favor of the Agent.
*10.9.9 Purchase Agreement, dated as of February 28, 1997, between
Chempower and Holiday Properties ("Holiday").
*10.9.10 Commercial Guaranty, dated February 28, 1997, by the Company
in favor of FNBO.
*10.9.11 Promissory Note, dated February 28, 1997, of Chempower in
favor of FNBO.
*10.9.12 Subordination Agreement, dated as od February 28, 1997, among
Chempower, FNBO, Thomas J. Kukk, Mark L. Rochester and the
Agent.
*10.9.13 Commercial Security Agreement, dated as of February 28, 1997,
between Chempower and FNBO.
*10.10 Lease, dated as of August 15, 1996, between 1011 Jones Road
Joint Venture Group and the Company.
*10.11.1 Employment Agreement, dated December 1, 1995, between the
Company and Michael E. McGinnis, as amended May 1, 1996.
*10.11.2 Employment Agreement, effective as of October 1, 1996, between
the Company and Frank Fradella.
*10.11.3 Employment Agreement, effective as of August 1, 1996, between
the Company and David L. Norris.
*16 Letter of Karlins Fuller Arnold & Klodosky regarding such
account firm's resignation as independent auditors of the
Company.
*21. Subsidiaries of the Company.
*24. Power of Attorney
*27. Financial Data Schedule
------------------------
*Filed herewith
Exhibit 3.1.7
------------
ONTARIO CORPORATION NUMBER
219837
[verification of receipt
ceritified on November 19, 1993]
--------------------------------------------------------------------------
ARTICLES OF AMENDMENT
1. The present name of the corporation is:
ECO CORPORATION
2 The name of the corporation is changed to (if applicable):
AMERICAN ECO CORPORATION
3. Date of incorporation/amalgamation:
February 6, 1969
-------------------
4. The articles of the corporation are amended as follows:
1. The name of the Corporation is hereby changed to AMERICAN ECO
CORPORATION.
2. The issued and outstanding common shares of the Corporation are
hereby consolidated on the basis of one (1) post-consolidation
common share for every ten (10) issued and outstanding pre-
consolidation common shares in the capital of the Corporation.
3. All fractions of common shares will be rounded to the next
lowest whole number if the first decimal place is less than five
(5) and rounded to the next highest whole number if the first
decimal place is five (5) or greater.
5. The amendment has been duly authorized as required
by Sections 168 & 170 (as applicable) of the
Business Corporations Act.
6. The resolution authorizing the amendment was
approved by the shareholders/directors (as
applicable) of the corporation on
July 6, 1993
-----------------------
These articles are signed in duplicate.
ECO CORPORATION
___________________________________________________
(Name of Corporation)
By/Par: /s/ [illegible] Secretary
-------------------------------
(Signature) (Description of Office)
EXHIBIT 3.2.2
--------------
ECO CORPORATION
BY-LAW NO. 10
A BY-LAW TO AMEND BY-LAW NO. 8 OF ECO CORPORATION
BE IT ENACTED as a by-law of ECO CORPORATION as
follows:
ARTICLE I
1.01 By-Law No. 8 of the Corporation be and it is hereby
amended by deleting Section 8.05 therefrom and substituting
therefor the following:
"8.05 RECORD DATE FOR DIVIDENDS AND RIGHTS -- The
Board may fix in advance a date, preceding by not less
than 10 days and not more than 31 days the date for the
payment of any dividend or the date for the issue of
any warrant or other evidence of right to subscribe for
securities of the Corporation as a record date for the
determination of the persons entitled to receive
payment of such dividend or to exercise the right to
subscribe for such securities and to receive the
warrant or other evidence in respect of such right,
notwithstanding the transfer or issue of any shares
after the record date so fixed."
# # #
PASSED by the directors and confirmed by the
Shareholders of the Corporation pursuant to the Business
Corporations Act, 1982, (Ontario).
DATED the 29th day of May, 1991.
_______________________________
President
_______________________________
Secretary
Exhibit 10.4.1.
---------------
AGREEMENT AND PLAN OF MERGER
AMONG
AMERICAN ECO CORPORATION,
AN ONTARIO, CANADA CORPORATION,
SRS ACQUISITION CORPORATION
A CALIFORNIA CORPORATION,
AND
SEPARATION AND RECOVERY SYSTEMS, INC.
A NEVADA CORPORATION
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
ADOPTION OF AGREEMENT AND PLAN OF MERGER . . . . . . . . . . -1-
1.1 The Merger. . . . . . . . . . . . . . . . . . . . . -1-
1.2 Effective Date of the Merger. . . . . . . . . . . . -2-
1.3 Surviving Corporation; Articles of Incorporation
of Surviving Corporation. . . . . . . . . . . . . . -2-
1.4 Merger Consideration; Conversion of SRS Common
Stock; Cancellation of Acquisition Corp. Common
Stock. . . . . . . . . . . . . . . . . . . . . . . -2-
1.5 Exchange of Certificates. . . . . . . . . . . . . . -3-
1.6 No Fractional Shares. . . . . . . . . . . . . . . . -4-
1.7 Certificates in Other Names. . . . . . . . . . . . -5-
1.8 Treatment of Options. . . . . . . . . . . . . . . . -5-
1.9 Appraisal Rights. . . . . . . . . . . . . . . . . . -5-
ARTICLE II
CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . -6-
2.1 Closing Date. . . . . . . . . . . . . . . . . . . . -6-
2.2 Deliveries at the Closing. . . . . . . . . . . . . -6-
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SRS . . . . . . . . . . . . -6-
3.1 Due Incorporation. . . . . . . . . . . . . . . . . -6-
3.2 Due Authorization. . . . . . . . . . . . . . . . . -7-
3.3 Non-Contravention; Consents and Approvals. . . . . -7-
3.4 Capitalization. . . . . . . . . . . . . . . . . . . -8-
3.5 Financial Statements; Undisclosed Liabilities;
Other Documents. . . . . . . . . . . . . . . . . . -9-
3.6 No Material Adverse Effects or Changes. . . . . . . -9-
3.7 Tax Returns and Audits. . . . . . . . . . . . . . -10-
3.8 Litigation. . . . . . . . . . . . . . . . . . . . -12-
3.9 Compliance with Applicable Laws. . . . . . . . . -12-
3.10 Contracts. . . . . . . . . . . . . . . . . . . . -12-
3.11 Real Property. . . . . . . . . . . . . . . . . . -14-
3.12 Personal Property. . . . . . . . . . . . . . . . -14-
3.13 Employees. . . . . . . . . . . . . . . . . . . . -14-
3.14 Insurance. . . . . . . . . . . . . . . . . . . . -15-
3.15 Inventories. . . . . . . . . . . . . . . . . . . -15-
3.16 Accounts Receivable. . . . . . . . . . . . . . . -15-
3.17 Employee Benefits. . . . . . . . . . . . . . . . -15-
3.18 Intellectual Property. . . . . . . . . . . . . . -16-
3.19 Environmental Matters. . . . . . . . . . . . . . -16-
3.20 Books and Records. . . . . . . . . . . . . . . . -16-
3.21 Related Party Transactions. . . . . . . . . . . . -17-
3.22 Fees of Brokers, Consultants and Financial
Advisors. . . . . . . . . . . . . . . . . . . . -17-
3.23 Required Vote. . . . . . . . . . . . . . . . . . -17-
3.24 General Representation and Warranty. . . . . . . -17-
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
ACQUISITION CORP. AND ECO . . . . . . . . . . . . . . . . . -18-
4.1 Due Incorporation. . . . . . . . . . . . . . . . -18-
4.2 Due Authorization. . . . . . . . . . . . . . . . -18-
4.3 Non-Contravention; Consents and Approvals. . . . -19-
4.4 Capitalization. . . . . . . . . . . . . . . . . . -19-
4.5 Financial Statements; Undisclosed Liabilities;
Other Documents. . . . . . . . . . . . . . . . . -20-
4.6 Securities Law Filings. . . . . . . . . . . . . . -21-
4.7 No Material Adverse Effects or Changes. . . . . . -21-
4.8 Insurance. . . . . . . . . . . . . . . . . . . . -21-
4.9 Labor Matters. . . . . . . . . . . . . . . . . . -21-
4.10 Tax Returns and Audits. . . . . . . . . . . . . . -22-
4.11 Litigation. . . . . . . . . . . . . . . . . . . . -22-
4.12 Compliance with Applicable Laws. . . . . . . . . -23-
4.13 Contracts; No Defaults. . . . . . . . . . . . . . -23-
4.14 Absence of Certain Changes or Events. . . . . . . -23-
4.15 Fees of Brokers, Finders and Investment Bankers. -24-
4.16 General Representation and Warranty. . . . . . . -24-
ARTICLE V
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . -24-
5.1 Implementing Agreement. . . . . . . . . . . . . . -24-
5.2 Access to Information and Facilities;
Confidentiality. . . . . . . . . . . . . . . . . -24-
5.3 Preservation of Business. . . . . . . . . . . . . -25-
5.4 SRS Stockholder Approval. . . . . . . . . . . . . -26-
5.5 California Permit. . . . . . . . . . . . . . . . -26-
5.6 Consents and Approvals. . . . . . . . . . . . . . -27-
5.7 Periodic Reports. . . . . . . . . . . . . . . . . -27-
5.8 Publicity. . . . . . . . . . . . . . . . . . . . -27-
5.9 No Negotiation. . . . . . . . . . . . . . . . . . -27-
5.10 Listing of Common Stock. . . . . . . . . . . . . -28-
5.11 Blue Sky Approvals. . . . . . . . . . . . . . . . -28-
5.12 Principal Stockholders. . . . . . . . . . . . . . -28-
5.13 Rule 145 Affiliates. . . . . . . . . . . . . . . -28-
5.14 Tax-Free Status. . . . . . . . . . . . . . . . . -28-
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS
OF ACQUISITION CORP. AND ECO . . . . . . . . . . . . . . . -28-
6.1 Warranties True as of Closing Date. . . . . . . . -28-
6.2 Compliance With Agreements and Covenants. . . . . -29-
6.3 SRS Certificate. . . . . . . . . . . . . . . . . -29-
6.4 Secretary's Certificate. . . . . . . . . . . . . -29-
6.5 Good Standing Certificates. . . . . . . . . . . . -29-
6.6 De Franco Employment Agreement. . . . . . . . . . -29-
6.7 Escrow Agreement. . . . . . . . . . . . . . . . . -29-
6.8 Opinion of Counsel. . . . . . . . . . . . . . . . -29-
6.9 Approval of Merger. . . . . . . . . . . . . . . . -29-
6.10 Permit. . . . . . . . . . . . . . . . . . . . . . -29-
6.11 Dissent and Appraisal. . . . . . . . . . . . . . -30-
6.12 Consents and Approvals. . . . . . . . . . . . . . -30-
6.13 Resignations. . . . . . . . . . . . . . . . . . . -30-
6.14 Listing of Common Stock. . . . . . . . . . . . . -30-
6.15 Rule 145 Letters. . . . . . . . . . . . . . . . . -30-
6.16 Actions or Proceedings. . . . . . . . . . . . . . -30-
6.17 Other Closing Documents. . . . . . . . . . . . . -30-
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF SRS . . . . . . . . -30-
7.1 Warranties True as of Closing Date. . . . . . . . -30-
7.2 Compliance with Agreements and Covenants. . . . . -31-
7.3 Eco Certificate. . . . . . . . . . . . . . . . . -31-
7.4 Opinion of Counsel. . . . . . . . . . . . . . . . -31-
7.5 Opinion of Tax Counsel. . . . . . . . . . . . . . -31-
7.6 Permit. . . . . . . . . . . . . . . . . . . . . . -31-
7.7 Consents and Approvals. . . . . . . . . . . . . . -31-
7.8 Listing of Common Stock. . . . . . . . . . . . . -31-
7.9 Actions or Proceedings. . . . . . . . . . . . . . -31-
7.10 Other Closing Documents. . . . . . . . . . . . . -31-
ARTICLE VIII
TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . -32-
8.1 Termination. . . . . . . . . . . . . . . . . . . -32-
8.2 Effect of Termination and Abandonment. . . . . . -33-
ARTICLE IX
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . -33-
9.1 Indemnification by SRS Stockholders. . . . . . . -33-
9.2 Indemnification by Eco. . . . . . . . . . . . . . -34-
9.3 Procedure. . . . . . . . . . . . . . . . . . . . -34-
9.4 Remedies. . . . . . . . . . . . . . . . . . . . . -35-
ARTICLE X
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . -35-
10.1 Expenses. . . . . . . . . . . . . . . . . . . . . -35-
10.2 Amendment. . . . . . . . . . . . . . . . . . . . -35-
10.3 Notices. . . . . . . . . . . . . . . . . . . . . -35-
10.4 Waivers. . . . . . . . . . . . . . . . . . . . . -36-
10.5 Interpretation. . . . . . . . . . . . . . . . . . -37-
10.6 Applicable Law. . . . . . . . . . . . . . . . . . -37-
10.7 Assignment. . . . . . . . . . . . . . . . . . . . -37-
10.8 No Third Party Beneficiaries. . . . . . . . . . . -37-
10.9 Enforcement of the Agreement. . . . . . . . . . . -37-
10.10 Severability. . . . . . . . . . . . . . . . . . -37-
10.11 Remedies Cumulative. . . . . . . . . . . . . . . -38-
10.12 Entire Understanding. . . . . . . . . . . . . . -38-
10.13 Waiver of Jury Trial. . . . . . . . . . . . . . -38-
10.14 Counterparts. . . . . . . . . . . . . . . . . . -38-
<PAGE>
SCHEDULES
---------
NUMBER DESCRIPTION
3.1 SRS subsidiaries, joint ventures, etc.
3.3 SRS Non-Contravention; Consents and Approvals.
3.4 SRS Options.
3.5 SRS Changes since February 29, 1996.
3.7 Tax Powers of Attorney.
3.8 SRS Litigation.
3.9 SRS Permits.
3.10 SRS Contracts.
3.12 SRS Personal property valued over $1,000.
3.13 SRS Employees.
3.14 SRS Insurance.
3.16 SRS Accounts receivable.
3.17 SRS Employee Benefits.
3.18 SRS Intellectual Property.
3.20 SRS Corporate.
3.21 SRS Related Party Transactions.
4.4 ECO Derivative Securities.
4.7 Changes to Eco since February 29, 1996.
4.10 Eco Tax Returns.
4.11 Eco Litigation.
4.12 Eco Permits.
4.14 Eco Changes since February 29, 1996.
<PAGE>
EXHIBITS
--------
A. DeFranco Employment Agreement
B. Escrow Agreement.
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of April 26,
1996, among AMERICAN ECO CORPORATION, an Ontario, Canada
corporation ("Eco"), SRS ACQUISITION CORPORATION, a California
corporation ("Acquisition Corp."), and SEPARATION AND RECOVERY
SYSTEMS, INC., a Nevada corporation ("SRS").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Acquisition Corp. is a newly-formed wholly-
owned subsidiary of Eco;
WHEREAS, Eco desires to acquire all of the issued and
outstanding shares of SRS Common Stock, par value $.01 per share
(the "SRS Common Stock"), through the merger of Acquisition Corp.
with and into SRS pursuant to the terms hereinafter set forth
(the "Merger");
WHEREAS, the respective Boards of Directors of American
Eco and Acquisition Corp. deem it advisable and in the best
interests of Eco and Acquisition Corp. that Acquisition Corp. be
merged with and into SRS upon the terms and conditions
hereinafter specified;
WHEREAS, the Board of Directors of SRS deems it
advisable and in the best interests of SRS that Acquisition Corp.
be merged with and into SRS upon the terms and conditions
hereinafter specified;
WHEREAS, for Federal income tax purposes, it is
intended that the Merger shall qualify as a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of
1986, as amended (the "Code");
NOW, THEREFORE, in consideration of the mutual
covenants and agreements hereinafter contained, the parties
hereto, intending to be legally bound hereby, agree as follows:
ARTICLE I
ADOPTION OF AGREEMENT AND PLAN OF MERGER
1.1 The Merger. At the Effective Time (as defined
----------
in Section 1.2 herein), in accordance with this Agreement and the
-----------
relevant provisions of the Nevada Revised Statutes (the "NRS"),
Acquisition Corp. shall be merged with and into SRS. SRS shall
be the surviving corporation of the Merger and SRS shall
continue, and be deemed to continue, for all purposes after the
Merger, and the existence of Acquisition Corp. shall cease at the
Effective Time.
1.2 Effective Date of the Merger. This Agreement
----------------------------
shall be submitted to the stockholders of SRS as provided in
Section 5.4 hereof, and to the sole stockholder of Acquisition
-----------
Corp., as provided in Section 5.4 hereof, for approval as soon as
-----------
practicable after the execution of this Agreement. Subject to
the terms and conditions hereof and the authorization, approval
and adoption hereof by the affirmative vote of Eco, in its
capacity as the sole stockholder of Acquisition Corp., and of the
holders of SRS Common Stock entitled to vote thereon holding at
least a majority of the issued and outstanding shares of SRS
Common Stock as provided by the NRS. Articles of Merger (the
"Articles of Merger") meeting the requirements of Chapter 92A,
Section 200 of the NRS shall be executed, verified and
acknowledged as required by the provisions of Chapter 92A,
Section 230 of the NRS and shall be delivered to the Secretary of
State of Nevada for filing (the time of such filing being the
"Effective Time" and the date of such filing being the "Effective
Date").
1.3 Surviving Corporation; Articles of Incorporation
------------------------------------------------
of Surviving Corporation. Following the Merger, SRS shall
------------------------
continue to exist under, and be governed by, the laws of the
State of Nevada, and Eco will own all of the issued and
outstanding SRS Common Stock. The Articles of Incorporation of
SRS, as in effect on the Closing Date, shall continue in full
force and effect as the Articles of Incorporation of SRS.
1.4 Merger Consideration; Conversion of SRS Common
----------------------------------------------
Stock; Cancellation of Acquisition Corp. Common Stock. (a) At
-----------------------------------------------------
the Effective Time, by virtue of the Merger and without any
action on the part of Acquisition Corp., SRS or the holders of
SRS Common Stock, the holders of SRS Common Stock immediately
prior to the Effective Time shall receive one million (1,000,000)
shares of common stock, no par value, of Eco ("Eco Common
Stock"), which shall be the "Merger Consideration" subject to
adjustment as provided in this Section 1.4 and subject to the
-----------
Escrow Agreement, as described in Section 6.7 hereof. Each SRS
-----------
stockholder as of the Effective Date shall be entitled to receive
a number of shares of Eco Common Stock equal to the product of
(x) a fraction, the numerator of which being the number of shares
of SRS Common Stock owned of record by such stockholder on the
Effective Date and the denominator of which shall be the total
issued and outstanding shares of SRS Common Stock on the
Effective Date, multiplied by (y) the Merger Consideration.
Until surrendered in accordance with the provisions of Section
-------
1.5 hereof, each certificate of SRS Common Stock shall represent,
---
for all purposes, only the right to receive the Merger
Consideration or appraisal rights under Section 1.9 hereof.
-----------
(b) No adjustment shall be made in the Merger
Consideration if the average closing price (the "Average Closing
Price") per share of Eco Common Stock on the Nasdaq National
Market for the five (5) trading days immediately preceding the
Closing Date (as defined in Section 2.1 hereof) is not less than
-----------
Six Dollars ($6.00) and not greater than Seven Dollars ($7.00).
In the event that the Average Closing Price per share is less
than Six Dollars ($6.00), the Merger Consideration shall be
increased to equal that number of shares of Eco Common Stock
which, when multiplied by such Average Closing Price per share,
equals Six Million Dollars ($6,000,000). In the event that the
Average Closing Price per share is greater than Seven Dollars
($7.00), the Merger Consideration shall be decreased to equal
that number of shares of Eco Common Stock which, when multiplied
by such Average Closing Price per share, equals Seven Million
Dollars ($7,000,000). The number of shares of Eco Common Stock
constituting the Merger Consideration is also subject to
reduction for payment of finders' fee on behalf of SRS pursuant
to Section 3.22 herein.
------------
(c) If between the date of this Agreement and the
Effective Time the outstanding shares of Eco Common Stock shall
have been changed into a different number of shares or a
different class by reason of a stock dividend, subdivision,
reclassification, recapitalization, split-up or combination, the
Merger Consideration and the Nasdaq National Market closing price
for Eco Common Stock shall be appropriately adjusted.
(d) At the Effective Time, all shares of SRS Common
Stock which are owned by SRS as treasury stock shall be canceled
and retired and cease to exist.
(e) At the Effective Time, each share of Acquisition
Corp. Common Stock issued and outstanding immediately prior to
the Effective Time shall, by virtue of the Merger and without any
action the part of Eco, be canceled and cease to exist.
1.5 Exchange of Certificates. (a) Prior to the
------------------------
Effective Time, Eco shall select an exchange agent (the "Exchange
Agent") reasonably acceptable to SRS to effectuate the delivery
of the Merger Consideration provided for in Section 1.4 hereof to
-----------
holders of SRS Common Stock upon surrender of certificates which
immediately prior to the Effective Time represented outstanding
shares of SRS Common Stock ("Certificates").
(b) As of the Effective Time, Eco shall provide, or
shall take all steps necessary to provide, to the Exchange Agent,
the aggregate number of shares of Eco Common Stock representing
the Merger Consideration. The Exchange Agent shall, pursuant to
irrevocable instructions, make the deliveries of the Merger
Consideration required in respect of the Merger.
(c) Promptly after the Effective Time, the Exchange
Agent shall mail to each record holder of an outstanding
Certificate, determined as of the Effective Date, a form letter
of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to Certificates shall pass,
only upon proper delivery of the Certificates to the Exchange
Agent), advising such holder of the terms of the exchange
effected by the Merger and the procedure for surrendering to the
Exchange Agent such Certificate in exchange such holder's share
of the Merger Consideration.
(d) Upon surrender of a Certificate to the Exchange
Agent, together with such letter of transmittal, duly executed,
the holder of such Certificate shall be entitled to receive in
exchange therefor such holder's share of Merger Consideration,
less such holders' shares of Eco Common Stock that shall be
delivered to the Escrow Agent to be held under the Escrow
Agreement pursuant to Section 6.7 hereof, and the Certificate so
-----------
surrendered shall forthwith be canceled. Shares of Eco Common
Stock shall be delivered to such holder as promptly as
practicable and (except as hereinafter provided) in no event
later than twenty (20) days after proper delivery of the
applicable Certificates and letters of transmittal to the
Exchange Agent.
(e) All shares of Eco Common Stock issued upon
exchange of the shares of SRS Common Stock in accordance with the
terms hereof shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of SRS
Common Stock.
(f) Neither Acquisition Corp., Eco nor SRS shall be
liable to any holder of shares of SRS Common Stock for any such
shares of American Eco Common Stock delivered to a public
official pursuant to any abandoned property, escheat or similar
law. Until surrendered in accordance with the provisions of this
Section 1.5, each Certificate shall represent, for all purposes,
-----------
only the right to receive the Merger Consideration or appraisal
rights under Section 1.9 hereof.
-----------
(g) Any shares of Eco Common Stock which remain
undistributed to holders of SRS Common Stock for six (6) months
after the Effective Time shall, except as provided by Section
-------
1.5(d), be delivered to Eco, upon demand, and any holder of SRS
------
Common Stock who has not theretofore complied with this Section
-------
1.5 shall thereafter look to Eco for the Merger Consideration to
---
which he is entitled.
1.6 No Fractional Shares. No certificates or scrip
--------------------
for fractional shares of Eco Common Stock will be issued. In lieu
of issuing any such fractional shares to which a holder of SRS
Common Stock would otherwise be entitled to receive, the Exchange
Agent shall round up or down to the nearest whole share of Eco
Common Stock.
1.7 Certificates in Other Names. If any certificate
---------------------------
evidencing shares of Eco Common Stock is to be issued in a name
other than that in which the Certificate surrendered in exchange
therefore is registered, it shall be a condition of the issuance
thereof that the Certificate so surrendered shall be properly
endorsed and otherwise in proper form for transfer and that the
person requesting such exchange pay to the Exchange Agent or to
Eco acting solely in its corporate capacity, as the case may be,
any transfer or other taxes required by reason of the issuance of
a certificate for shares of Eco Common Stock in any name other
than that of the registered holder of the Certificate surrendered
or otherwise required or establish to the satisfaction of the
Exchange Agent or of Eco acting solely in its corporate capacity,
as the case may be, that such tax has been paid or is not
payable.
1.8 Treatment of Options. At the Effective Time, all
--------------------
outstanding options to purchase SRS Common Stock ("SRS Options")
as set forth on Schedule 3.4, shall be canceled, and Eco shall
------------
grant to such holders options to purchase Eco Common Stock ("Eco
Options"). The Eco Options to be granted pursuant to this Section
-------
1.8 shall have terms substantially equivalent to the SRS Options,
---
except that all such options shall terminate upon the fifth
anniversary of the Closing Date.
1.9 Appraisal Rights. (a) Notwithstanding Section
---------------- -------
1.4 hereof, shares of SRS Common Stock which are held by a holder
---
of SRS Common Stock ("Dissenting Stockholder") who has properly
preserved and perfected appraisal rights with respect to such
shares pursuant to the applicable provisions of the NRS shall not
be converted into the Merger Consideration pursuant to Section
-------
1.4 hereof, and instead shall be treated in accordance with those
---
provisions of the NRS, as the case may be, unless and until the
right of such Dissenting Stockholder under the applicable
provisions of the NRS to payment for his shares of SRS Common
Stock shall cease.
(b) If any Dissenting Stockholder shall effectively
withdraw or lose (through failure to perfect or otherwise) such
Dissenting Stockholder's right to payment for any of such
Dissenting Stockholder's shares of SRS Common Stock, such shares
shall be automatically converted into the right to receive Merger
Consideration in accordance with Section 1.4 hereof.
-----------
(c) Each Dissenting Stockholder who becomes entitled
to payment of fair market value of any such Dissenting
Stockholder's shares of SRS Common Stock shall receive payment
thereof, less an amount to the product of (x) a fraction, the
numerator of which being the number of shares of SRS Common Stock
owned of record by the Dissenting Stockholder and the denominator
of which shall be the total issued and outstanding shares of SRS
Common Stock on the Effective Date, multiplied by (y) $500,000,
and which withheld amount shall be held under the Escrow
Agreement.
ARTICLE II
CLOSING
2.1 Closing Date. The closing of the Merger (the
------------
"Closing") shall take place at the offices of Stradling, Yocca,
Carlson & Rauth, 660 Newport Centre Drive, Suite 1600, Newport
Beach, California at 11:00 a.m., local time, on that day on which
the last of the conditions set forth in Articles VI and VII shall
have been satisfied or, if permissible, waived (other than those
conditions which by their terms are to occur only at the
Closing), or on and at such other date, time and place as Eco,
Acquisition Corp. and SRS may agree (the date of the Closing
hereinafter being referred to as the "Closing Date").
2.2 Deliveries at the Closing. At the Closing SRS
-------------------------
will deliver to Eco the various certificates, instruments and
document referred to in Article VI, and Eco and Acquisition Corp.
will deliver to SRS the various certificates, instruments and
documents referred to in Article VII.
-----------
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SRS
SRS hereby represents and warrants to American Eco and
Acquisition Corp. as follows:
3.1 Due Incorporation. (a) SRS is a corporation duly
-----------------
organized, validly existing and in good standing under the laws
of the State of Nevada, with all requisite power and authority to
own, lease and operate its properties and to carry on its
business as they are now being owned, leased, operated and
conducted. SRS is qualified to do business and is in good
standing as a foreign corporation in the State of California
(subject to Section 2115 of the California General Corporation
Law) and Louisiana and Washington, which are the only
jurisdictions where the nature of the properties owned, leased or
operated by it and the business transacted by it require such
qualification. (b) Schedule 3.1 sets forth a complete and
------------
correct list of all corporations, proprietorships, firms,
partnerships, limited partnerships, limited liability companies,
trusts, associations or other entities in which SRS has any
record or beneficial interest (such entities collectively the
"SRS Companies"). Each of the SRS Companies is duly organized,
validly existing and in good standing in the jurisdiction of its
formation and is duly qualified in all other jurisdiction where
the nature of the properties owned, leased or operated by it and
the nature of the business transacted by it require such
qualification. Other than as set forth on Schedule 3.1, SRS has
------------
no direct or indirect subsidiaries, either wholly or partially
owned, and SRS does not hold any voting or management interest in
any corporation, proprietorship, firm, partnership, limited
partnership, limited liability company, trust, association,
individual or other entity (a "Person") or own any security
issued by any Person. For purposes of the information provided in
this ARTICLE III and the Schedules furnished hereunder, where
applicable SRS shall include each of the SRS Companies.
3.2 Due Authorization. SRS has full power and
-----------------
authority to enter into this Agreement and the Articles of Merger
(the "Related Agreement") and, subject to obtaining the necessary
approval of this Agreement and the Merger by the stockholders of
SRS, to consummate the transactions contemplated hereby and
thereby. The execution, delivery and performance by SRS of this
Agreement and the Related Agreement have been duly and validly
approved and authorized by the Board of Directors of SRS, and,
subject to obtaining the necessary approval of the Merger by the
SRS stockholders, the Related Agreement and the transactions
contemplated hereby and thereby, SRS has duly and validly
executed and delivered this Agreement and will duly and validly
execute and deliver the Related Agreement. Subject to obtaining
the necessary approval of the SRS stockholders, this Agreement
constitutes the legal, valid and binding obligation of SRS and
the Related Agreement to which SRS is a party, will, upon
execution thereof by SRS, constitute the legal, valid and binding
obligation of SRS, in each case enforceable against SRS in
accordance with their respective terms, except as such
enforceability may be limited by applicable bankruptcy,
insolvency, fraudulent transfer, moratorium, reorganization or
other laws from time to time in effect which affect creditors'
rights generally and by general principles of equity (regardless
of whether such enforceability is considered in a proceeding in
equity or at law).
3.3 Non-Contravention; Consents and Approvals. (a)
-----------------------------------------
Except to the extent set forth on Schedule 3.3, the execution and
------------
delivery of this Agreement by SRS does not, and the performance
by SRS of its obligations hereunder and the consummation of the
transactions contemplated hereby will not, conflict with, result
in a violation or breach of, constitute (with or without notice
or lapse of time or both) a default under, result in or give to
any person any right of payment or reimbursement, termination,
cancellation, modification or acceleration of, or result in the
creation or imposition of any lien upon any of the assets or
properties of SRS under, any of the terms, conditions or
provisions of (i) the Articles of Incorporation or By-Laws of
SRS, or (ii) subject to obtaining the necessary approval of this
Agreement and the Merger by the SRS stockholders and the taking
of the actions described in paragraph (b) of this Section 3.3,
------------
(x) any statute, law, rule, regulation or ordinance (together,
"Laws"), or any judgment, decree, order, writ, permit or license,
of any Governmental Entity (as defined in paragraph (b) below),
applicable to SRS or any of its assets or properties, or (y) any
contract, agreement or commitment to which SRS is a party or by
which SRS or any of its assets or properties is bound.
(b) No consent, approval, order or authorization of,
or registration, declaration or filing with any court,
administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign (a
"Governmental Entity"), or any other Person, is required by SRS
in connection with the execution and delivery of this Agreement
and the Related Agreement or the consummation by SRS of the
transactions contemplated hereby and thereby, except for:
(i) the permit by the California Commissioner of
Corporations approving the Merger after a fairness hearing
thereon;
(ii) the filing of the Articles of Merger with the
Secretary of State of the State of Nevada in accordance with
the requirements of the NRS; and
(iii)if applicable, the filing of the appropriate
documents with the relevant authorities of other states in
which SRS is qualified to transact business.
3.4 Capitalization. (a) The authorized capital stock
--------------
of SRS consists of 5,000,000 shares of SRS Common Stock. On the
date hereof, there are issued and outstanding 3,193,350 shares of
SRS Common Stock. All of the issued and outstanding shares of SRS
Common Stock are validly issued, fully paid and nonassessable and
the issuance thereof was not subject to preemptive rights.
(b) Schedule 3.4 is a correct and complete list of
------------
all outstanding SRS Options. Except for shares issuable pursuant
to SRS Options, there are no shares of SRS Common Stock or other
equity securities (whether or not such securities have voting
rights) of SRS issued or outstanding or any subscriptions,
options, warrants, calls, rights, convertible securities or other
agreements or commitments of any character obligating SRS to
issue, transfer or sell any shares of capital stock or other
securities (whether or not such securities have voting rights) of
SRS, or agreements to enter into any of the foregoing.
3.5 Financial Statements; Undisclosed Liabilities;
---------------------------------------------
Other Documents. (a) For purposes of this Agreement, "SRS
---------------
Financial Statements" shall mean (x) the audited consolidated
financial statements of SRS as of June 30, 1995 and June 30, 1994
and the fiscal years then ended (including all notes thereto),
consisting of the balance sheets at such dates and the related
statements of income, stockholders' equity and cash flows for the
years then ended (the "SRS Audited consolidated Financial
Statements"), and (y) the unaudited consolidated financial
statements of SRS as of February 29, 1996 and February 28, 1995
(including all notes thereto), consisting of the balance sheets
at such dates and the results of operations for the eight months
then ended (the "SRS Interim Financial Statements"). The Audited
SRS Financial Statements have been prepared in accordance with
U.S. GAAP consistently applied (except as may be indicated
therein or in the notes thereto), present fairly the financial
position of SRS as at the dates thereof and the results of
operations, stockholders' equity and cash flows of SRS for the
periods covered thereby (subject, in the case of any unaudited
interim financial statements, to normal year-end adjustments),
and are substantially in accordance with the financial books and
records of SRS. The SRS Interim Financial Statements are in
accordance with the books and records of SRS and have been
prepared on a consistent basis with those of prior years. Except
for the absence of adequate disclosure, relating to the absence
of footnotes, and stockholders' equity and cash flow statements,
the SRS Interim Financial Statements present fairly SRS'
financial position as of the dates of the SRS Interim Financial
Statements and the results of operations for the periods covered
by these statements.
(b) SRS does not have any liabilities or obligations
of any nature, whether accrued, absolute, contingent or
otherwise, which individually or in the aggregate could be
reasonably expected to have an SRS Material Adverse Effect (as
defined below) except (i) as set forth on or reflected in the
balance sheet at February 29, 1996 (the "SRS Interim Balance
Sheet") included in the SRS Financial Statements or (ii)
liabilities and obligations incurred since February 29, 1996 in
the ordinary and usual course of its business.
3.6 No Material Adverse Effects or Changes. Except
--------------------------------------
as listed on Schedule 3.6 or as contemplated by this Agreement,
------------
since February 29, 1996, SRS has not suffered any damage,
destruction or Loss to any of its assets or properties (whether
or not covered by insurance) which is having or could reasonably
be expected to have an SRS Material Adverse Effect. "Loss" shall
mean liabilities, losses, costs, claims, damages (including
consequential damages), penalties and expenses (including
attorneys' fees and expenses and costs of investigation and
litigation). An "SRS Material Adverse Effect" shall mean an
effect on or circumstance involving the business, operations,
assets, liabilities, results of operations, cash flows or
condition (financial or otherwise) of SRS which is materially
adverse to SRS. Except as disclosed in Schedule 3.6 or in the SRS
------------
Financial Statements, since February 29, 1996 SRS has not (i)
declared, set aside or paid any dividend or other distribution in
respect of its capital stock; (ii) made any direct or indirect
redemption, purchase or other acquisition of any shares (other
than purchases in connection with the exercise of options) of its
capital stock or made any payment (other than dividends) to any
of their stockholders (in their capacity as stockholders); (iii)
issued or sold any shares of its capital stock or any options,
warrants or other rights to purchase any such shares or any
securities convertible into or exchangeable for such shares or
taken any action to reclassify or recapitalize or split up their
capital stock; (iv) mortgaged, pledged or subjected to any lien,
lease, security interest, encumbrance or other restriction, any
of their material properties or assets except in the ordinary and
usual course of their business and consistent with past practice;
(v) entered into any acquisition or merger agreement or
commitment, (vi) except in the ordinary and usual course of its
business and consistent with its past practices forgiven or
canceled any material debt or claim, waived any material right;
or (vii) adopted or amended any plan or arrangement (other than
amendments that are not material or that were made to comply with
laws or regulations) for the benefit of any director, officer or
employee or changed the compensation (including bonuses) to be
paid to any director, officer or employee, except for changes
made consistent with the prior practice of SRS.
3.7 Tax Returns and Audits. "Taxes", as used in this
----------------------
Agreement, means any federal, state, county, local or foreign
taxes, charges, fees, levies, or other assessments, including all
net income, gross income, sales and use, ad valorem, transfer,
gains, profits, excise, franchise, real and personal property,
gross receipt, capital stock, production, business and
occupation, disability, employment, payroll, license, estimated,
stamp, custom duties, severance or withholding taxes or charges
imposed by any governmental entity, and includes any interest and
penalties (civil or criminal) on or additions to any such taxes
and any expenses incurred in connection with the determination,
settlement or litigation of any tax liability. "Tax Return", as
----------
used in this Agreement, means a report, return or other
information required to be supplied to a governmental entity with
respect to Taxes, including where permitted or required, combined
or consolidated returns for any group or entities.
(a) Filing of Timely Tax Returns. SRS has duly filed
----------------------------
all Tax Returns required to be filed by it under applicable law
and will file all Tax Returns required to be filed by it at or
prior to the Effective Date under applicable law. All Tax Returns
were in all material respects (and, as to Tax Returns not filed
as of the date hereof, will be) complete and correct and filed on
a timely basis. SRS has not requested any extension of time
within which to file any Tax Return, which Tax Return has not
since been filed.
(b) Payment of Taxes. SRS has, within the time and
----------------
in the manner prescribed by law, paid (and until the Effective
Date will pay within the time and in the manner prescribed by
law) all Taxes that are currently due and payable except for
those contested in good faith and for which adequate reserves
have been taken.
(c) Tax Liens. There are no Tax liens upon the
---------
assets of SRS except liens for Taxes not yet due.
(d) Withholding Taxes. SRS has complied (and until
-----------------
the Effective Date will comply) in all respects with the
provisions of the Code relating to the payment and withholding of
Taxes, including, without limitation, the withholding and
reporting requirements under Sections 1441 through 1464, 3401
through 3606, and 6041 and 6049 of the Code, as well as similar
provisions under any other laws, and has, within the time and in
the manner prescribed by law, withheld from employee wages and
paid over to the proper governmental authorities all amounts
required .
(e) Statute of Limitations. SRS has not executed any
----------------------
outstanding waivers or comparable consents regarding the
application of the statute of limitations with respect to any
Taxes or Tax Returns. The statute of limitations for the
assessment of all Taxes has expired for all applicable Tax
Returns of SRS or those Tax Returns have been examined by the
appropriate taxing authorities for all periods through the date
hereof, and no deficiency for any Taxes has been proposed,
asserted or assessed against SRS that has not been resolved and
paid in full.
(f) Audit, Administrative and Court Proceedings. No
-------------------------------------------
audits or other administrative proceedings or court proceedings
are presently pending or, to the knowledge of SRS, threatened
with regard to any Taxes or Tax Returns of SRS. Except as
disclosed in Schedule 3.7, no power of attorney currently in
------------
force has been granted by SRS concerning any Tax matter. To the
knowledge of SRS, no facts exist or have existed which would
constitute grounds for the assessment of Taxes on SRS with
respect to periods which have not been audited by the Internal
Revenue Service (the "IRS") or other taxing authorities.
(g) Code Section 341(f). SRS has not filed (and will
-------------------
not file prior to the Closing) a consent pursuant to Code Section
341(f) and has not agreed to have Code Section 341(f)(2) apply to
any disposition of a subsection (f) asset (as that term is
defined in Code Section 341(f)(4)) owned by SRS.
(h) Code Section 168. No property of SRS is property
----------------
that SRS or any party to this transaction is or will be required
to treat as being owned by another person pursuant to the
provisions of Code Section 168(f)(8) (as in effect prior to its
amendment by the Tax Reform Act of 1986) or is "tax-exempt use
property" within the meaning of Code Section 168.
(i) U.S. Real Property Holding Corporation. SRS is
--------------------------------------
not, and has not been, a United States real property holding
corporation (as defined in Section 897(c)(2) of the Code) during
the applicable period specified in section 897(c)(1)(A)(ii) of
the Code.
3.8 Litigation. Except as described on Schedule 3.8,
---------- ------------
there are no actions, suits, arbitrations, regulatory proceedings
or other litigation, proceedings or governmental investigations
pending or, to SRS' knowledge, threatened against or affecting
SRS any of its officers or directors in their capacity as such,
or any of its property or business which could reasonably be
expected to have an SRS Material Adverse Effect. No event has
occurred or circumstance exists that may give rise or serve as a
basis for the commencement of any such proceeding. SRS is not
subject to any order, judgment, decree, injunction, stipulation
or consent order of or with any court or other Governmental
Entity, other than orders of general applicability.
3.9 Compliance with Applicable Laws. SRS holds all
-------------------------------
permits, licenses, variances, exemptions, orders and approvals of
all Governmental Entities which are required in the operation of
its business (the "SRS Permits"), and is in compliance with the
terms of the SRS Permits, except where the failure so to comply
would not have an SRS Material Adverse Effect. Schedule 3.9 is a
------------
complete and correct list of all Permits. The entry into and
consummation of this Agreement and the Merger will not require
any modification, re-application, approval or other consent as to
any SRS Permit. SRS is not in violation of any law, ordinance or
regulation of any Governmental Authority, including environmental
and labor laws and regulations, except for possible violations
which individually and in the aggregate do not, and, insofar as
reasonably can be foreseen by SRS, will not in the future have an
SRS Material Adverse Effect.
3.10 Contracts. (a) Except for the contracts,
---------
agreements, commitments, instruments, bids and proposals to which
SRS is a party listed on Schedule 3.10, SRS is not a party to or
-------------
otherwise bound by any written or oral (i) mortgage, indenture,
note, installment obligation or other instrument relating to the
borrowing of money, (ii) guarantee of any obligation (excluding
endorsements of instruments for collection in the ordinary course
of business of SRS), (iii) letter of credit, bond or other
indemnity, (iv) joint venture, partnership or other agreement
involving the sharing of profits and losses, (v) performance of
services or delivery of goods in an amount exceeding $1,000 or
which would not be completed within three (3) months, (vi)
agreement for the sale or lease by SRS to any person of any
material amount of its assets other than the retirement or other
disposition of assets no longer useful to SRS or the sale of
assets in the ordinary course of the operation of SRS, (vi)
agreement requiring the payment by SRS of more than $1,000 in any
12-month period for the purchase or lease of any machinery,
equipment or other capital assets, (viii) agreement providing for
the lease or sublease by SRS (as lessor, sublessor, lessee or
sublessee) of any real property, (ix) distributor, sales
representative, broker or agent agreement, (x) collective
bargaining agreement, employment or consulting agreement or
agreement providing for severance payments or other additional
rights or benefits (whether or not optional) in the event of the
sale of SRS, (xi) agreement requiring the payment by SRS to any
person of more than $1,000 in any 12-month period for the
purchase of goods or services, (xii) material warranties relating
to products distributed or services provided by SRS, (xiii)
license or sublicense agreement (whether as licensor, licensee,
sublicensor or sublicensee) with respect to any material item of
Intellectual Property owned or licensed by SRS, and (xiv)
agreement imposing non-competition, confidentiality or exclusive
dealing obligations on SRS.
(b) SRS has delivered or made available to Eco
complete and correct copies of each written agreement listed on
Schedule 3.10 each as amended to date and a summary of the terms
-------------
of each oral agreement listed on Schedule 3.10. Each agreement
-------------
listed on Schedule 3.10 is a valid, binding and enforceable
-------------
obligation of SRS and, to SRS' knowledge, the other party or
parties thereto (subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar
Laws affecting creditors' rights and remedies generally and
subject as to enforceability to general principles of equity,
including principles of commercial reasonableness, good faith and
fair dealing) and is in full force and effect. Except as set
forth on Schedule 3.10 (i) neither SRS nor, to SRS' knowledge,
-------------
any other party thereto is in material breach of any material
term of any such agreement or has repudiated any material term of
any such agreement, (ii) no event, occurrence or condition exists
(including the transactions contemplated under this Agreement)
which, with the lapse of time or the giving of notice or both,
would become a default under any such agreement by SRS or, to
SRS' knowledge, any other party thereto, and (iii) SRS has not
released or waived any material right under any contract. SRS is
not required to give any notice to any other person who is a
party to an agreement listed on Schedule 3.10 regarding this
-------------
Agreement or the Merger.
(c) Schedule 3.10 sets forth a correct and complete
-------------
list of the ten largest customers of SRS in terms of net revenues
during each of the 1994 and 1995 fiscal years and the first six
months of fiscal 1996, showing the approximately total net
revenue received in each such period from each such customer.
Except to the extent set forth on Schedule 3.10, since December
31, 1995, there has not been any adverse change in the business
relationship between SRS and any customer listed on such
Schedule.
3.11 Real Property. SRS does not own, nor have any
-------------
right to acquire, any real property.
3.12 Personal Property. Schedule 3.12 is a complete
----------------- -------------
and correct list of all personal property of SRS (other than
inventory) not reflected or any other Schedule hereto and having
a book value exceeding $1,000. Except as set forth on Schedule
--------
3.12, SRS now has and on the Closing Date will have good and
----
marketable title to all personal property purported to be owned
by it, free and clear of all Liens. The material, tangible assets
of SRS taken as a whole, including all machinery and equipment,
are, in all material respects, in good condition and repair,
reasonable wear and tear excepted and have been well maintained.
3.13 Employees. Schedule 3.13 contains a complete and
--------- -------------
correct list of (i) all full-time and part-time employees of SRS,
including their respective salaries, dates of hire, positions and
last salary adjustment and (ii) all bonus, deferred compensation,
severance or termination pay, insurance, medical, dental, drug,
profit sharing, pension, retirement, stock option, stock
purchase, hospitalization insurance or other material plans or
arrangements providing employee benefits to any current or former
director, officer, employee or consultant of SRS and all relevant
vacation policies. SRS is not a party to any union, collective
bargaining or similar agreement, and there are no controversies
pending or, to SRS' knowledge, threatened between SRS and any
current or former employee or any labor or other collective
bargaining unit representing any current or former employee of
SRS that could reasonably be expected to result in a material
labor strike, dispute, slow-down or work stoppage or otherwise
have a material adverse effect on the financial condition of SRS.
SRS is not aware of any organizational effort presently being
made or threatened by or on behalf of any labor union with
respect to employees of SRS. SRS has paid or accrued in full all
wages, salaries, commissions, bonuses and other compensation
(including severance pay and vacation benefits) for all services
performed by its employees and former employees, and has withheld
such amounts as were required to be withheld therefrom and has
paid the withheld amounts to the proper tax and other receiving
officers within the time required under applicable law.
3.14 Insurance. Schedule 3.14 contains a complete and
--------- -------------
correct schedule of coverage and list of all policies of
insurance owned by SRS under which SRS assets, properties,
operations or employees are insured (including amount of
coverage, type of insurance, amount of deductible, if any, the
policy number and expiration date), and all claims made under any
of such policies or prior policies since January 1, 1994. Since
January 1, 1994, SRS has given due and timely notice of any claim
and of any occurrence known to SRS which may be covered by any of
such policies or prior policies. All scheduled policies are in
full force and effect and are in amounts and coverage sufficient
for compliance by SRS with all applicable requirements of Law and
all agreements to which SRS is a party or subject and customary
in its industry. All premiums in connection with such policies
are fully paid. No event has occurred which, with notice or lapse
of time, would constitute a breach or default thereunder or
permit termination, modification or acceleration of any policy,
and no party to any policy has repudiated any provisions thereof.
3.15 Inventories. The amounts at which the
-----------
inventories are carried on the SRS Interim Balance Sheet and on
the books of SRS reflect the normal valuation policy of SRS in
accordance with U.S. GAAP. The amount of repair parts and
supplies maintained by SRS is consistent with its prior
practices. The reserves estimated for obsolescence as of the
Closing Date will be adequate to cover the diminution in value of
inventories due to obsolescence.
3.16 Accounts Receivable. Schedule 3.16 sets forth a
------------------- -------------
complete and correct list of the work-in-process and accounts
receivable of SRS as set forth on the SRS Interim Balance Sheet,
including the degree of completion for each project and the
amounts expended thereon. All accounts receivable which have
arisen subsequent to the SRS Interim Balance Sheet represent
sales or work performed made in the ordinary course of business,
are current and collectible and, to SRS' knowledge, the same will
be collected in full (net of reserve for bad debts) in the
ordinary course of business and are not subject to any claims,
offsets, allowances or adjustments.
3.17 Employee Benefits. (a) Schedule 3.17 is a
----------------- -------------
complete and correct list of each employee benefit plan that SRS
maintains with respect to its current or former employees or to
which SRS contributes or is obligated to contribute with respect
to any of its current or former employees. SRS does not have any
benefit plan subject to the reporting requirements of the
Employee Retirement Income Security Act of 1974, as amended
("ERISA"), the Code and other applicable Laws, nor has had such a
plan since January 1, 1991.
3.18 Intellectual Property. Schedule 3.18 is a
--------------------- -------------
complete and correct list of all of the trademarks, tradenames,
service marks, and patents (including any registrations of or
pending applications for any of the foregoing), know-how, data
bases, trade secrets and confidentiality information
(collectively, "Intellectual Property") used by SRS in the
conduct of its business. Except as disclosed on Schedule 3.18:
-------------
(a) all of such Intellectual Property is owned by
SRS free and clear of all liens, and is not subject to any
license, royalty or other agreement;
(b) none of such Intellectual Property has been or
is the subject of any pending or, to the best of SRS' knowledge,
threatened litigation or claim of infringement;
(c) no license or royalty agreement to which SRS is a
party is in breach or default by any party thereto except where
such breach or default would not have an SRS Material Adverse
Effect or is the subject of any notice of termination given or,
to SRS' knowledge, threatened;
(d) to SRS' knowledge, SRS is not breaching or
infringing any Intellectual Property of third parties; and
(e) the Intellectual Property is sufficient for the
conduct of the business of SRS as presently conducted.
3.19 Environmental Matters. The business and
---------------------
operations of SRS, including the transportation, treatment,
storage, handling, transfer, disposition, recycling or receipt of
materials, complies with all applicable environmental statutes,
regulations and decrees, whether federal, state or municipal (the
"Environmental Laws"). SRS has not received any notices to the
effect that the business carried on by SRS or the operation of
any equipment or facilities of SRS (including the transportation,
handling, treatment or storage of hazardous materials thereon) is
not in compliance with the requirements of applicable
Environmental Laws or is subject to any remedial control or
action or any investigation or evaluation as to whether any
remedial action is required to respond to a release or threatened
which forms part of or is adjacent to any premises at which SRS's
business is conducted. SRS has performed its services for
customers in material compliance with all applicable
Environmental Laws.
3.20 Books and Records. SRS has maintained and
-----------------
preserved complete and accurate books and records for its
material transactions. The minute books of SRS include complete
and correct minutes of all meetings of its directors committees
and stockholders. The SRS Articles of Incorporation and By-laws
previously delivered to ECO are current and complete. At the
Closing Date, all of those books and records will be in the
possession of SRS. Schedule 3.20 sets forth a complete and
-------------
correct list of (i) all officers and directors of SRS and (ii)
the name and address of each bank, trust company or other
financial institution in which SRS has an account and the names
of all persons authorized to draw thereon as well as all powers
of attorney granted by SRS.
3.21 Related Party Transactions. Schedule 3.21 sets
-------------------------- -------------
forth a complete and correct list of all transactions, loans,
claims, or agreements between or involving SRS and an officer,
director; employee, consultant or stockholder of SRS (or an
affiliate of any such person) since July 1, 1994.(excluding
employment agreements included on another SRS Schedule to this
Agreement and benefits given to all employees of SRS). All
transactions and agreements listed on Schedule 3.21 were on terms
-------------
to SRS no less favorable than what SRS would have had with
unrelated third parties.
3.22 Fees of Brokers, Consultants and Financial
-------------------------------------------
Advisors. Neither SRS, nor any officer, director, or employee of
--------
SRS, has employed any broker, finder, consultant or investment
banker or incurred any liability for any brokerage or investment
banking fees, commissions or finders, fees in connection with the
transactions contemplated by this Agreement, except to William
Thompson Investment Co. and Sucsy Fischer & Co., investment
bankers, whose fees aggregated $380,000 shall be payable from the
Merger Consideration.
3.23 Required Vote. The affirmative vote of the
-------------
holders of a majority of the outstanding shares of SRS Common
Stock, voting together as one class, is the only vote of the SRS
stockholders required to approve this Agreement, the Merger and
the transactions contemplated herein.
3.24 General Representation and Warranty. Neither
-----------------------------------
this Agreement nor any schedule attached hereto or other
documents and written information furnished by or on behalf of
SRS, its attorneys, auditors or insurance agents to Eco in
connection with this Agreement contains any untrue statement of
material fact or omits to state any material fact necessary to
make the statements contained herein or therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
ACQUISITION CORP. AND ECO
Acquisition Corp. and Eco, jointly and severally,
hereby represent and warrant to SRS as follows:
4.1 Due Incorporation. Each of Eco and
-----------------
Acquisition Corp. is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction
of incorporation, with all requisite power and authority to own,
lease and operate its properties and to carry on its business as
now being conducted. Eco is qualified to do business and is in
good standing as a foreign corporation in each jurisdiction where
the nature of the properties owned, leased or operated by it and
the business transacted by it require such qualification, except
where the failure to be so qualified could not have an Eco
Material Adverse Effect (as defined in Section 4.7 herein).
-----------
4.2 Due Authorization. Each of Eco and
-----------------
Acquisition Corp. has full power and authority to enter into this
Agreement and the Related Agreement to which it is a party and to
consummate the transactions contemplated hereby and thereby. The
execution, delivery and performance by Eco of this Agreement has
been duly and validly approved by the Board of Directors of Eco,
and no other actions or proceedings on the part of Eco are
necessary to authorize this Agreement. The execution, delivery
and performance by Acquisition Corp. of this Agreement and the
Related Agreement have been duly and validly approved by the
Board of Directors and the sole stockholder of Acquisition Corp.,
and no other actions or proceedings on the part of Acquisition
Corp. or its stockholder are necessary to authorize this
Agreement and the Related Agreement. Each of Eco and Acquisition
Corp. has duly and validly executed and delivered this Agreement
and Acquisition Corp. has duly and validly executed and delivered
(or will duly and validly execute and deliver on or prior to the
Closing Date) the Related Agreement. This Agreement constitutes
the legal, valid and binding obligations of each of Eco and
Acquisition Corp., and the Related Agreement will, upon
execution, constitute the legal, valid and binding obligation of
Acquisition Corp., in each case enforceable in accordance with
their respective terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, fraudulent
transfer, moratorium, reorganization or other laws from time to
time in effect which affect creditors' rights generally and by
general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at
law).
4.3 Non-Contravention; Consents and Approvals. (a)
-----------------------------------------
The execution and delivery of this Agreement by Eco and
Acquisition Corp. does not, and the performance by Eco and
Acquisition Corp. of their obligations hereunder and the
consummation of the transactions contemplated hereby will not,
conflict with, result in a violation or breach of, constitute
(with or without notice or lapse of time or both) a default
under, result in or give to any person any right of payment or
reimbursement, termination, cancellation, modification or
acceleration of, or result in the creation or imposition of any
lien upon any of the assets or properties of any of the American
Eco Companies under, any of the terms, conditions or provisions
of (i) the charter documents or bylaws of each of the American
Eco Companies, or (ii) subject to the taking of the actions
described in paragraph (b) of this Section, (x) any statute, law,
rule, regulation or ordinance (together, "Laws"), or any
judgment, decree, order, writ, permit or license, of any
Governmental Entity, or (y) any contract, agreement or commitment
to which any Eco Company is a party or by which any American Eco
Company or any of their respective assets or properties is bound.
(b) No consent, approval, order or authorization of,
or registration, declaration or filing with any Governmental
Entity is required by Eco or Acquisition Corp. in connection with
the execution and delivery of this Agreement and the Related
Agreement or the consummation by each of Eco and Acquisition
Corp. or each of their respective stockholders of the
transactions contemplated hereby and thereby, except for:
(i) the filing of the Articles of Merger with the
Secretary of State of the State of Nevada in accordance with
the requirements of the NRS;
(ii) filings with various state securities "blue sky"
authorities; and
(iii) the approval of the Toronto Stock Exchange (the
"TSE") of this Agreement and the issuance of the Merger
Consideration.
4.4 Capitalization. (a) The authorized capital
--------------
stock of Eco consists of 700,000 shares of Preferred Stock, no
par value per share ("Eco Preferred Stock") and an unlimited
number of shares of Eco Common Stock. On the date hereof, there
are no shares of Eco Preferred Stock issued and outstanding and
10,551,771 shares of Eco Common Stock issued and outstanding. The
authorized capital stock of Acquisition Corp. consists of 1,000
shares of Acquisition Corp. Common Stock, of which there are 100
shares issued and outstanding on the date hereof. All of the
issued and outstanding shares of Eco and Acquisition Corp. Common
Stock are, and all shares of Eco Common Stock constituting the
Merger Consideration to be issued to SRS stockholders in the
Merger will be, validly issued, fully paid and nonassessable and
the issuances thereof were not and will not be subject to
preemptive rights. Schedule 4.4 is a correct and complete list of
------------
shares of Eco Common Stock reserved for issuance under Eco stock
option plans and warrants (the "Eco Derivative Securities") as of
March 31, 1996.
(b) Except for the Eco Derivative Securities, there
are no shares of Eco Common Stock and Acquisition Corp. Common
Stock or other equity securities (whether or not such securities
have voting rights) of Eco and Acquisition Corp. issued or
outstanding or any subscriptions, options, warrants, calls,
rights, convertible securities or other agreements or commitments
of any character obligating Eco and/or Acquisition Corp. to
issue, transfer or sell any shares of capital stock or other
securities (whether or not such securities have voting rights) of
Eco and Acquisition Corp. There are no outstanding contractual
obligations of Eco or Acquisition Corp. which relate to the
purchase, sale, issuance, repurchase, redemption, acquisition,
transfer, disposition, holding or voting of any shares of capital
stock or other securities of each of Eco and Acquisition Corp.
4.5 Financial Statements; Undisclosed Liabilities;
----------------------------------------------
Other Documents. (a) For purposes of this Agreement, "Eco
---------------
Financial Statements" shall mean (x) the audited consolidated
financial statements of Eco as of November 30, 1995 and November
30, 1994 and for the fiscal years then ended (including all notes
thereto) which are included in the Eco SEC Documents (as defined
in Section 4.6), and (y) the unaudited consolidated financial
------------
statements of Eco as of February 29, 1996 and February 28, 1995
and for the three months then ended consisting of the
consolidated balance sheets at such dates and the related
consolidated statements of operations, stockholders' equity and
cash flows for the periods then ended. The Eco Financial
Statements have been prepared in accordance with Canadian GAAP
(together with notes thereto explaining the differences between
Canadian GAAP and U.S. GAAP) consistently applied, present fairly
the financial position, of Eco as at the dates thereof and the
results of operations and cash flows of Eco for the periods
covered thereby (subject, in the case of any unaudited interim
financial statements, to normal year-end adjustments), and are
substantially in accordance with the financial books and records
of Eco.
(b) Eco does not have any liabilities or obligations
of any nature, whether accrued, contingent, absolute or
otherwise, which individually or in the aggregate could be
reasonably expected to have an Eco Material Adverse Effect (as
defined below) except (i) as set forth in the February 29, 1996
balance sheet (the "Eco Interim Balance Sheet") Eco or (ii)
liabilities or obligations incurred since February 29, 1996 in
the ordinary and usual course of its business.
4.6 Securities Law Filings. The Eco Common Stock
----------------------
is listed on the TSE and the Nasdaq National Market. Eco as a
"foreign private issuer", as defined in the U.S. Securities
Exchange Act of 1934, as amended (the "Exchange Act"), has filed
all required forms, reports and other documents with the U.S.
Securities and Exchange Commission (the "SEC") since December 1,
1994, all of which complied when filed, in all material respects,
with all applicable requirements of the Exchange Act. Eco has
heretofore delivered to SRS complete and correct copies of (i)
its Annual Report on Form 20-F for the year ended November 30,
1994, as filed with the SEC, (ii) its Annual Report to
Stockholders for the 1995 fiscal year, (iii) all information
circulars relating to Eco,s meetings of stockholders (whether
annual or special) since December 1, 1994, and (iv) all other
reports, forms and other documents filed by Eco with the SEC
since December 1, 1994 (together, the "Eco SEC Documents").
4.7 No Material Adverse Effects or Changes.
--------------------------------------
Except as listed on Schedule 4.7, or as disclosed in or reflected
------------
in the Eco Financial Statements included in the Eco SEC
Documents, or as contemplated by this Agreement, since February
29, 1996, neither Eco nor any of its wholly-owned subsidiaries
(ECO and such subsidiaries sometimes collectively, the "Eco
Companies") has suffered any damage, destruction or Loss to any
of its assets or properties (whether or not covered by insurance)
which is having or could be expected to have an Eco Material
Adverse Effect. An "Eco Material Adverse Effect" shall mean an
effect on or circumstances involving the business, operations,
assets, liabilities, results of operations, cash flows or
condition (financial or otherwise) which is materially adverse to
the Eco Companies, taken as a whole.
4.8 Insurance. The Eco Companies are insured
---------
with reputable insurers against all risks and in such amounts
normally insured against by companies of the same type and in the
same line of business as the Eco Companies.
4.9 Labor Matters. Each of the Eco Companies has
-------------
conducted and currently is conducting, its respective business in
full compliance with all laws relating to employment and
employment practices, terms and conditions of employment, wages
and hours and nondiscrimination in employment except where such
failure to be in compliance would not have an Eco Material
Adverse Effect. The relationship of the Eco Companies with its
respective employees is generally satisfactory, and there is, and
during the past three years there has been, no labor strike,
dispute, slow-down, work stoppage or other labor difficulty
pending or, to Eco's knowledge, threatened against or.involving
the Eco Companies. None of the employees of the Eco Companies are
covered by any collective bargaining agreement, no collective
bargaining agreement is currently being negotiated by the Eco
Companies and to Eco's knowledge, no attempt is currently being
made or during the past three years has been made to organize any
employees of the Eco Companies to form or enter a labor union or
similar organization.
4.10 Tax Returns and Audits. Except as set forth
----------------------
on Schedule 4.10, each of the Eco Companies has duly filed all
-------------
Canadian, United States, province, state, local and foreign Tax
Returns required to be filed by it, except where the failure to
so file would not have an Eco Material Adverse Effect. Eco has
duly paid (except for Taxes being contested in good faith) or
made adequate provisions on its books in accordance with Canadian
GAAP for the payment of all Taxes which have been incurred or are
due and payable, by the Eco Companies, and Eco will on or before
the Effective Time of the Merger make adequate provision on its
books in accordance with Canadian GAAP for all Taxes payable for
any period through the Effective Time of the Merger for which no
return is required to be filed prior to the Effective Time. Since
December 1, 1994, the Tax Returns of the Eco Companies have not
been examined by the Canadian tax authorities, the IRS or other
taxing authority, respectively, nor has any of the Eco Companies
granted or given any extensions or waivers of the statute of
limitations with respect to any such federal and state income tax
returns since December 1, 1994. Eco is not aware of any basis for
the assertion of any deficiency against any of the Eco Companies
for Taxes, which, if adversely determined, would have an Eco
Material Adverse Effect.
4.11 Litigation. (a) Except as disclosed in Schedule
---------- --------
4.11, there are no actions, suits, arbitrations, regulatory
----
proceedings or other litigation, proceedings or governmental
investigations pending or, to Eco's knowledge, threatened against
or affecting any of the Eco Companies or any of their respective
officers or directors in their capacity as such, or any of their
respective properties or businesses which could reasonably be
expected to have an Eco Material Adverse Effect. No Eco Company
is subject to any order, judgment, decree, injunction,
stipulation or consent order of or with any court or other
Governmental Entity, other than orders of general applicability.
Since December 1, 1994, none of the Eco Companies has entered
into any agreement to settle or compromise any proceeding pending
or threatened against it which has involved any obligation other
than the payment of money or for which it has any continuing
obligation.
(b) There are no claims, actions, suits,
proceedings, or investigations pending or, to Eco's knowledge,
threatened by or against any of the Eco Companies with respect to
this Agreement or the Related Agreement, or in connection with
the transactions contemplated hereby or thereby.
4.12 Compliance with Applicable Laws. Except as
-------------------------------
disclosed in Schedule 4.12, each of the Eco Companies holds all
-------------
permits, licenses, variances, exemptions, orders and approvals of
all Governmental Entities which are required in the operation of
its respective business (the "Eco Permits") except for those the
failure of which to hold would not have an Eco Material Adverse
Effect. The Eco Companies are in compliance with the terms of the
Eco Permits, except where the failure so to comply would not have
an American Eco Material Adverse Effect. Except as disclosed in
Schedule 4.12, to Eco's knowledge, none of the Eco Companies is
-------------
in violation of any law, ordinance or regulation of any
Governmental Authority, including environmental laws and
regulations, except for possible violations which individually
and in the aggregate do not, and, insofar as reasonably can be
foreseen by Eco, will not in the future have an Eco Material
Adverse Effect.
4.13 Contracts; No Defaults. Neither any Eco Company
----------------------
nor to Eco's knowledge any other party thereto, is in breach or
violation of, or in default in the performance or observance of
any term or provision of, and no event has occurred or by reason
of this Agreement or the Merger would occur which, with notice or
lapse of time or both, could be reasonably expected to result in
a default under, any contract, agreement or commitment to which
any Eco Company is a party or by which any Eco Company or any of
its assets or properties is bound, except for breaches,
violations and defaults which are not having and could not be
reasonably expected to have an American Eco Material Adverse
Effect. None of the Eco Companies is required to give any notice
to any person regarding this Agreement or the Related Agreement
or the transactions contemplated hereby or thereby.
4.14 Absence of Certain Changes or Events. Except as
------------------------------------
disclosed in the Eco SEC Documents filed prior to the date of
this Agreement or in Schedule 4.14 hereto, since February 29,
-------------
1996, Eco has not (i) declared, set aside or paid any dividend or
other distribution in respect of its capital stock; (ii) made any
direct or indirect redemption, purchase or other acquisition of
any shares (other than purchases in connection with the exercise
of options) of its capital stock or made any payment (other than
dividends) to any of their stockholders (in their capacity as
stockholders); (iii) issued or sold any shares of its capital
stock or any options, warrants or other rights to purchase any
such shares or any securities convertible into or exchangeable
for such shares or taken any action to reclassify or recapitalize
or split up their capital stock; (iv) mortgaged, pledged or
subjected to any lien, lease, security interest, encumbrance or
other restriction, any of their material properties or assets
\except in the ordinary and usual course of their business and
consistent with past practice; (v) entered into any acquisition
or merger agreement or commitment, (vi) except in the ordinary
and usual course of its business and consistent with its past
practices forgiven or canceled any material debt or claim, waived
any material right; or (vii) adopted or amended any plan or
arrangement (other than amendments that are not material or that
were made to comply with laws or regulations) for the benefit of
any director, officer or employee or changed the compensation
(including bonuses) to be paid to any director, officer or
employee, except for changes made consistent with the prior
practice of Eco.
4.15 Fees of Brokers, Finders and Investment Bankers.
------------------------------------------------
Neither Eco nor any officer, director, or employee of Eco has
employed any brokers, finder or investment banker or incurred any
liability for any brokerage or investment banking fees,
commissions or finders' fees in connection with the transactions
contemplated by this Agreement.
4.16 General Representation and Warranty. Neither
-----------------------------------
this Agreement nor any schedule attached hereto or other
documents and written information furnished by or on behalf of
Eco, its attorneys, auditors or insurance agents to SRS in
connection with this Agreement contains any untrue statement of
material fact or omits to state any material fact necessary to
make the statements contained herein or therein not misleading.
ARTICLE V
COVENANTS
5.1 Implementing Agreement. Subject to the terms
----------------------
and conditions hereof, each party hereto shall use its best
efforts to take all action required of it to fulfill its
obligations under the terms of this Agreement and to facilitate
the consummation of the transactions contemplated hereby;
5.2 Access to Information and Facilities;
-------------------------------------
Confidentiality. (a) From and after the date of this Agreement,
---------------
SRS shall give Eco and Acquisition Corp. and their
representatives access during normal business hours and upon
reasonable notice to all of the facilities, properties, books,
contracts, commitments and records of SRS and shall make the
officers and employees of SRS available to Eco and Acquisition
Corp. and their representatives as Eco or Acquisition Corp. or
their representatives shall from time to time reasonably request.
Eco and Acquisition Corp. and their representatives will be
furnished with any and all information concerning SRS which Eco
or Acquisition Corp. or their representatives reasonably request.
The obligations set forth in this Section 5.2 shall also apply to
-----------
Eco and Acquisition Corp., mutatis mutandis. The investigation by
------- --------
and knowledge of SRS or Eco and the furnishing of information to
each other shall not affect the right of such party to rely on
the representations, warranties, covenants and agreements of the
other party hereto.
(b) Each of SRS, on one hand, and Eco and
Acquisition Corp., on the other hand, agrees for itself, and its
respective representatives, to keep confidential all information
furnished to it pursuant to this Section 5.2, except for
information which is public or which is disclosed other than by a
person subject to this Section 5.2(b).
--------------
5.3 Preservation of Business. (a) From the date of
------------------------
this Agreement until the Closing Date, each of SRS and Eco,
(including the SRS Companies and the other Eco Companies,
respectively) shall operate only in the ordinary and usual course
of business consistent with past practice, and shall use
reasonable commercial efforts to (i) preserve intact its business
organization, (ii) preserve the good will and advantageous
relationships with customers, suppliers, independent contractors,
employees and other persons material to the operation of its
business, and (iii) not permit any action or omission which would
cause any of the representations or warranties contained herein
to become inaccurate or any of the covenants to be breached in
any material respect.
(b) SRS further covenants that prior to the Closing
Date SRS shall not, nor permit any of the SRS Companies.to,
without the prior written consent of Eco (which shall not be
unreasonably withheld):
(i) take any action, incur any obligation or enter
into or authorize any contract or transaction other than in
the ordinary course of business;
(ii) except pursuant to the terms of any SRS Options,
issue, sell, deliver or agree or commit to issue, sell or
deliver (whether through the issuance or granting or
options, warrants, convertible or exchangeable securities,
commitments, subscriptions, rights to purchase or otherwise)
any shares of its capital stock or any other securities, or
amend any of their terms of any such securities;
(iii) split, combine, or reclassify any shares of its
capital stock, declare, set aside or pay any dividend or
other distribution (whether in cash, stock or property or
any combination thereof) in respect of its capital stock, or
redeem or otherwise acquire any of its securities; or
(iv) make any changes in its accounting systems,
policies, principles or practices except as may be required
by law or U.S. GAAP;
(v) make any material Tax election or settle or
compromise any material federal, state, local or foreign
income Tax liability, or waive or extend the statute of
limitations in respect of any such Taxes; or
(vi) terminate, or modify, amend or otherwise alter
or change in any material respect, any of the terms or
provisions of any material Contract.
(c) Each of SRS and Eco will promptly notify the
other in writing upon becoming aware of any fact or condition
which would constitute a breach or non-compliance of this
covenant.
5.4 SRS Stockholder Approval. As soon as
------------------------
practicable after the date hereof, SRS shall prepare a proxy
statement for a stockholders meeting (the "SRS Stockholders
Meeting") at which approval of this Agreement and the Merger will
be voted upon. SRS will convene the SRS Stockholders' Meeting as
promptly as practicable after the proxy statement is available,
subject to prior hearing as described in Section 5.5 hereof.
-----------
Subject to fiduciary obligations of the SRS Board of Directors,
the SRS Board of Directors shall recommend approval to its
stockholders of this Agreement and the Merger and use its best
efforts to obtain such approval. At the request of SRS, Eco shall
furnish to SRS such information regarding Eco and Acquisition
Corp. as may reasonably be necessary for inclusion in the proxy
statement. SRS agrees to provide Eco with drafts of the proxy
statement at least two business days prior to distribution of the
final proxy statement to SRS stockholders.
5.5 California Permit. As soon as practicable
-----------------
after the date hereof SRS shall prepare and file an application
(the "Application") with the California Commissioner of
Corporations (the "COC") seeking a permit (the "Permit") under
Section 25142 of the California Corporations Code for approval of
the terms of the Merger on behalf of SRS stockholders after a
hearing thereon. At the request of SRS, Eco shall furnish such
information regarding Eco as may be reasonably required for
inclusion in the Application. SRS shall provide Eco with a draft
Application at least two business days prior to filing with the
COC. SRS shall use its best efforts to cause the COC to grant the
Permit, including appearing at any hearing required thereunder,
in order that the approval by the COC would permit Eco to issue
the Merger Consideration without registration under the
Securities Act of 1933, as amended (the "Securities Act")
pursuant to the exemption provided in Section 3(a)(10) thereof.
5.6 Consents and Approvals. Subject to the terms
----------------------
and conditions provided herein, each of the parties hereto shall
use reasonable commercial efforts to obtain all consents,
approvals, certificates and other documents required in
connection with the performance by it of this Agreement and the
consummation of the transactions contemplated hereby, in addition
to the approval of SRS Stockholders and the grant of the Permit
pursuant to Sections 5.4 and 5.5 hereof. As soon as practicable
--------------------
after the date hereof, each of the parties hereto shall make all
filings, applications, statements and reports to all Governmental
Authorities and other Persons which are required to be made prior
to the Closing Date pursuant to any applicable law or contract in
connection with this Agreement and the transactions contemplated
hereby.
5.7 Periodic Reports. Until the Effective Time, Eco
----------------
will, subject to the requirements of applicable laws, furnish to
SRS all filings to be made with the TSE and the SEC and will
solicit comments with respect thereto, in each case at least two
business days (or as soon thereafter as is practicable) prior to
the time of such filings and the time of such mailings of reports
which refer to SRS.
5.8 Publicity. Prior to issuing any public
---------
announcement or statement with respect to the transactions
contemplated hereby and prior to making any filing with any
Federal or state governmental or regulatory agency or with the
TSE or Nasdaq with respect thereto, Eco and SRS will, subject to
their respective legal obligations, consult with each other and
will allow each other to review the contents of any such public
announcement or statement and any such filing. Subject to the
preceding sentence, Eco and SRS each agree to furnish to the
other copies of all other public announcements they may make
concerning their respective business and operations promptly
after such public announcements are made.
5.9 No Negotiation. SRS agrees that it shall not,
--------------
after the date hereof and prior to the Effective Time, seek,
directly or through agents, representatives or affiliates (as
defined in the Exchange Act), or permit any of its officers or
directors to seek (whether in their capacities as officers or
directors or in their individual capacities) any person or
persons, (other than Eco or its affiliates), to acquire or
purchase all or substantially all of its assets or to purchase or
exchange for any of its capital stock, or SRS to acquire or
purchase in one or more related transactions the capital stock or
related assets of persons (other than Eco or its affiliates) or
to effect a consolidation or merger (other than the Merger) or
other business combination or recapitalization, or to enter into
any discussions or agreements with respect to any of the
foregoing transactions.
5.10 Listing of Common Stock. Eco shall cause to
-----------------------
be prepared and submitted applications to the TSE and Nasdaq
covering the listing of the shares of Eco Common Stock on the TSE
and NASDAQ National Market issuable in connection with the Merger
and will use its reasonable best efforts to obtain approval for
the listing of such additional shares.
5.11 Blue Sky Approvals. Eco and SRS shall obtain
------------------
all necessary state securities law or "Blue Sky" permits and
approvals required to carry out the transactions contemplated by
this Agreement and the Merger.
5.12 Principal Stockholders. SRS shall cause the
----------------------
Joseph and Barbara DeFranco Trust, Francis J. Sorg, Jr. and John
H. Van Kirk to enter into agreements agreeing to vote all of
their respective shares of SRS Common Stock, and shall cause
members of their respective immediate families to vote all of
their shares of SRS Common Stock, at the SRS Stockholders Meeting
in favor of approval of this Agreement and the Merger.
5.13 Rule 145 Affiliates. Prior to the Closing
-------------------
Date, SRS shall deliver to Eco a letter representing that other
than Joseph DeFranco, Francis J. Sorg, Jr., Donna L. Dominiquez,
William Sheehan and John H. Van Kirk and to its best knowledge,
SRS has no other "affiliates" for purposes of Rule 145 under the
Securities Act.
5.14 Tax-Free Status. No party hereto shall, nor
---------------
shall any party permit any of its subsidiaries to, take any
actions which would, or would be reasonably likely to, adversely
affect the status of the Merger as a tax-free transaction (except
as to dissenters' rights and fractional shares) under Code
Section 368(a).
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS
OF ACQUISITION CORP. AND ECO
The obligations of Acquisition Corp. and Eco to
consummate the Merger are subject to the fulfillment at or before
the Closing of each of the following conditions:
6.1 Warranties True as of Closing Date. Each of
----------------------------------
the representations and warranties of SRS contained herein shall
be true and correct in all material respects on and as of the
Closing Date with the same force and effect as though made on and
as of the Closing Date, without giving effect to any notification
pursuant to Section 5.3(c) hereof.
--------------
6.2 Compliance With Agreements and Covenants. SRS
----------------------------------------
shall have performed and complied with in all material respects
all of its covenants, obligations and agreements contained in
this Agreement to be performed and complied with by SRS on or
prior to the Closing Date, without giving effect to any
notification pursuant to Section 5.3(c) hereof.
--------------
6.3 SRS Certificate. SRS shall have delivered to
---------------
Eco a certificate, dated the Closing Date, from its Chief
Executive Officer and Chief Financial Officer certifying that
each of the conditions specified in Section 6.1 and Section 6.2
----------- -----------
hereof are satisfied in all respects.
6.4 Secretary's Certificate. SRS will have
-----------------------
delivered to Eco a certificate of the duly authorized Secretary
of SRS, dated the Closing Date, certifying resolutions of SRS
Board of Directors and stockholders authorizing the execution,
delivery and performance of this Agreement, the Related Agreement
and the Merger.
6.5 Good Standing Certificates. SRS will have
--------------------------
delivered to Eco at the Closing certificates of good standing and
tax status from the States of Nevada, California, Louisiana and
Washington as to SRS, which Certificates shall be dated a date
not more than five (5) business days prior to the Closing Date.
6.6 De Franco Employment Agreement. SRS will have
------------------------------
delivered to Eco a fully executed employment agreement between
SRS and Joseph De Franco. The De Franco employment agreement
shall be substantially in the form of Exhibit A attached hereto.
---------
6.7 Escrow Agreement. SRS will have delivered to Eco
----------------
Escrow Agreement executed by the escrow agent and Joseph
DeFranco, as the agent of the SRS stockholders, as provided for
in Sections 1.4(d) and 1.9(c) hereof. The Escrow Agreement shall
--------------------------
be substantially in the form of Exhibit B attached hereto.
---------
6.8 Opinion of Counsel. SRS will have delivered
------------------
to American Eco a legal opinion of Stradling, Yocca, Carlson &
Rauth in form and substance reasonably satisfactory to Eco and
its counsel.
6.9 Approval of Merger. The SRS stockholders
------------------
shall have approved this Agreement and the Merger contemplated
hereby in accordance with its Articles of Incorporation and
by-laws and the NRS [and California law?].
6.10 Permit. The COC shall have issued the Permit as
------
contemplated in Section 5.5 hereof, and no action shall have been
-----------
taken or threatened to modify or revoke the Permit.
6.11 Dissent and Appraisal. The holders of not more
---------------------
than 5% of the issued and outstanding shares of SRS Common Stock
have dissented from the Merger and sought appraisal rights
pursuant to the applicable provisions of the NRS.
6.12 Consents and Approvals. Eco shall have received
----------------------
written evidence satisfactory to it that all consents and
approvals required for the consummation of the transactions
contemplated hereby have been obtained, and all required filings
have been made, except where the failure to obtain any such
consent or approval or to make any such filing would not have an
SRS Material Adverse Effect or an Eco Material Adverse Effect.
6.13 Resignations. Such officers and directors of
------------
SRS as requested by Eco shall have delivered letters of
resignation of their positions with SRS.
6.14 Listing of Common Stock. The TSE and NASDAQ
-----------------------
shall have approved the listing of all shares of Eco Common Stock
to be issued in the Merger.
6.15 Rule 145 Letters. The persons listed in Section
---------------- -------
5.13 hereof shall have delivered to Eco letters regarding the
----
resale of the Eco Common Stock they are to receive on the Merger
in accordance with Rule 145 under the Securities Act.
6.16 Actions or Proceedings. No preliminary or
----------------------
permanent injunction or other order by any federal or state court
preventing consummation of the Merger shall have been issued and
shall be continuing in effect, and the Merger and the other
transactions contemplated hereby shall not be prohibited under
any applicable federal or state law or regulation.
6.17 Other Closing Documents. Eco shall have
-----------------------
received the executed Articles of Merger and such other
agreements and instruments as Eco shall reasonably request, in
each case in form and substance reasonably satisfactory to Eco.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF SRS
The obligations of SRS to consummate the Merger are
subject to the satisfaction or waiver by SRS of the following
conditions precedent on or before the Closing Date:
7.1 Warranties True as of Closing Date. Each of
----------------------------------
the representations and warranties of Acquisition Corp. and Eco
contained herein shall be true and correct in all material
respects on and as of the Closing Date with the same force and
effect as though made by Acquisition Corp. and Eco on and as of
the Closing Date, without giving effect to any notification
pursuant to Section 5.3(c) hereof.
-------------
7.2 Compliance with Agreements and Covenants.
----------------------------------------
Acquisition Corp. and Eco shall have performed and complied with
in all material respects all of their covenants, obligations and
agreements contained in this Agreement, to be performed and
complied with by them on or prior to the Closing Date, without
giving effect to any notification pursuant to Section 5.3(c)
--------------
hereof.
7.3 Eco Certificate. Eco shall have delivered to
---------------
SRS a certificate, dated the Closing Date, from its Chief
Executive Officer and Chief Financial Officer certifying that
each of the conditions specified in Section 7.1 and Section 7.2
----------- -----------
hereof are satisfied in all respects.
7.4 Opinion of Counsel. Eco shall have delivered
------------------
to SRS a legal opinion of Cassels Brock & Blackwell in form and
substance reasonably satisfactory to SRS.
7.5 Opinion of Tax Counsel. Eco shall have delivered
----------------------
to SRS a legal opinion of Reid & Priest LLP to the effect that
the Merger will be treated for federal income tax purposes as a
reorganization within Section 368(a) of the Code.
7.6 Permit. The COC shall have issued the Permit as
------
contemplated in Section 5.5 hereof, and no action shall have been
-----------
taken or threatened to modify or revoke the Permit.
7.7 Consents and Approvals. SRS shall have received
----------------------
written evidence satisfactory to it that all consents and
approvals required for the consummation of the transactions
contemplated hereby have been obtained, and all required filings
have been made, except where the failure to obtain any such
consent or approval or to make any such filing would not have an
SRS Material Adverse Effect or an Eco Material Adverse Effect.
7.8 Listing of Common Stock. The TSE and NASDAQ
-----------------------
shall have approved the listing of all shares of American Eco
Common Stock to be issued in the Merger.
7.9 Actions or Proceedings. No preliminary or
----------------------
permanent injunction or other order by any federal or state court
preventing consummation of the Merger shall have been issued and
shall be continuing in effect, and the Merger and the other
transactions contemplated hereby shall not be prohibited under
any applicable federal or state law or regulation.
7.10 Other Closing Documents. SRS shall have
-----------------------
received such other agreements and instruments as SRS shall
reasonably request, in each case in form and substance reasonably
satisfactory to SRS.
ARTICLE VIII
TERMINATION
8.1 Termination. This Agreement may be terminated and the
-----------
Merger may be abandoned at any time prior to the Effective Time,
whether before or after approval by the SRS stockholders:
(a) by mutual written consent of the Board of
Directors of American Eco and the Board of Directors of SRS;
(b) by either American Eco or SRS, by written notice
to the other, if (i) the Effective Time shall not have occurred
on or before June 1, 1996, or (ii) any court of competent
jurisdiction in Canada or any province or in the United States or
any state shall have issued an order, judgment or decree (other
than a temporary restraining order) restraining, enjoining or
otherwise prohibiting the Merger and such order, judgment or
decree shall have become final and non-appealable; provided,
however, that the right to terminate this Agreement (X) under
clause (i) shall not be available to any party whose failure to
fulfill any obligation under this Agreement has been the cause
of, or resulted in, the failure of the Effective Time to occur on
or before such date or (Y) under clause (ii) shall not be
available to any party unless such party shall have used all
reasonable efforts to remove such order, judgment or decree;
(c) by Eco, by written notice to SRS, if:
(i) there shall have been any breach of any
representation, warranty, covenant or agreement of SRS
hereunder which, if not remedied prior to the Closing Date,
would have an SRS Material Adverse Effect and such breach
shall not have been remedied, or SRS shall not have provided
Eco with reasonable assurance that such breach will be
remedied prior to the Closing Date, within five (5) business
days after receipt by SRS of notice in writing from Eco,
specifying the nature of such breach and requesting that it
be remedied; or
(ii) the Board of Directors of SRS shall withdraw or
modify in any manner adverse to Eco its approval or
recommendation of this Agreement or the Merger.
(d) by SRS, by written notice to Eco, if:
(i) there shall have been any breach of any
representation, warranty, covenant or agreement of Eco
hereunder which, if not remedied prior to the Closing Date,
would have an Eco Material Adverse Effect and such breach
shall not have been remedied or Eco shall not have provided
SRS with reasonable assurance that such breach will be
remedied prior to the Closing Date, within five (5) business
days after receipt by Eco of notice in writing from SRS,
specifying the nature of such breach and requesting that it
be remedied; or
(ii) the Board of Directors of Eco or any committee
thereof shall withdraw or modify in any manner adverse to
SRS its approval or recommendation of this Agreement or the
Merger.
8.2 Effect of Termination and Abandonment. In the
-------------------------------------
event of termination of this Agreement and abandonment of the
Merger pursuant to this Article VIII, this Agreement shall
------------
forthwith become void and no party hereto (or any of its
directors, officers or stockholders) shall have any liability or
further obligation to any other party to this Agreement, except
that nothing herein will relieve any party from liability for any
breach of any of its representations or warranties under this
Agreement or its failure to comply with one of its covenants,
agreements or obligations under this Agreement.
ARTICLE IX
INDEMNIFICATION
9.1 Indemnification by SRS Stockholders.
------------------------------------
(a) In consideration of the receipt of the Merger
Consideration, the SRS Stockholders shall indemnify and hold
harmless Eco from and against any claims, demands, debts, suits,
actions, obligations, proceedings, losses, damages, liabilities,
deficiencies, costs and expenses (including without limitation,
all reasonable legal and other professional fees and
disbursements, interest, penalties and amounts paid in
settlement) (collectively, "Claims") arising out of, based upon
or by reason of (A) any breach of any representation or warranty
of SRS contained in this Agreement or in any Schedule or
certificate delivered pursuant to this Agreement or (B) any
breach or non-fulfillment of, or failure to perform, any of the
covenants, agreements or understandings of SRS which are
contained in or made pursuant to this Agreement.
(b) Notwithstanding anything to the contrary herein,
any claim by Eco against the SRS Stockholders under this Section
9.1 shall be payable.by the SRS Stockholders only to the extent
that Eco's damages (the "Damages") shall exceed in the aggregate
525,000 (the "Threshold Amount"). At such time as the aggregate
amount of Eco Damages exceed the Threshold Amount, the SRS
Stockholders shall be liable on a dollar-for-dollar basis for the
full amount of all Eco Damages, including the Threshold Amount.
Any payments to be made by the SRS Stockholders under this
Section 9.1 shall be from shares of Eco Common Stock and/or funds
held under the Escrow Agreement, and shall be pro-rata based upon
their respective ownership of SRS Common stock as of the
Effective Time. In no event shall the aggregate liability of the
SRS Stockholders under this Section 9.1 exceed the amount of
funds and/or shares of Eco Common Stock and/or funds ($500,000)
held under the Escrow Agreement.
9.2 Indemnification by Eco.
-----------------------
(a) Eco shall indemnify and hold harmless the
persons who are SRS Stockholders immediately prior to the
Effective Time (the "Indemnified Stockholders") from and against
any claims, demands, debts, suits, actions, obligations,
proceedings, losses, damages, liabilities, deficiencies, costs
and expenses (including without limitation, all reasonable legal
and other professional fees and disbursements, interest,
penalties and amounts paid in settlement) (collectively,
"Claims") arising out of, based upon or by reason of (A) any
breach by Eco of any representation or warranty by Eco contained
in this Agreement or (B) any breach or non-fulfillment of, or
failure to perform, any of the covenants, agreements or
undertakings of Eco which are contained in or made pursuant to
this Agreement. It is acknowledged that the person who is acting
as the agent of the Indemnified Stockholders pursuant to the
Escrow Agreement shall also act as agent on behalf of the
Indemnified Stockholders pursuant to this Section 9.2 (the
-----------
"Stockholders' Agent").
(b) Notwithstanding anything to the contrary herein,
any claim by the Indemnified Stockholders against Eco under this
Section 9.2 shall be payable by Eco only to the extent that the
Indemnified Stockholders damages ("Damages") shall exceed the
Threshold Amount. At such time as the aggregate amount of the
Indemnified Stockholders Damages exceed the Threshold Amount, Eco
shall thereafter be liable on a dollar-for-dollar basis for the
full amount of all Indemnified Stockholders Damages, including
the Threshold Amount. Eco may make payments of amount payable
under this Section 9.2 in U.S. currency and/or shares of Eco
Common Stock, which shares be valued at the Average Closing Price
per share for the five trading days immediately prior to the
payment date, as provided in the Escrow Agreement. In no event
shall the aggregate liability of Eco under this Section 9.2
exceed $500,000.
9.3 Procedure. (a) Any Claim brought by Eco
---------
or the SRS Stockholders under this ARTICLE IX must be in writing,
specifying the nature of the Claim and the estimated amount of
damages, and be received by the party against whom
indemnification is being sought within one year after the
Effective Date (the "Indemnity Termination Date").
(b) In the event that subsequent to the Effective
Time, and not prior to the Indemnity Termination Date, Eco
receives written notice of the assertion of a claim or the
commencement of any action or proceeding by any person who is not
a party to this Agreement (including any Governmental Entity) (a
"Third Party Claim"), against Eco, SRS or one of their affiliates
against which ECO may be entitled to indemnification hereunder,
Eco shall give written notice of the Third Party Claim to the
Stockholders' Agent. Eco shall have the right to conduct the
defense of the Third Party Claim, and the cost of such defense
shall be part of Eco Damages. If an offer is made to settle a
Third Party Claim and Eco desires to accept such offer, Eco shall
give written notice of the offer of settlement to the
Stockholders' Agent who shall have fifteen (15) days from receipt
thereof to accept or reject the offer, which rejection must be on
a reasonable basis. The failure of the Stockholders Agent to
respond to a desired offer of settlement shall be deemed
acceptance thereof.
9.4 Remedies. Each of Eco and Acquisition Corp, on
--------
one hand, and SRS (until the Effective Time) and the SRS
Stockholders (after the Effective Time), on the other hand, shall
not be liable or responsible in any manner whatsoever to the
other, whether for indemnification or otherwise, with respect to
any matter arising out of the representations, warranties or
covenants of this Agreement or any Schedule hereto or any
certificate delivered in connection herewith except for (i)
equitable relief, (ii) pursuant to remedies expressly provided
for elsewhere in this Agreement and (iii) indemnity as expressly
provided in this ARTICLE IX, all of which provide the exclusive
remedy of the parties hereto.
ARTICLE X
MISCELLANEOUS
10.1 Expenses. Each party hereto shall bear its own
--------
expenses with respect to the transactions contemplated hereby.
10.2 Amendment. This Agreement may not be amended,
---------
modified or supplemented except by a writing executed by
Acquisition Corp., American Eco and SRS.
10.3 Notices. Any notice, request, instruction or
-------
other document to be given hereunder by a party hereto shall be
in writing and shall be deemed to have been given, (a) when
received if given in person, (b) on the date of transmission if
sent by telex, facsimile or other wire transmission (with receipt
confirmed) or (c) three business days after being deposited in
the U.S. mail, certified or registered mail, postage prepaid:
(a) If to SRS:
Separation and Recovery Systems, Inc.
1762 McGaw Avenue
Irvine, California 92714
Attn: Joseph De Franco, President
Facsimile No.: 714-261-7676
with a copy to:
Stradling, Yocca, Carlson & Rauth
660 Newport Centre Dr., Suite 1600
P.O. Box 7680
Newport Beach, California 92660-6441
Attn: R.C. Shepard, Esq.
Facsimile No.: 714-725-4100
(b) If to American Eco or Acquisition Corp.:
American Eco Corporation
1325 South Creek Drive
Suite 100
Houston, Texas 77084
Attention: Michael E. McGinnis, President
Facsimile No.: (713) 647-0080
with a copy to:
Reid & Priest LLP
40 West 57th Street
New York, New York 10019
Attn: Bruce A. Rich, Esq.
Facsimile No.: (212) 603-2001
or to such other individual or address as a party hereto may
designate for itself by notice given as herein provided.
10.4 Waivers. The failure of a party hereto at any
-------
time or times to require performance of any provision hereof
shall in no manner affect its right at a later time to enforce
the same. No waiver by a party of any condition or of any breach
of any term, covenant, representation or warranty contained in
this Agreement shall be effective unless in writing, and no
waiver in any one or more instances shall be deemed to be a
further or continuing waiver of any such condition or breach in
other instances or a waiver of any other condition or breach of
any other term, covenant, representation or warranty.
10.5 Interpretation. The headings preceding the
--------------
text of Articles and Sections included in this Agreement and the
headings to Schedules attached to this Agreement are for
convenience only and shall not be deemed part of this Agreement
or be given any effect in interpreting this Agreement. The use of
the masculine, feminine or neuter gender herein shall not limit
any provision of this Agreement. The use of the terms "including"
or "include" shall in all cases herein mean "including, without
limitation" or "include, without limitation," respectively.
Underscored references to Articles, Sections, Paragraphs,
Subsections, Subparagraphs, Schedules or Exhibits shall refer to
those portions of this Agreement. Prior drafts of this Agreement
shall not be considered in interpreting the rights and
obligations of the parties hereunder.
10.6 Applicable Law. This Agreement shall be
--------------
governed by and construed and enforced in accordance with the
internal laws of the State of California without giving effect to
the principles of conflicts of law thereof.
10.7 Assignment. This Agreement shall be binding
----------
upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided, however, that no
assignment of any rights or obligations shall be made by any
party without the prior written consent of all the other parties
hereto.
10.8 No Third Party Beneficiaries. This Agreement
----------------------------
is solely for the benefit of the parties hereto and, to the
extent provided herein, and their respective directors, officers,
employees, agents and representatives, and no provision of this
Agreement shall be deemed to confer upon other third parties any
remedy, claim, liability, reimbursement, cause of action or other
right.
10.9 Enforcement of the Agreement. The parties
----------------------------
hereto agree that irreparable damage would result in the event
that any provision of this Agreement is not performed in
accordance with specific terms or is otherwise breached. It is
accordingly agreed that the parties hereto will be entitled to
equitable relief including an injunction or injunctions to
prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof.
10.10 Severability. If any provision of this
------------
Agreement shall be held invalid, illegal or unenforceable, the
validity, legality or enforceability of the other provisions
hereof shall not be affected thereby, and there shall be deemed
substituted for the provision at issue a valid, legal and
enforceable provision as similar as possible to the provision at
issue.
10.11 Remedies Cumulative. The remedies provided in
-------------------
this Agreement shall be cumulative and shall not preclude the
assertion or exercise of any other rights or remedies available
by law, in equity or otherwise.
10.12 Entire Understanding. This Agreement and the
--------------------
Related Agreement set forth the entire agreement and
understanding of the parties hereto and supersede all prior
agreements, arrangements and understandings among the parties
hereto, including, without limitation, the First Amended Letter
of Intent, dated April 3, 1996.
10.13 Waiver of Jury Trial. Each party hereto waives
--------------------
the right to a trial by jury in any dispute in connection with
the transactions contemplated by this Agreement and the Related
Agreement, and agrees to take any and all action necessary or
appropriate to effect such waiver.
10.14 Counterparts. This Agreement may be executed
------------
in counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered on the date first above
written.
AMERICAN ECO CORPORATION
By: /s/Michael McGinnis
----------------------------
Name: Michael McGinnis
Title: President
SRS ACQUISITION CORPORATION
By: /s/ Michael McGinnis
--------------------------
Name: Michael McGinnis
Title: President
SEPARATION AND RECOVERY
SYSTEMS, INC.
By: /s/ Joesph DeFranco
----------------------------
Name: Joseph DeFranco
Title: President
Exhibit 10.4.2
---------------
BUSINESS LOAN AGREEMENT
This Agreement dated as of February 7, 1996, is between
Bank of America National Trust and Savings Association (the
"Bank") and Separation and Recovery Systems, Inc. (the
"Borrower").
1. FACILITY NO. 1: LINE OF CREDIT AMOUNT AND TERMS
1.1 LINE OF CREDIT AMOUNT.
(a) During the availability period described below, the Bank
will provide a line of credit to the Borrower. The amount
of the line of credit (the "Facility No. 1 Commitment") is
One Million Dollars ($1,000,000).
(b) This is a revolving line of credit with a within line
facility for letters of credit. During the availability
period, the borrower may repay principal amounts and
reborrow them.
(c) The Borrower agrees not to permit the outstanding principal
balance of the line of credit plus the outstanding amounts
of any letters of credit, including amounts drawn on letters
of credit and not yet reimbursed, to exceed the Facility
No. 1 Commitment.
1.2 AVAILABILITY PERIOD. The line of credit is available
between the date of this Agreement and December 31, 1996 (the
"Facility No. 1 Expiration Date") unless the Borrower is in
default.
1.3 INTEREST RATE.
(a) Unless the Borrower elects an optional interest rate as
described below, the interest rate is the Bank's Reference
Rate plus three-eights (0.375) of one percentage point.
(b) The Reference Rate is the rate of interest publicly
announced from time to time by the bank in San Francisco,
California, as its Reference Rate. The Reference Rate is
set by the Bank based on various factors, including the
Bank's costs and desired return, general economic conditions
and other factors, and is used as a reference point for
pricing some loans. The Bank may price loans to its
customers at, above, or below the Reference Rate. Any
change in the Reference Rate shall take effect at the
opening of business on the day specified in the public
announcement of a change in the Bank's Reference Rate.
1.4 REPAYMENT TERMS.
(a) The Borrower will pay interest on March 1, 1996, and then
monthly thereafter until payment in full of any principal
outstanding under this line of credit.
(b) The Borrower will repay in full all principal and any unpaid
interest or other charges outstanding under this line of
credit no later than the Facility No. 1 Expiration Date.
Any amount bearing interest at an optional interest rate (as
described below) may be repaid at the end of the applicable
interest period, which shall be no later than the Facility
No. 1 Expiration Date.
1.5 OPTIONAL INTEREST RATES. Instead of the interest rate based
on the Bank's Reference Rate, the Borrower may elect to have all
or portions of the line of credit (during the availability
period) bear interest at the rate(s) described below during an
interest period agreed to by the Bank and the Borrower. Each
interest rate is a rate per year. Interest will be paid on the
last day of each interest period, and, if the interest period is
long than 30 days, then on the first day each month during the
interest period. At the end of any interest period, the interest
rate will revert to the rate based on the Reference Rate, unless
the Borrower has designated another optional interest rate for
the portion.
1.6 FIXED RATE. The Borrower may elect to have all or portions
of the principal balance of the line of credit bear interest at
the Fixed Rate, subject to the following requirements:
(a) The "Fixed Rate" means the fixed rate the Bank and the
Borrower agree will apply to the portion during the
applicable interest period.
(b) The interest period during which the Fixed Rate will be in
effect will be no shorter than 14 days and no longer than
one year.
(c) Each Fixed Rate portion will be for an amount not less than
Five Hundred Thousand Dollars ($500,000).
(d) The Borrower may not elect a Fixed Rate with respect to any
portion f the principal balance of the line of credit which
is scheduled to be repaid before the last day of the
applicable interest period.
(e) Any portion of the principal balance of the line of credit
already bearing interest at the Fixed Rate will not be
converted to a different rate during its interest period.
(f) Each prepayment of a Fixed Rate portion, whether voluntary,
by reason of acceleration or otherwise, will be accompanied
by the amount of accrued interest on the amount prepaid, and
a prepayment fee equal to the amount (if any) by which:
(i) the additional interest which would have been payable
on the amount prepaid had it not been paid until the
last day of the interest period, exceeds
(ii) the interest which would have been recoverable by the
Bank by placing the amount prepaid on deposit in the
certificate of deposit market for a period staring on
the date on which it was prepaid and ending on the
last day of the interest period for such portion.
1.7 LETTERS OF CREDIT. This line of credit may be used for
financing:
(i) commercial letters of credit with a maximum maturing
of 365 days but not to extend more than 90 days beyond
the Facility No. 1 Expiration Date. Each commercial
letter of credit will require drafts payable at sight.
(ii) standby letters of credit with a maximum maturing of
365 days but not to extend more than 90 days beyond
the Facility No. 1 Expiration Date.
(iii) The amount of letters of credit outstanding at any one
time, (including amounts drawn on letters of credit
and not yet reimbursed), may not exceed Five Hundred
Thousand Dollars ($500,000).
The Borrower agrees:
(a) any sum drawn under a letter of credit may, at the option of
the Bank, be added to the principal amount outstanding under
this Agreement. The amount will bear interest and be due as
described elsewhere in this Agreement.
(b) if there is a default under this Agreement, to immediately
prepay and make the Bank whole for any outstanding letters
of credit.
(c) the issuance of any letter of credit and any amendment to a
letter of credit is subject to the Bank's written approval
and must be in form and content satisfactory to the Bank and
in favor of a beneficiary acceptable to the Bank.
(d) to sign the Bank's form Application and Agreement for
Commercial Letter of Credit or Application and Agreement for
Standby Letter of Credit.
(e) to allow the Bank to automatically charge its checking
account for applicable fees, discounts, and other charges.
2. FACILITY NO. 2: LINE OF CREDIT AMOUNT AND TERMS
2.1 LINE OF CREDIT AMOUNT.
(a) During the availability period described below, the Bank
will provide a line of credit to the Borrower. The amount
of the line of credit (the "Facility No. 2 Commitment") is
Three Million Dollars ($3,000,000).
(b) This is a non-revolving line of credit with a term repayment
option. Any amount borrowed, even if repaid before the end
of the availability period, permanently reduces the
remaining available line of credit.
(c) The Borrower agrees not to permit the outstanding principal
balance of the line of credit to exceed the Facility No. 2
Commitment.
2.2 AVAILABILITY PERIOD. The line of credit is available
between the date of this Agreement and December 31, 1996 (the
"Facility No. 2 Expiration Date") unless the Borrower is in
default.
2.3 OUTSTANDING TERM LOAN. There is outstanding from the Bank
to the Borrower a term loan in the original principal amount of
Six Hundred Fifty Thousand Dollars ($650,000). This term loan is
currently subject to the terms and conditions of Facility No. 2
of the Business Loan Agreement dated December 21, 1994. As of
the date of this Agreement, the term loan shall be deemed to be
outstanding as Facility No. 2 under this Agreement, and shall be
subject to all the terms and conditions stated in this Agreement.
2.4 INTEREST RATE. Unless the Borrower elects an optional
interest rate as described below, the interest rate is the Bank's
Reference Rate plus three-eighths (0.375) of one percentage
point.
2.5 REPAYMENT TERMS.
(a) The Borrower will pay interest on March 1, 1996, and then
monthly thereafter until payment in full of any principal
outstanding under this line of credit.
(b) The Borrower will repay the principal amount outstanding on
the Facility No. 2 Expiration Date in 36 successive equal
monthly installments starting January 31, 1997. On
December 31, 1999, the Borrower will repay the remaining
principal balance plus any interest then due.
(c) The Borrower may prepay the loan in full or in part at any
time. The prepayment will be applied to the most remote
installment of principal due under this Agreement.
2.6 OPTIONAL INTEREST RATES. Instead of the interest rate based
ont he Bank's Reference Rate, the Borrower may elect to have all
or portions of the loan (during the term repayment period) bear
interest at the rate(s) described below during an interest period
agreed to by the Bank and the Borrower. Each interest rate is a
rate per year. Interest will be paid on the last day of each
interest period, and, if the interest period is long than 30
days, then on the first day each month during the interest
period. At the end of any interest period, the interest rate
will revert to the rate based ont he Reference Rate, unless the
Borrower has designated another optional interest rate for the
portion.
2.7 FIXED RATE. The Borrower may elect to have all or portions
of the principal balance of the loan bear interest at the Fixed
rate, subject to the following requirements:
(a) The "Fixed Rate" means the fixed interest rate the Bank and
the Borrower agree will apply to the portion during the
applicable interest period.
(b) The interest period during which the Fixed Rate will be in
effect will be no shorter than 14 days and no longer than
one year.
(c) Each Fixed Rate portion will be for an amount not less than
Five Hundred Thousand Dollars ($500,000).
(d) The Borrower may not elect a Fixed Rate with respect to any
portion of the principal balance of the loan which is
scheduled to be repaid before the last day of the applicable
interest period.
(e) Any portion of the principal balance of the loan already
bearing interest at the Fixed Rate will not be converted to
a different rate during its interest period.
(f) Each prepayment of a Fixed Rate portion, whether voluntary,
by reason of acceleration or otherwise, will be accompanied
by the amount of accrued interest on the amount prepaid, and
a prepayment fee equal to the amount (if any) by which:
(i) the additional interest which would have been payable
on the amount prepaid had it not been paid until the
last day of the interest period, exceeds
(ii) the interest which would have been recoverable by the
Bank by placing the amount prepaid on deposit in the
certificate of deposit market for a period starting on
the date on which it was prepaid and ending on the
last day of the interest period for such portion.
3. FACILITY NO. 3: LINE OF CREDIT AMOUNT AND TERMS
3.1 LINE OF CREDIT AMOUNT.
(a) During the availability period described below, the Bank
will provide a line of credit to the Borrower. The amount
of the line of credit (the "Facility No. 3 Commitment") is
One Million Four Hundred Thousand Dollars ($1,400,000).
(b) This is a non-revolving line of credit with a term repayment
option. Any amount borrowed, even if repaid before the end
of the availability period, permanently reduces the
remaining available line of credit.
(c) The Borrower agrees not to permit the outstanding principal
balance of the line of credit to exceed the Facility No. 3
Commitment.
3.2 AVAILABILITY PERIOD. The line of credit is available
between the date of this Agreement and June 30, 1996 (the
"Facility No. 3 Expiration Date") unless the Borrower is in
default.
3.3 INTEREST RATE. Unless the Borrower elects an optional
interest rate as described below, the interest rate is the Bank's
Reference Rate plus three-eighths (0.375) of one percentage
point.
3.4 REPAYMENT TERMS.
(a) The Borrower will pay interest on March 1, 1996, and then
monthly thereafter until payment in full of any principal
outstanding under this line of credit.
(b) The Borrower will repay the principal amount outstanding on
the Facility No. 3 Expiration Date in 14 successive equal
monthly installments starting July 31, 1996. On August 30,
1997, the Borrower will repay the remaining principal
balance plus any interest then due.
(c) The Borrower may prepay the loan in full or in part at any
time. The prepayment will be applied to the most remote
installment of principal due under this Agreement.
3.5 OPTIONAL INTEREST RATES. Instead of the interest rate based
on the Bank's Reference Rate, the Borrower may elect to have all
or portions of the loan (during the term repayment period) bear
interest at the rate(s) described below during an interest period
agreed to by the Bank and the Borrower. Each interest rate is a
rate per year. Interest will be paid on the last day of each
interest period, and, if the interest period is longer than 30
days, then on the first day each month during the interest
period. At the end of any interest period, the interest rate
will revert to the rate based on the Reference Rate, unless the
Borrower has designated another optional interest rate for the
portion.
3.6 FIXED RATE. The Borrower may elect to have all or portions
of the principal balance of the loan bear interest at the Fixed
Rate, subject to the following requirements:
(a) The "Fixed Rate" means the fixed interest rate the Bank and
the Borrower agree will apply to the portion during the
applicable interest period.
(b) The interest period during which the Fixed Rate will be in
effect will be no shorter than 14 days and no longer than
one year.
(c) Each Fixed Rate portion will be for an amount not less than
Five Hundred Thousand Dollars ($500,000).
(d) The Borrower may not elect a Fixed Rate with respect to any
portion of the principal balance of the loan which is
scheduled to be repaid before the last day of the applicable
interest period.
(e) Any portion of the principal balance of the loan already
bearing interest at the Fixed Rate will not be converted to
a different rate during its interest period.
(f) Each prepayment of a Fixed Rate portion, whether voluntary,
by reason of acceleration or otherwise, will be accompanied
by the amount of accrued interest on the amount prepaid, and
a prepayment fee equal to the amount (if any) by which:
(i) the additional interest which would have been payable
on the amount prepaid had it not been paid until the
last day of the interest period, exceeds
(ii) the interest which would have been recoverable by the
Bank by placing the amount prepaid on deposit in the
certificate of deposit market for a period starting on
the date on which it was prepaid and ending on the
last day of the interest period for such portion.
4. FEES AND EXPENSES
4.1 UNUSED COMMITMENT FEE (FACILITY NO. 1). The Borrower agrees
to pay a fee on any difference between the Facility No. 1
Commitment and the amount of credit it actually uses, determined
by the weighted average loan balance maintained during the
specified period. The fee will be calculated at .50% per year.
this fee is due on March 31, 1996, and on the last day of each
following quarter until the Facility No. 1 Expiration Date.
4.2 EXPENSES.
(a) The Borrower agrees to immediately repay the Bank for
expenses that include, but are not limited to, filing,
recording and search fees, appraisal fees, title report fees
and documentation fees.
(b) The Borrower agrees to reimburse the Bank for any expenses
it incurs in the preparation of this Agreement and any
agreement or instrument required by this Agreement.
Expenses include, but are not limited to, reasonable
attorneys' fees, including any allocated costs of the Bank's
in-house counsel.
(c) The Borrower agrees to reimburse the Bank for the cost of
periodic audits and appraisals of the personal property
collateral securing this Agreement, at such intervals as the
Bank may reasonably require. The audits and appraisals may
be performed by employees of the Bank or by independent
appraisers.
5. COLLATERAL
5.1 PERSONAL PROPERTY. The Borrower's obligations to the Bank
under this Agreement will be secured by personal property the
Borrower now owns or will own in the future s listed below. The
collateral is further defined in security agreement(s) executed
by the Borrower. In addition, all personal property collateral
securing this Agreement shall also secure all other present and
future obligations of the Borrower to the Bank (excluding any
consumer credit covered by the federal Truth in Lending law,
unless the Borrower has otherwise agreed in writing). All
personal property collateral securing any other present or future
obligations of the borrower to the Bank shall also secure this
Agreement.
(a) Receivables and general intangibles.
(b) Inventory.
(c) Machinery and equipment.
6. DISBURSEMENTS, PAYMENTS AND COSTS
6.1 REQUESTS FOR CREDIT. Each request for an extension of
credit will be made in writing in a manner acceptable to the
Bank, or by another means acceptable to the Bank.
6.2 DISBURSEMENTS AND PAYMENTS. Each disbursement by the Bank
and each payment by the Borrower will be:
(a) made at the Bank's branch (or other location) selected by
the Bank from time to time;
(b) made for the account of the Bank's branch selected by the
Bank from time to time;
(c) made in immediately available funds, or such other type of
funds selected by the Bank;
(d) evidenced by records kept by the Bank. In addition, the
Bank may, at its discretion, require the Borrower to sign
one or more promissory notes.
6.3 TELEPHONE AUTHORIZATION.
(a) The Bank may honor telephone instructions for advances or
repayments or for the designation of option interest rates
given by any one of the individuals authorized to sign loan
agreements on behalf of the Borrower, or any other
individual designated by any one of such authorized signers.
(b) Advances will be deposited in and repayments will be
withdrawn from the Borrower's account number 14569-50093, or
such other of the Borrower's accounts with the Bank as
designated in writing by the Borrower.
(c) The Borrower indemnifies and excuses the Bank (including its
officers, employees, and agents) from all liability, loss,
and costs in connection with any act resulting rom telephone
instructions it reasonably believes are made by any
individual authorized by the Borrower to give such
instructions. This indemnity and excuse will survive this
Agreement.
6.4 DIRECT DEBIT.
(a) The Borrower agrees that interest principal payments and any
fees will be deducted automatically on the due date from
checking account number 14569-500093.
(b) The Bank will debit the account on the dates the payments
become due. If a due date does not fall on a banking day,
the Bank will debit the account on the first banking day
following the due date.
(c) The Borrower will maintain sufficient funds in the account
on the dates the Bank enters debits authorized by this
Agreement. If there are insufficient funds in the account
on the date the Bank enters any debit authorized by this
Agreement, the debit will be reversed.
6.5 BANKING DAYS. Unless otherwise provided in this Agreement a
banking day is a day other than a Saturday or a Sunday on which
the Bank is open for business in California. All payments and
disbursements which would be due on a day which is not a banking
day will be due on the next banking day. All payments received
on a day which is not a banking day will be applied to the credit
on the next banking day.
6.6 TAXES. The Borrower will not deduct any taxes from any
payment sit makes to the Bank. If any government authority
imposes any taxes on any payments made by the Borrower, the
Borrower will pay the taxes and will also pay to the Bank, at the
time interest is paid, any additional amount which the Bank
specifies as necessary to preserve the after-tax yield the Bank
would have received if such taxes had not been imposed. Upon
request by the Bank, the Borrower will confirm that it has paid
the taxes by giving the Bank official tax receipts (or notarized
copies) within 30 days after the due date. However, the Borrower
will not pay the Bank's net income taxes.
6.7 ADDITIONAL COSTS. The Borrower will pay the Bank, on
demand, for the Bank's costs or losses arising from any statute
or regulation, or any request or requirement of a regulatory
agency which is applicable to all national banks or a class of
all national banks. The costs and losses will be allocated to
the loan in a manner determined b the Bank, using any reasonable
method. The costs include the following:
(a) any reserve or deposit requirements; and
(b) any capital requirements relating to the Bank's assets and
commitments for credit.
6.8 INTEREST CALCULATION. Except as otherwise stated in this
Agreement, all interest and fees, if any, will be computed on the
basis of a 360-day year and the actual number of days elapsed.
This results in more interest or a higher fee than if a 365-day
year is used.
6.9 INTEREST ON LATE PAYMENTS. At the Bank's sole option in
each instance, any amount not paid when due under this Agreement
(including interest) shall bear interest from the due date at the
Bank's Reference Rate plus one and one-half (1.50) percentage
points. this may result in compounding of interest.
7. CONDITIONS
The Bank must receive the following items, in form and content
acceptable to the Bank, before it is required to extend any
credit to the Borrower under this Agreement.
7.1 AUTHORIZATIONS. Evidence that the execution, delivery and
performance by the Borrower and any guarantor) of this Agreement
and any instrument or agreement required under this Agreement
have been duly authorized.
7.2 SECURITY AGREEMENTS. Signed original security agreements,
assignments, financing statements and fixture filings (together
with collateral in which the Bank requires a possessory security
interest), which the Bank requires.
7.3 EVIDENCE OF PRIORITY. Evidence that security interests and
liens in favor of the Bank are valid, enforceable, and prior to
all others' rights and interests, except those the Bank consents
to in writing.
7.4 INSURANCE. Evidence of insurance coverage, as required in
the "Covenants" section of this Agreement.
7.5 OTHER ITEMS. Any other items that the Bank reasonably
requires.
8. REPRESENTATIONS AND WARRANTIES
When the Borrower signs this Agreement, and until the Bank is
repaid in full, the Borrower makes the following representations
and warranties. Each request for an extension of credit
constitutes a renewed representation.
8.1 ORGANIZATION OF BORROWER. The Borrower is a corporation
duly formed and existing under the laws of the state where
organized.
8.2 AUTHORIZATION. This Agreement, and any instrument or
agreement required hereunder, are within the Borrower's powers,
have been duly authorized, and do not conflict with any of its
organization papers.
8.3 ENFORCEABLE AGREEMENT. This Agreement is a legal, valid and
binding agreement of the Borrower, enforceable against the
Borrower in accordance with its terms, and any instrument or
agreement required hereunder, when executed and delivered, will
be similarly legal, valid, binding and enforceable.
8.4 GOOD STANDING. In each state in which the Borrower does
business, it is properly
licensed, in good standing, and, where required, in compliance
with fictitious name statutes.
8.5 NO CONFLICTS. This Agreement does not conflict with any
law, agreement, or obligation by which the Borrower is bound.
8.6 FINANCIAL INFORMATION. All financial and other information
that has been or will be supplied to the Bank, including the
Borrower's financial statement dated as of June 30, 1995, is:
(a) sufficiently complete to vie the Bank accurate knowledge of
the Borrower's ( and any guarantor's) financial condition.
(b) in form and content required by the Bank.
(c) in compliance with all government regulations that apply.
Since the date of the financial statement specified above, there
has been no material adverse change in the assets or the
financial condition of the Borrower (or any guarantor).
8.7 LAWSUITS. There is no lawsuit, tax claim or other dispute
pending or threatened against the Borrower, which, if lost, would
impair the borrower's financial condition or ability to repay the
loan, except as have been disclosed in writing to the Bank.
8.8 COLLATERAL. All collateral required in this Agreement is
owned by the grantor of the security interest free of any title
defects or any liens or interests of others.
8.9 PERMITS, FRANCHISES. The Borrower possesses all permits,
memberships, franchises, contracts and licenses required and all
trademark rights, trade name rights, patent rights and fictitious
name rights necessary to enable it to conduct the business in
which it is now engaged.
8.10 OTHER OBLIGATIONS. The Borrower is not in default on any
obligation for borrowed money, any purchase money obligation or
any other material lease, commitment, contract, instrument or
obligation.
8.11 INCOME TAX RETURNS. The Borrower had no knowledge of any
pending assessments or adjustments of its income tax for any
year.
8.12 NO EVENT OF DEFAULT. There is no event which is, or with
notice or lapse of time or both would be, a default under this
Agreement.
8.13 ERISA PLANS.
(a) the Borrower has fulfilled its obligations, if any, under
the minimum funding standards of ERISA and the Code with
respect to each Plan and is in compliance in all material
respects with the presently applicable provisions of ERISA
and the Code, and has not incurred any liability with
respect to any Plan under title IV of ERISA.
(b) No reportable event has occurred under Section 4043(b) of
ERISA for which the PBGC requires 30 day notice.
(c) No action by the Borrower to terminate or withdraw from any
Plan has been taken and no notice of intent to terminate a
Plan has been filed under Section 4041 of ERISA.
(d) No proceeding has been commenced with respect to a Plan
under Section 4042 of ERISA, and no event has occurred or
condition exists which might constitute grounds for the
commencement of such a proceeding.
(e) The following terms have the meanings indicated for purposes
of this Agreement:
(i) "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
(ii) "ERISA" means the Employee Retirement Income Act of
1974, as amended from time to time.
(iii) "PBGC" means the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of
ERISA.
(iv) "Plan" means any employee pension benefit plan
maintained or contributed to by the Borrower and
insured by the Pension Benefit Guaranty Corporation
under Title IV of ERISA.
8.14 LOCATION OF BORROWER. The Borrower's place of business (or,
if the Borrower has more than one place of business, its chief
executive office) is located at the address listed under the
Borrower's signature on this Agreement.
9. COVENANTS
The Borrower agrees, so long as credit is available under this
Agreement and until the Bank is repaid in full:
9.1 USE OF PROCEEDS. To use the proceeds of Facility No. 1 only
for working capital and issuance of letters of credit; and to use
the proceeds of Facility No. 2 and facility No. 3 only for
capital expenditures.
9.2 FINANCIAL INFORMATION. To provide the following financial
information and statements and such additional information as
requested by the Bank from time to time:
(a) Within 120 days of the Borrower's fiscal year end, the
Borrower's annual financial statements. These financial
statements must be audited (with an unqualified opinion) by
a Certified Public Accountant ("CPA") acceptable to the
Bank. The statements shall be prepared on a consolidated
basis.
(b) Within 45 days of the period's end, the Borrower's quarterly
financial statements. these financial statements may be
Borrower prepared. The statements shall be prepared on a
solidated basis.
(c) Within the periods provided in (a) and (b) above, a
compliance certificate of the Borrower signed by an
authorized financial officer of the Borrower setting forth
(i) the information and computations (in sufficient detail)
to establish that the Borrower is in compliance with all
financial covenants at the end of the period covered by the
financial statements then being furnished and (ii) whether
there existed as of the date of such financial statements
and whether there exists as of the date of the certificate,
any default under this Agreement and, if any such default
exists, specifying the nature thereof and the action the
Borrower is taking and proposes to take with respect
thereto.
(d) Within 45 days of the period's end, the Borrower's quarterly
equipment list. This equipment list must include model
number and location, and such other information as the Bank
may require.
9.3 QUICK RATIO. To maintain on a consolidated basis a ratio of
quick assets to current liabilities of at least 65:1, on a
quarterly basis. "Quick assets" means cash, short-term cash
investments, net trade receivables and marketable securities not
classified as long-term investments.
9.4 TANGIBLE NET WORTH. To maintain on a consolidated basis
tangible net worth, on a quarterly basis, equal to at least the
sum of the following:
(a) Seven Million Four Hundred Thousand Dollars ($7,400,000),
plus
(b) 75% of net income after income taxes earned in each annual
accounting period commencing fiscal year ending June 30,
1996.
"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.
9.5 TOTAL LIABILITIES TO TANGIBLE NET WORTH RATIO. to maintain
on a consolidated basis a ratio of total liabilities to tangible
net worth not exceeding .75:1, on a quarterly basis. "Total
liabilities" means the sum of current liabilities plus long term
liabilities.
9.6 FIXED CHARGE COVERAGE RATIO. To maintain on a consolidated
basis a Fixed Charge Coverage Ratio of at least 1:40:1. "Fixed
charge Coverage Ratio" is defined as the (sum of net profit after
taxes plus depreciation and interest expense minus non-financed
capital expenditures) divided by (the sum of current maturities
----------
of long term debt plus capital leases and interest expense).
This ratio will be calculated at the end of each fiscal quarter,
using the results of that quarter and each of the 3 immediately
preceding quarters. Current maturities of long term debt is
defined as required principal payments for the four-quarter
period measured. Non-financed capital expenditures is defined as
actual capital expenditures less positive increases in current
maturities of long term debt and long term debt outstanding for
the four-quarter period measured.
9.7 LIMITATION ON LOSSES. Not to incur on a consolidated basis
a net loss before taxes and extraordinary items in any two
consecutive quarterly accounting periods.
9.8 OTHER DEBTS. Not to have outstanding or incur any direct or
contingent debts or lease obligations (other than those to the
Bank), or become liable for the debts of others without the
Bank's written consent. This does not prohibit:
(a) Acquiring goods, supplies, or merchandise on normal trade
credit.
(b) Endorsing negotiable instruments received in the usual
course of business.
(c) Obtaining surety bonds in the usual course of business.
(d) Debts and leases in existence on the date of this Agreement
disclosed in writing to the Bank in the Borrower's financial
statement dated June 30, 1995.
9.9 OTHER LIENS. Not to create, assume, or allow any security
interest or lien (including judicial liens) on property the
Borrower now or later owns, except:
(a) Debts of trust and security agreements in favor of the Bank.
(b) Liens for taxes not yet due.
9.10 DIVIDENDS. Not to declare or pay any dividends on any of
its shares except dividends payable in capital stock of the
Borrower, and not to purchase, redeem or otherwise acquire for
value any of its shares, or create any sinking fund in relation
thereto.
9.11 OUT OF DEBT PERIOD (FACILITY NO. 1). To repay any advances
in full, and not to draw any additional advances on its Facility
No. 1 line of credit, for a period of at least 30 consecutive
days in each line-year. "Line-year" means the period between the
date of this Agreement and December 31, 1996, and each subsequent
one-year period (if any). For the purposes of this paragraph,
"advances" does not include undrawn amounts of outstanding
letters of credit.
9.12 NOTICES TO BANK. To promptly notify the Bank in writing of:
(a) any lawsuit over Two Hundred Fifty Thousand Dollars
(S250.000) against the Borrower (or any guarantor).
(b) any substantial dispute between the Borrower (or any
guarantor) and any government authority.
(c) any failure to comply with this Agreement.
(d) any material adverse change in the Borrower's (or any
guarantor's) financial condition or operations.
(e) any change in the Borrower's name, legal structure, place of
business, or chief execute office if the Borrower has more
than one place of business.
9.13 BOOKS AND RECORDS. To maintain adequate books and records.
9.14 AUDITS. To allow the Bank and its agents to inspect the
Borrower's properties and examine, audit and make copies of books
and records at any reasonable time. If any of the Borrower's
properties, books or records are in the possession of a third
party, the Borrower authorizes that third party to permit the
Bank or its agents to have access to perform inspections or
audits and to respond to the Bank's requests for information
concerning such properties, books and records.
9.15 COMPLIANCE WITH LAWS. To comply with the laws including any
fictitious name statute), regulations, and orders of any
government body with authority over the Borrower's business.
9.16 PRESERVATION OF RIGHTS. To maintain and preserve all rights,
privileges, and franchises the Borrower now has.
9.17 MAINTENANCE OF PROPERTIES. To make any repairs, renewals,
or replacements to keep the Borrower's properties in good working
condition.
9.18 PERFECTION OF LIENS. To help the Bank perfect and protect
its security interests and liens, and reimburse it for related
costs it incurs to protect its security interests and liens.
9.19 COOPERATION. To take any action requested by the Bank to
carry out the intent of this Agreement.
9.20 INSURANCE.
(a) Insurance Covering Collateral. To maintain all risk property
damage insurance policies covering the tangible property
comprising the collateral. Each insurance policy must be in
an amount acceptable to the Bank. The insurance must be
issued by an insurance company acceptable to the Bank and
must include a lender's loss payable endorsement in favor of
the Bank in a form acceptable to the Bank.
(b) General Business Insurance. To maintain insurance as is
usual for the business it is in.
(c) Evidence of Issuance. Upon the request of the Bank, to
deliver to the Bank a copy of each insurance policy, or, if
permitted by the Bank, a certificate of insurance listing an
insurance in force.
9.21 ADDITIONAL NEGATIVE COVENANTS. Not to, without the Bank's
written consent
(a) engage in any business activities substantially different
from the Borrower's present business.
(b) liquidate or dissolve the Borrower's business.
(c) enter into any consolidation, merger, pool, joint venture,
syndicate, or other combination.
(d) lease, or dispose of all or a substantial part of the
Borrower's business or the Borrower's assets.
(e) acquire or purchase a business or its assets.
(f) sell or otherwise dispose of any assets for less than fair
market value, or enter into any sale and leaseback agreement
covering any of its fixed or capital assets. (g) voluntarily
suspend its business for more than 5 consecutive days in any
30 day period.
9.22 ERISA PLANS. To give prompt written notice to the Bank of:
(a) The occurrence of any reportable event under Section 4043(b)
of ERISA for which the PBGC requires 30 day notice.
(b) Any action by the Borrower to terminate or withdraw from a
Plan or the filing of any notice of intent to terminate
under Section 4041 of ERISA.
(c) Any notice of noncompliance made with respect to a Plan
under Section 4041 (b) of ERISA.
(d) The commencement of any proceeding with respect to a Plan
under Section 4042 of ERISA.
10. HAZARDOUS WASTE INDEMNIFICATION
The Borrower, will indemnify and hold harmless the Bank 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 the Borrower's property or
operations or property leased to the Borrower. The indemnity
includes but is not limited to attorneys' fees (including the
reasonable estimate of the allocated cost of in-house counsel and
staff). The indemnity extends to the Bank, 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 or local law. This indemnity will survive repayment of the
Borrower's obligations to the Bank.
11. DEFAULT
If any of the following events occur, the Bank may do one or more
of the following: declare the Borrower in default, stop making
any additional credit available to the Borrower, and require the
Borrower to repay its entire debt immediately and without prior
notice. If an event of default occurs under the paragraph
entitled "Bankruptcy," below, with respect to the Borrower, then
the entire debt outstanding under this Agreement will
automatically be due immediately.
11.1 FAILURE TO PAY. The Borrower fails to make a payment under
this Agreement when due.
11.2 LIEN PRIORITY. The Bank fails to have an enforceable first
lien (except for any prior liens to which the Bank has consented
in writing) on or security interest in any property given as
security for this loan.
11.3 FALSE INFORMATION. The Borrower has given the Bank false or
misleading information or representations.
11.4 BANKRUPTCY. The Borrower (or any guarantor) files a
bankruptcy petition, a bankruptcy petition is filed against the
Borrower (or any guarantor), or the Borrower (or any guarantor)
makes a general assignment for the benefit of creditors.
11.5 RECEIVERS. A receiver or similar official is appointed for
the Borrower's (or any guarantor's) business, or the business is
terminated.
11.6 LAWSUITS. Any lawsuit or lawsuits are filed on behalf of
one or more trade creditors against the Borrower in an aggregate
amount of Two Hundred Fifty Thousand Dollars (S250,000) or more
in excess of any insurance coverage.
11.7 JUDGMENTS. Any judgments or arbitration awards are entered
against the Borrower (or any guarantor), or the Borrower (or any
guarantor) enters into any settlement agreements with respect to
any litigation or arbitration, in an aggregate amount of Two
Hundred Fifty Thousand Dollars (S250,000) or more in excess of
any insurance coverage.
11.8 GOVERNMENT ACTION. Any government authority takes action
that the Bank believes materially adversely affects the
Borrower's (or any guarantor's) financial condition or ability to
repay.
11.9 MATERIAL ADVERSE CHANGE. A material adverse change occurs
in the Borrower's (or any guarantor's) financial condition,
properties or prospects, or ability to repay the loan.
11.10 CROSS-DEFAULT. Any default occurs under any agreement
in connection with any credit the Borrower (or any guarantor) has
obtained from anyone else or which the Borrower (or any
guarantor) has guaranteed.
11.11 DEFAULT UNDER RELATED DOCUMENTS. Any guaranty,
subordination agreement, security agreement or other document
required by this Agreement is violated or no longer in effect.
11.12 OTHER BANK AGREEMENTS. The Borrower (or any
guarantor) fails to meet the conditions of, or fails to perform
any obligation under any other agreement the Borrower (or any
guarantor) has with the Bank or any affiliate of the Bank.
11.13 ERISA PLANS. The occurrence of any one or more of the
following events with respect to the Borrower, provided such
event or events could reasonably be expected, in the judgment of
the Bank, to subject the Borrower to any tax, penalty or
liability (or any combination of the foregoing) which, in the
aggregate, could have a material adverse effect on the financial
condition of the Borrower with respect to a Plan:
(a) A reportable event shall occur with respect to a Plan which
is, in the reasonable judgment of the Bank likely to result
in the termination of such Plan for purposes of Title IV of
ERISA.
(b) Any Plan termination (or commencement of proceedings to
terminate a Plan) or the Borrower's full or partial
withdrawal from a Plan.
11.14 OTHER BREACH UNDER AGREEMENT. The Borrower fails to
meet the conditions of, or fails to perform any obligation under,
any term of this Agreement not specifically referred to in this
Article.
12. ENFORCING THIS AGREEMENT; MISCELLANEOUS
12.1 GAAP. Except as otherwise stated in this Agreement, all
financial information provided to the Bank and all financial
covenants will be made under generally accepted accounting
principles, consistently applied.
12.2 CALIFORNIA LAW. This Agreement is governed by California
law.
12.3 SUCCESSORS AND ASSIGNS. This Agreement is binding on the
Borrowers and the Bank's successors and assignees. The Borrower
agrees that it may not assign this Agreement without the Bank's
prior consent. The Bank may sell participations in or assign this
loan, and may exchange financial information about the Borrower
with actual or potential participants or assignees. If a
participation is sold or the loan is assigned, the purchaser will
have the right of set-off against the Borrower.
12.4 ARBITRATION.
(a) This paragraph concerns the resolution of any controversies
or claims between the Borrower and the Bank, including but
not limited to those that arise from:
(i) This Agreement (including any renewals, extensions or
modifications of this Agreement);
(ii) Any document, agreement or procedure related to or
delivered in connection with this Agreement;
(iii) Any violation of this Agreement; or
(iv) Any claims for damages resulting from any business
conducted between the Borrower and the Bank, including
claims for injury to persons, property or business
interests (torts).
(b) At the request of the Borrower or the Bank, any such
controversies or claims will be settled by arbitration in
accordance with the United States Arbitration Act. The
United States Arbitration Act-will apply even though this
Agreement provides that it is governed by California law.
(c) Arbitration proceedings will be administered by the American
Arbitration Association and will be subject to its
commercial rules of arbitration.
(d) For purposes of the application of the statute of
limitations, the filing of an arbitration pursuant to this
paragraph is the equivalent of the filing of a lawsuit, and
any claim or controversy which may be arbitrated under this
paragraph is subject to any applicable statute of
limitations. The arbitrators will have the authority to
decide whether any such claim or controversy is barred by
the statute of limitations and, if so, to dismiss the
arbitration on that basis.
(e) If there is a dispute as to whether an issue is arbitrable,
the arbitrators will have the authority to resolve any such
dispute.
(f) The decision that results from an arbitration proceeding may
be submitted to any authorized court of law to be confirmed
and enforced.
(g) The procedure described above will not apply if the
controversy or claim, at the time of the proposed submission
to arbitration, arises from or relates to an obligation to
the Bank secured by real property located in California. In
this case, both the Borrower and the Bank must consent to
submission of the claim or controversy to arbitration. If
both parties do not consent to arbitration, the controversy
or claim will be settled as follows:
(i) The Borrower and the Bank will designate a referee (or
a panel of referees) selected under the auspices of
the American Arbitration Association in the same
manner as arbitrators are selected in
Association-sponsored proceedings;
(ii) The designated referee (or the panel of referees) will
be appointed by a court as provided in California Code
of Civil Procedure Section 638 and the following
related sections;
(iii) The referee (or the presiding referee of the panel)
will be an active attorney or a retired judge; and
(iv) The award that results from the decision of the
referee (or the panel) will be entered as a judgment
in the court that appointed the referee, in accordance
with the provisions of California Code of Civil
Procedure Sections 644 and 645.
(h) This provision does not limit the right of the Borrower or
the Bank to:
(i) exercise self-help remedies such as setoff;
(ii) foreclose against or sell any real or personal
property collateral; or
(iii) act in a court of law, before, during or after the
arbitration proceeding to obtain:
(A) an interim remedy; and/or
(B) additional or supplementary remedies.
(i) The pursuit of or a successful action for interim,
additional or supplementary remedies, or the filing of a
court action, does not constitute a waiver of the right of
the Borrower or the Bank, including the suing party, to
submit the controversy or claim to arbitration if the other
party contests the lawsuit. However, if the controversy or
claim arises from or relates to an obligation to the Bank
which is secured by real property located in California at
the time of the proposed submission to arbitration, this
right is limited according to the provision above requiring
the consent of both the Borrower and the Bank to seek
resolution through arbitration.
(j) If the Bank forecloses against any real property securing
this Agreement, the Bank has the option to exercise the
power of sale under the deed of trust or mortgage, or to
proceed by judicial foreclosure.
12.5 SEVERABILITY; WAIVERS. If any part of this Agreement is not
enforceable, the rest of the Agreement may be enforced. The Bank
retains all rights, even if it makes a loan after default. If the
Bank waives a default, it may enforce a later default. Any
consent or waiver under this Agreement must be in writing.
12.6 ADMINISTRATION COSTS. The Borrower shall pay the Bank for
all reasonable costs incurred by the Bank in connection with
administering this Agreement.
12.7 ATTORNEYS' FEES. The Borrower shall reimburse the Bank for
any reasonable costs and attorneys' fees incurred by the Bank in
connection with the enforcement or preservation of any rights or
remedies under this Agreement and any other documents executed in
connection with this Agreement, and including any amendment,
waiver, "workout or restructuring under this Agreement. In the
event of a lawsuit or arbitration proceeding, the prevailing
party is entitled to recover costs and reasonable attorneys' fees
incurred in connection with the lawsuit or arbitration
proceeding, as determined by the court or arbitrator. As used in
this paragraph, attorneys' fees" includes the allocated costs of
in-house counsel.
12.8 ONE AGREEMENT. This Agreement and any related security or
other agreements required by this Agreement, collectively:
(a) represent the sum of the understandings and agreements
between the Bank and the Borrower concerning this credit;
and
(b) replace any prior oral or written agreements between the
Bank and the Borrower concerning this credit; and
(c) are intended by the Bank and the Borrower as the final,
complete and exclusive statement of the terms agreed to by
them.
In the event of any conflict between this Agreement and any other
agreements required by this Agreement, this Agreement will
prevail.
<PAGE>
12.9 NOTICES. Notices required under this Agreement shall be
personally delivered or sent by first class mail, postage
prepaid, to the addresses on the signature page of this
Agreement, or to such other addresses as the Bank and the
Borrower may specify from time to time in writing.
12.10 HEADINGS. Article and paragraph headings are for
reference only and shall not affect the interpretation or meaning
of any provisions of this Agreement.
12.11 COUNTERPARTS. This Agreement may be executed in as
many counterparts as necessary or convenient, and by the
different parties on separate counterparts each of which, when so
executed, shall be deemed an original but all such counterparts
shall constitute but one and the same agreement.
12.12 PRIOR AGREEMENT SUPERSEDED. This Agreement supersedes
the Business Loan Agreement entered into as of December 21, 1994,
between the Bank and the Borrower, and any credit outstanding
thereunder shall be deemed to be outstanding under this
Agreement.
This Agreement is executed as of the date stated at the top of
the first page.
Bank of America
National Trust and Savings Separation &
Association Recovery Systems, Inc.
X /s/ L.A. Perfetto X /s/ Joseph De Franco
------------------------------- -----------------------------
By: L.A. Perfetto By: Joseph De Franco
Title: Vice President Title: President
Address where notices to the Address where notices to the
Bank are to be sent: Borrower are to be sent:
North Orange County RCBO #1456
300 South Harbor Boulevard 1762 McGaw Avenue
Anaheim, CA 92805 Irvine, CA 92714-4962
EXHIBIT 10.4.3
--------------
AMENDMENT NO. ONE TO
BUSINESS LOAN AGREEMENT AND
WAIVER OF DEFAULTS
This Amendment No. One and Waiver (the "Amendment) dated as of
July 3, 1996, is between Bank of America National Trust and Savings
Association (the "Bank") and Separation and Recovery Systems, Inc. (the
"Borrower").
RECITALS
--------
A. The Bank and the Borrower entered into a certain Business
Loan Agreement dated as of February 7, 1996 (the "Agreement").
B. The Bank and the Borrower desire to amend the Agreement.
C. Certain defaults have occurred under the Agreement, which
the Bank has agreed to waive, subject to the conditions set forth below.
AGREEMENT
---------
1. DEFINITIONS. Capitalized terms used by not defined in this
-----------
Amendment shall have the meaning given to them in the Agreement.
2. AMENDMENTS. The Agreement is hereby amended as follows:
----------
2.1 In subparagraph 1.3(a) and paragraphs 2.3 and 3.3 of
the Agreement, the percentage "three-eighths (0.375) of one percentage
point" is deleted, and is replaced with "three-fourths (0.75) of the
percentage point."
2.2 Subparagraphs 9.2(e), (f), and (g) are added to the
Agreement as follows:
"(e) Within 120 days of the fiscal year end of American Eco
Corporation ("AEC"), AEC's annual financial statements.
These financial statements must be audited (with an
unqualified opinion) by a CPA acceptable to the Bank.
At present, the Bank finds AEC's current CPA, Karlins,
Patrick & Co., P.C., acceptable. The statements shall
be prepared on a consolidated and consolidating basis.
"(f) Within 60 days of the period's end, AEC's quarterly
financial statements. These financial statements shall
be prepared on a consolidated and consolidating basis,
and may be prepared by AEC.
"(g) Within 45 days of the period's end, the Borrower's
monthly financial statements. These financial
statements may be Borrower-prepared, and must be
prepared on a consolidated basis."
2.3 Paragraph 9.3 of the Agreement is deleted in its
entirety, without substitution therefor.
2.4 Paragraph 9.4 is amended to read in full as follows:
"9.4 TANGIBLE NET WORTH. To maintain on a
consolidated basis tangible net worth, as of the end of each
month, equal to at least the sum of:
(a) The amounts set forth below:
Time Period Minimum Amount
----------- --------------
from 6/30/96
through 12/30/96 $3,200,000
from 12/31/96
through 6/29/97 $3,750,000
on and after 6/30/97 $4,500,000
plus
----
(b) commencing with the fiscal year ending June 30, 1998,
and again as of the end of each subsequent fiscal year, an
additional amount equal to 75% of the Borrower's net profit
after tax for such fiscal year. "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, plus
liabilities subordinated to the Bank in a manner acceptable
to the Bank (using the Bank's standard form) less total
----
liabilities, including but not limited to accrued and
deferred income taxes, and any reserves against assets."
2.5 Paragraph 9.5 of the Agreement is amended to read in
full as follows:
"9.5 TOTAL LIABILITIES TO TANGIBLE NET WORTH RATIO.
To maintain on a consolidated basis as of the end of each
month a ratio of total liabilities not subordinated to
tangible net worth not exceeding the ratios indicated for
each period specified below:
Period Ratio
------ -----
from 6/30/96 through
12/31/96 2.00:1.00
from 12/31/96 through
6/29/97 1.75:1.00
on and after 6/30/97 1.20:1.00
'Total liabilities not subordinated' means the sum of
current liabilities plus long term liabilities, excluding
liabilities subordinated to the Borrower's obligations to
the Bank in a manner acceptable to the Bank, using the
Bank's standard form."
2.6 Paragraph 9.6 is amended to read in full as follows:
"9.6 CASH FLOW RATIO. To maintain on a consolidated
basis a cash flow ratio of at least 1.05:1.00, as of the end
of each quarter, commencing with the quarter ending
September 30, 1996.
'Cash Flow Ratio' means the ratio of cash flow to the sum of
the current portion of long term liabilities (including all
principal debt payments on a cumulative year-to-year basis,
interest, and capital expenditures). "Cash Flow" is defined
as net profit after tax plus interest, depreciation,
----
depletion, amortization and other non-cash charges, plus
----
amounts received from ABC as subordinated debt, minus
-----
payments to AEC on account of such debt. This ratio will be
calculated at the end of each fiscal quarter, using fiscal
year-to-date cumulative results, as of the quarter ending
September 30, 1996 through the quarter ending June 30, 1997;
thereafter, the ratio will be calculated at the end of each
fiscal quarter, using the results of that quarter and each
of the 3 immediately preceding quarters."
2.7 The following is added to the Agreement as new
paragraph 9.23:
"9.23 PAYMENTS TO AMERICAN ECO CORPORATION. Not to
make any payments to AEC of any of its affiliates,
subsidiaries, or other related entities in the form of fees,
dividends, distributions, or loans, if there exist any
defaults under this Agreement that have not been cured or
waived, or if so doing would cause any such default."
3. WAIVER OF DEFAULTS. the Borrower is in default under the
------------------
Agreement, as described in paragraphs 1 and 2 of the Bank's letter to the
Borrower dated June 20, 1996. The Borrower also had a ratio of liabilities
to tangible net worth as of March 31, 1996, of .77:1.00, while the
Agreement required a ratio no higher than .75:1.00. The Bank waives all of
such defaults. This waiver (a) applies only to the defaults described in
this paragraph, not to any other existing or future defaults, and (b) shall
be effective only if all of the conditions in paragraph 5, below, are
satisfied no later than July 3, 1996.
4. REPRESENTATIONS AND WARRANTIES. When the Borrower signs
------------------------------
this Amendment, the Borrower represents and warrants to the Bank that: (a)
there is no event which is a default under the Agreement, except for the
defaults described above, (b) the representations and warranties in the
Agreement are true as of the date of this Amendment as if made on the date
of this Amendment, (c) this Amendment is within the Borrower's powers, has
been duly authorized, and does not conflict with any of the Borrower's
organizational papers, and (d) this Amendment does not conflict with any
law, agreement, or obligation by which the Borrower is found.
5. CONDITIONS. This Amendment and the waiver contained herein
----------
will be effective when the Bank receives the following items, in form and
content acceptable to the Bank:
5.1 An executed copy of this Amendment.
5.2 A continuing guaranty from AEC, in the principal amount
of Five Million Seven Hundred Fifty Thousand Dollars ($5,750,000), duly
executed.
5.3 Evidence satisfactory to the Bank of AEC's authority to
execute such guaranty.
5.4 Evidence satisfactory to the Bank that AEC has loaned
no less than Four Hundred Twenty Thousand Dollars ($420,000) to the
Borrower.
5.5 A Subordination Agreement duly executed by AEC and
acknowledged by the Borrower, subordinating all indebtedness of the
Borrower to AEC to all indebtedness of the Borrower to the Bank.
5.6 Payment of a fee by the Borrower to the Bank of Three
Thousand Dollars ($3,000).
6. CONSENT TO ACQUISITION. Upon satisfaction of the conditions
----------------------
described above, the Bank shall be deemed to have
<PAGE>
consented to the Acquisition, as defined in its letter to the Borrower of
May 29, 1996.
7. EFFECT OF AMENDMENT. Except as provided in this Amendment,
-------------------
all of the terms and conditions of the Agreement shall remain in full force
and effect.
This Amendment is executed as of the date stated at the beginning
of this Amendment.
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ Larry A. Perfetto
---------------------------
Larry A. Perfetto,
Vice President
SEPARATION AND RECOVERY
SYSTEMS, INC.
By: /s/ Joseph DeFranco
---------------------------
Joseph De Franco,
President
EXHIBIT 10.4.4
--------------
BORROWER: SEPARATION AND RECOVERY
SYSTEMS, INC.
GUARANTOR: AMERICAN ECO CORPORATION
CONTINUING GUARANTEE
--------------------
TO: BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION
WHEREAS the undersigned ("Guarantor") holds 100% of the issued
and outstanding shares of SEPARATION AND RECOVERY SYSTEMS, INC.
("Borrower"), a Nevada corporation;
AND WHEREAS BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION ("Bank") has agreed to extend credit to Borrower under a
Business Loan Agreement dated as of February 7, 1996 between the Bank, as
lender, and the Borrower, as borrower (as the same may be amended, varied,
renewed, replaced or restated from time to time, the "Loan Agreement");
AND WHEREAS as a condition to the extension of credit to Borrower
by Bank and to induce Bank to continue to extend credit to Borrower,
Guarantor has agreed to guarantee payment of Borrower's indebtedness,
liabilities and obligations to Bank on the terms and subject to the
conditions hereinafter set forth;
AND WHEREAS it is in the best interests of Guarantor to execute
and deliver this Guarantee, in that Guarantor will derive substantial
direct and indirect benefits from the extension of credit to Borrower by
Bank;
(1) For valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, Guarantor unconditionally guarantees and
promises to pay, to the maximum amount permitted by applicable law, to
Bank, or order, on demand, without deduction or offset, in lawful money of
the United States, any and all indebtedness of Borrower to Bank up to a
maximum principal amount of U.S. $5,750,000 plus all interest, costs and
related fees. The word "indebtedness" is used herein in its most
comprehensive sense and includes any and all advances, debts, obligations
and liabilities of Borrower or any one or more of them, heretofore, now, or
hereafter made, incurred or created, whether voluntary or involuntary and
however arising, whether due or not due, absolute or contingent, liquidated
or unliquidated, determined or undetermined, and whether Borrower may be
liable individually or jointly with others, or whether recovery upon such
indebtedness may be or hereafter become barred by any statute of
limitations, or whether such indebtedness may be or hereafter become
otherwise unenforceable.
(2) The obligations hereunder are joint and several, and
independent of the obligations of Borrower, and a separate action or
actions may be brought and prosecuted against Guarantor whether action is
brought against Borrower or whether Borrower be joined in any such action
or actions; and Guarantor waives the benefit of any statute of limitations
affecting its liability hereunder.
(3) Guarantor authorizes Bank, without notice or demand and
without affecting its liability hereunder, from time to time, either before
or after revocation hereof, to (a) renew, compromise, extend, accelerate or
otherwise change the time for payment of, or otherwise change the terms of
the indebtedness or any part thereof, including increase or decrease of the
rate of interest thereon; (b) take and hold security for the payment of
this Continuing Guarantee or the indebtedness guaranteed, and exchange,
enforce, waive, release, fail to perfect, sell, or otherwise dispose of any
such security; (c) apply such security and direct the order or manner of
sale thereof as Bank in its discretion may determine; and (d) release or
substitute any one or more of the endorsers or guarantors. Bank may,
without notice to Guarantor and without affecting Guarantor's obligations
hereunder, assign the indebtedness and this Continuing Guarantee, in whole
or in part.
(4) Guarantor waives any right to require Bank to (a) proceed
against Borrower; (b) proceed against or exhaust any security held from
Borrower; (c) proceed against any person or entity jointly and severally
liable with Borrower; or (d) pursue any other remedy in Bank's power
whatsoever. Guarantor waives any defense arising by reason of any
disability or other defense of Borrower, or the cessation from any cause
whatsoever of the liability of Borrower, or any claim that Guarantor's
obligations exceed or are more burdensome than those of Borrower. Until
all indebtedness of Borrower to Bank shall have been paid in full guarantor
shall have no right of subrogation, and waives any right to enforce any
remedy which Bank now has or may hereafter have against Borrower, and
waives any benefit of and any right to participate in any security now or
hereafter held by Bank. Bank may foreclose, either by judicial foreclosure
or by exercise of power of sale, any deed of trust securing the
indebtedness, and, even though the foreclosure may destroy or diminish
Guarantor's rights against Borrower, Guarantor shall be liable to Bank for
any part of the indebtedness remaining unpaid after the foreclosure.
Guarantor waives all presentments, demands for performance, notices of non-
performance, protests, notices of protest, notices of dishonor, and notices
of acceptance of this Continuing Guarantee and of the existence, creation,
or incurring of new or additional indebtedness.
(5) Guarantor acknowledges and agrees that it shall have the
sole responsibility for obtaining from Borrower such information concerning
Borrower's financial conditions or business operations as Guarantor may
require, and that Bank has no duty at any time to disclose to Guarantor any
information relating to the business operations or financial conditions of
Borrower.
(6) Guarantor represents and warrants to Bank that (a) its
synopsis of its consolidating balance sheet as of April 30, 1996, and all
other financial information that has been or will be supplied to Bank by
Guarantor, is sufficiently complete to give Bank accurate knowledge of
Guarantor's financial condition, and (b) since the date of such balance
sheet, there has been no material adverse change in the assets or the
financial condition of Guarantor. If this warranty is breached at any
time, such breach shall be a default under this Guaranty and under any
agreement then in effect between Bank and Borrower that evidences or
relates to Borrower's indebtedness to Bank.
(7) To secure all of Guarantor's obligations hereunder,
Guarantor assigns and grants to Bank a security interest in all moneys,
securities and other property of Guarantor now or hereafter in the
possession of Bank, and all proceeds thereof. Upon default or breach of
any of Guarantor's obligations to Bank, Bank may apply any deposit account
to reduce the indebtedness, and may foreclose any collateral as provided in
the Personal Property Security Act (Ontario) and in any security agreements
between Bank and Guarantor.
(8) This Continuing Guarantee may be revoked at any time by
Guarantor in respect to future transactions, unless there is a continuing
consideration as to such transactions which Guarantor does not renounce.
Such revocation shall be effective upon actual receipt by Bank at the
address shown below of written notice of revocation. Revocation shall not
affect any of Guarantor's obligations or Bank's rights with respect to
transactions which precede Bank's receipt of such notice, regardless of
whether or not the indebtedness related to such transactions, before or
after revocation, has been renewed, compromised, extended, accelerated, or
otherwise changed as to any of its terms, including time for payment or
increase or decrease of the rate of interest thereon. If this Continuing
Guarantee is revoked, returned, or canceled, and subsequently any payment
or transfer of any interest in property by Borrower to Bank is rescinded or
must be returned by Bank to Borrower, this Continuing Guarantee shall be
reinstated with respect to any such payment or transfer, regardless of any
such prior revocation, return, or cancellation.
(9) Where Borrower is a corporation or partnership it is not
necessary for Bank to inquire into the powers of Borrower or of the
officers, directors, partners or agents acting or purporting to act on its
behalf, and any indebtedness made or created in reliance upon the professed
exercise of such powers shall be guaranteed hereunder.
(10) Guarantor agrees that Bank may disclose to any prospective
purchaser and any purchaser of all part of the indebtedness and any and all
information in Bank's possession concerning Guarantor, this Continuing
Guarantee and any security for this Continuing Guarantee.
(11) Guarantor agrees to pay to Bank, on demand, all out-of-
pocket expenses and legal fees (including allocated costs for in-house
legal services) incurred by Bank prior to the commencement of any legal
action or arbitration proceeding in connection with the enforcement of this
Continuing Guarantee and any instrument or agreement required under this
Continuing Guarantee. In the event of a legal action or arbitration
proceeding, the prevailing party shall be entitled to reasonable legal fees
(including allocated costs for in-house legal services), costs and
necessary disbursements incurred in connection with such action or
proceeding, as determined by the court or arbitrator.
(12) Each payment to be made by Guarantor hereunder or in
connection herewith to Bank shall be made free and clear of and without
deduction for or on account of any withholding or like or similar taxes
unless Guarantor is required to make such a payment subject to the
deduction or withholding of such tax, in which case the sum payable by
Guarantor in respect of which such deduction of withholding is required to
be made shall be increased to the extent necessary to ensure that, after
the making of such deduction or withholding, Bank receives and retains
(free from any liability in respect of any such deduction or withholding) a
net sum equal to the sum which it would have received and so retained had
no such deduction or withholding been made.
(13) (a) If for the purpose of obtaining judgment in any court,
it is necessary to convert any amount due hereunder in the currency in
which it is due (the "Original Currency") into another currency (the
"Second Currency"), the rate of exchange applied shall be that at which, in
accordance with normal banking procedures, Bank could purchase, in the San
Francisco foreign exchange market, the Original Currency with the Second
Currency on the date 2 business days preceding that on which judgment is
given. Guarantor agrees that its obligation in respect of any Original
Currency due from it to Bank hereunder shall, notwithstanding any judgment
or payment in such other currency, be discharged only to the extent that,
on the Business Day following the date Bank receives payment of any sum
adjudged to be due hereunder in the Second Currency Bank may, in accordance
with normal banking procedure, purchase, in the San Francisco foreign
exchange market, the Original Currency with the amount of the Second
Currency so paid; and if the amount of the Original Currency so purchased
or which could have been so purchased is less than the amount originally
due in the Original Currency, Guarantor agrees as a separate obligation and
notwithstanding any such payment or judgment to indemnify Bank against such
loss.
(b) The term "rate of exchange" in this paragraph 13 means
the spot rate at which Bank in accordance with normal practices is able on
the relevant date to purchase the Original Currency with the Second
Currency and includes any premium and costs of exchange payable in
connection with such purchase.
(14) (a) This instrument shall be construed in accordance with
the laws of the Province of Ontario, Canada.
(b) Guarantor hereby irrevocably submits to and
acknowledges the competence of the jurisdiction of the courts of Ontario,
Canada, and any other courts having jurisdiction in
<PAGE>
the Province of Ontario, Canada in any action or proceeding arising out
of or relating to this Continuing Guarantee, and hereby irrevocably
agrees that all claims in respect of such action or proceeding may be
heard and determined in such court.
(c) Nothing in this paragraph 14 shall affect the right of
Bank to serve legal process in any other manner permitted by law or affect
the right of Bank to bring any action or proceeding against Guarantor or
its property in the courts of any other jurisdiction.
(15) Guarantor acknowledges and agrees that all calculations of
interest under this Guarantee and the Loan Agreement are made on the basis
of the interest rate stated therein and not on the basis of the effective
yearly rates or on any other basis which gives effect to the principal of
deemed reinvestment. The yearly rates of interest for any day, to which
the interest rate is equivalent, is the rate so determined multiplied by
the actual number of days in that year and divided by 365 or 366, as the
case may be.
(16) The recitals to this Continuing Guarantee are true and
correct in all respects and form an integral part hereof.
Executed as of this 3rd day of July, 1996.
GUARANTOR:
AMERICAN ECO CORPORATION
By: /s/ Michael E. McGinnis
---------------------------
Michael E. McGinnis
President & CEO
And:
---------------------
<PAGE>
CORPORATE RESOLUTION TO SIGN GUARANTY
RESOLVED, that American Eco Corporation, an Ontario, Canada
corporation, guarantee payment of the debts of Separation and Recovery
Systems (the Borrower) to Bank of America National Trust and Savings
Association (the Bank).
RESOLVED, that this corporation will receive a business benefit
from the Borrower's financial arrangements with the Bank and therefore will
benefit from guaranteeing the debt.
1. DEBT
RESOLVED that at any one time the total guaranty authorized by
this resolution is limited to the principal amount of $5,750,000 United
States dollars, plus any interest and fees. This amount is in addition to
any other debt of the Borrower guaranteed under the authorization of
separate resolutions.
2. AUTHORIZATION
RESOLVED that any 1 of the officers named below (and their
successors in office) are authorized to:
(a) sign the guaranty for the corporation;
(b) grant a security interest in any property owned or
controlled by the corporation as security for the guaranty; and
(c) sign and deliver to the Bank any additional documents
the Bank may require and the officers approve.
The authorized officers are:
1. Michael E. McGinnis, President & CEO
-------------------------------------------------------
Name Title
2.
---------------------------------------------
Name Title
3.
---------------------------------------------
Name Title
4.
---------------------------------------------
Name Title
<PAGE>
3. REVOCATION
RESOLVED that the Bank is authorized to act on this
resolution until notified in writing of its revocation.
4. SECRETARY'S CERTIFICATION
I, John H. Craig, the corporate secretary of the corporation
named above, certify that this is an accurate copy of a resolution of its
board of directors. The board adopted it as required by law and the
corporation's constating documents on July 3, 1996 by the unanimous consent
in writing of all directors of the corporation and such resolution remains
in full force and effect, and has not been amended or revoked as of the
date hereof.
I also certify that the signatures below are those of the
officers authorized to sign for this corporation by this resolution.
This certification is dated July 3rd, 1996.
5. SIGNATURES
Authorized Signatures:
/s/ Michael E. McGinnis Michael E. McGinnis President & CEO
----------------------- -------------------- --------------------
Signature Print name Title
--------------- --------------- ---------------
Signature Print name Title
--------------- --------------- ---------------
Signature Print name Title
--------------- --------------- ---------------
Signature Print name Title
Affix corporate seal here
[seal affixed]
/s/ John H. Craig John H. Craig
-------------------- -------------------------
Secretary's signature Print name
NOTE: THE ATTACHED SIGNATURE OF MICHAEL MCGINNIS HAS BEEN REVIEWED AND
DEEMED ACCEPTABLE BY THE SECRETARY OF THE CORPORATION.
EXHIBIT 10.4.5
--------------
SUBORDINATION AGREEMENT
To: Bank of America National
Trust and Savings Association
July 3rd , 1996
----------
Gentlemen:
The undersigned, American Eco Corporation, an Ontario, Canada
corporation ("Creditor") is a creditor of Separation and Recovery Systems,
Inc., a Nevada corporation ("Borrower") and desires that Bank of America
National Trust and Savings Association, a national banking association
("Bank") continue to extend or extend such financial accommodations to
Borrower as Borrower may request and as Bank may deem proper. At the
present time Borrower is indebted to Creditor in the principal sum of Four
Hundred Twenty Thousand Dollars ($420,000) plus accrued interest, if any,
thereon. For the purposes of inducing Bank to grant, continue or renew
such financial accommodations, and in consideration thereof, Creditor
agrees as follows:
1. Any and all claims of Creditor against Borrower, now or
hereafter existing, are, and shall be at all times, subject and subordinate
to any and all claims, now or hereafter existing which Bank may have
against Borrower (including any claim by Bank for interest accruing after
any assignment for the benefit of creditors by Borrower or the institution
by or against Borrower of any proceedings under the Bankruptcy Act, or any
claim by Bank for any such interest which would have accrued in the absence
of such assignment or the institution of such proceedings).
2. Creditor agrees not to sue upon, or to collect, or to
receive payment of the principal or interest of any claim or claims now or
hereafter existing which Creditor may hold against Borrower, and not to
sell, assign, transfer, pledge, hypothecate, or encumber such claim or
claims except subject expressly to this Agreement, and not to enforce or
apply any security now or hereafter existing therefor, nor to file or join
in any petition to commence any proceeding under the Bankruptcy Act, nor to
take any lien or security on any of Borrower's property, real or personal,
so long as any claim of Bank against Borrower shall exist.
3. In case of any assignment for the benefit of creditors by
Borrower or in case any proceedings under the Bankruptcy Act are instituted
by or against Borrower, or in case of the appointment of any receiver for
Borrower's business or assets, or in case of any dissolution or winding up
of the affairs of Borrower: (a) Borrower and any assignee, trustee in
bankruptcy, receiver, debtor in possession or other person or persons in
charge are hereby directed to pay to Bank the full amount of Bank's claims
against Borrower (including interest to the date of payment) before making
any payment of principal or interest to Creditor, and insofar as may be
necessary for that purpose, Creditor hereby assigns and transfers to Bank
all security or the proceeds thereof, and all rights to any payments,
dividends or other distributions, and (b) Creditor hereby irrevocably
constitutes and appoints Bank its true and lawful attorney to act in its
name and stead: (i) to file the appropriate claim or claims on behalf of
Creditor if Creditor does not do so prior to 30 days before the expiration
of the time to file claims in such proceeding and if Bank elects at its
sole discretion to file such claim or claims and (ii) to accept or reject
any plan of reorganization or arrangement on behalf of Creditor, and to
otherwise vote Creditor's claim in respect of any indebtedness now or
hereafter owing from Borrower to Creditor in any manner Bank deems
appropriate for its own benefit and protection.
4. Bank is hereby authorized by Creditor to: (a) renew,
compromise, extend, accelerate or otherwise change the time of payment, or
any other terms, of any existing or future claim of Bank against Borrower,
(b) increase or decrease the rate of interest payable thereon or any part
thereof, (c) exchange, enforce, waive or release any security therefor, (d)
apply such security and direct the order or manner of sale thereof in such
manner as Bank may at its discretion determine, (e) release Borrower or any
guarantor of any indebtedness of Borrower from liability, and (f) make
optional future advances to Borrower, all subordination provided by this
Agreement.
5. On request of Bank, Creditor shall deliver to Bank the
original of any promissory note or other evidence of any existing or future
indebtedness of Borrower to Creditor, and mark same with a conspicuous
legend which reads substantially as follows:
"THIS PROMISSORY NOTE IS SUBORDINATED TO ANY
PRESENT OR FUTURE INDEBTEDNESS OWING FROM THE MAKER TO
BANK OF AMERICA NT&SA AND ITS ASSIGNS, AND MAY BE
ENFORCED ONLY IN ACCORDANCE WITH THAT CERTAIN
SUBORDINATION AGREEMENT DATED JULY 3, 1996 BETWEEN
AMERICAN ECO CORPORATION AND BANK OF AMERICA NT&SA."
6. In the event that any payment or any cash or noncash
distribution is made to Creditor in violation of the terms of this
Agreement, Creditor shall receive same in trust for the benefit of Bank,
and shall forthwith remit it to Bank in the form in which it was received,
together with such endorsements or documents as may be necessary to
effectively negotiate or transfer same to Bank.
7. Until all such claims of Bank against Borrower, now or
hereafter existing, shall be paid in full, no gift or loan shall be made by
Borrower to Creditor.
8. For violation of this Agreement, Creditor shall be liable
for all loss and damage sustained by reason of such breach, and upon any
such violation Bank may, at its option, accelerate the maturity of any of
its existing or future claims against Borrower.
9. This Agreement shall be binding upon the heirs, successors
and assigns of Creditor, Borrower and Bank. This Agreement and any
existing or future claim of Bank against Borrower may be assigned by Bank,
in whole or in part, without notice to Creditor or Borrower.
10. Notwithstanding the provisions of Paragraph 2, so long as
there has been no occurrence of any default under any agreement between
Borrower and Bank, now existing or hereafter entered into, and so long as
no such default would be caused by the making of any payment, Creditor may
receive regularly scheduled interest payments on the presently existing
indebtedness of Borrower to Creditor, and, commencing no earlier than June
30, 1997, principal payments on such indebtedness in any amount; provided,
--------
however, that Creditor shall not receive any prepayment of interest on said
-------
indebtedness without the prior written consent of Bank.
AMERICAN ECO CORPORATION
By: /s/ Michael E. McGinnis
--------------------------------
Title: President & CEO
-----------------------------
ACCEPTANCE OF SUBORDINATION AGREEMENT BY BORROWER
-------------------------------------------------
The undersigned being the Borrower named in the foregoing
Subordination Agreement, hereby accepts and consents thereto and agrees to
be bound by all the provisions thereof and to recognize all priorities and
other rights granted thereby to Bank of America National Trust and Savings
Association, its successors and assigns, and to perform in accordance
therewith.
SEPARATION AND RECOVERY
SYSTEMS, INC.
Dated: July 3rd , 1996 By: /s/ Joseph DeFranco
------------------ ----------------------------
Title: President
------------------------
EXHIBIT 10.5
------------
THIS ACQUISITION AGREEMENT made as of the 31st day of May, 1996.
B E T W E E N:
UNITED ECO SYSTEMS, INC.
a corporation amalgamated pursuant to the laws of the State of Delaware
("UESI")
OF THE FIRST PART
- and -
AMERICAN ECO CORPORATION
a corporation amalgamated pursuant to the laws of the Province of Ontario
("ECO")
OF THE SECOND PART
WHEREAS UESI is the owner of all of the issued and outstanding shares of
ESI (as hereinafter defined); and
WHEREAS Seller seeks to sell all of the issued and outstanding Shares of
UESI to ECO and ECO seeks to purchase the Shares from Seller, all on and
subject to the terms and conditions of this Agreement;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the mural
covenants, agreements and premises herein contained and other good and
valuable consideration (the receipt and self-sufficiency whereof being
hereby acknowledged by each party), the parties hereto do hereby covenant
and agree as follows:
1. DEFINITIONS AND SCHEDULES
-------------------------
1.1 Definitions. In this Agreement:
-----------
"Accounts Receivable" means all accounts receivable and other book
debts due or accruing to the Target Company as at the Reference Date and
the full benefit of all security, if any, for such accounts or debts.
"Affiliate" has the meaning ascribed thereto in the OBCA.
"Agreement", "this Agreement", "hereto" and "herein" means this
Agreement and all schedules attached hereto, as may be amended from time to
time.
"Associate" has the meaning ascribed thereto in the OBCA.
"Best Knowledge" means such knowledge as the Party would have after
due inquiry of the matter in question.
"Business Day" means a day other than a Saturday or a Sunday or any
other day which is a statutory holiday in the Province of Ontario.
"Closing" means the consummation of the Transaction as herein
contemplated.
"Closing Date" means May 31, 1996 or such earlier or later date as may
be agreed to in writing by the Parties.
"Contract" means any agreement, indenture, contract, bond, debenture,
security agreement, lease, deed of trust, license, option, instrument or
other legally binding commitment, whether written or oral.
"Direct Claim" has the meaning ascribed thereto in subsection 6.3.
"ECO" means American ECO Corporation, an Ontario corporation.
"ESI" means Eco Systems, Inc., a Delaware corporation.
"Encumbrances" means any and all claims, liens, security interests,
mortgages, pledges, pre-emptive rights, charges, options, equity interests,
encumbrances, proxies, voting agreements, voting trusts, leases, tenancies,
easements or other interests of any nature or kind whatsoever, howsoever
created.
"Indemnified Party" has the meaning ascribed thereto in section 6.3.
"Indemnifying Party" has the meaning ascribed thereto in section 6.3.
"Indemnification Claim" has the meaning ascribed thereto in section
6.3.
"Intellectual Property" means all patents, copyrights, trademarks and
trade names, service marks and all software, data bases, trade secrets,
know how and other proprietary rights as at the Reference Date.
"Losses" means any and all claims, demands, debts, suits, actions,
obligations, proceedings, losses, damages, liabilities, deficiencies, costs
and expenses (including without limitation, all reasonable legal and other
professional fees and disbursements, interest, penalties and amounts paid
in settlement).
"Material Adverse Effect" means a material adverse effect on the
business, assets, liabilities, condition (financial or otherwise),
operations or prospects of the Party in question or upon such Party's
ability to perform its obligations under this Agreement or to consummate
the Transaction.
"NASDAQ" means the National Association of Securities Dealers
Automated Quotations.
"OBCA" means the Business Corporations Act, Ontario.
"Parties" means collectively, the parties to this Agreement.
"Person" means any individual, Company, company, corporation,
unincorporated association, joint venture, trust, the Crown or any other
agency or instrumentality thereof or any other judicial entity or person
government or governmental agency, authority or entity howsoever designated
or constituted.
"Reference Date" means June 10, 1996.
"Subsidiary" has the meaning ascribed thereto in the OBCA.
"Survival Period" has the meaning ascribed thereto in section 5.1
"Target" means ESI.
"Target Company" means ESI.
"Target Company Contracts" has the meaning ascribed thereto in section
4.1(aa).
"Company Shares" means all of the issued and outstanding Common Stock
par value of $0.01 per share of UESI held of record by Seller.
"Target Company Financial Statements" has the meaning attributed
thereto in section 4.1(p).
"Taxes" means all income, profits, franchise, royalty, withholding,
payroll, excise, sales, value added, use, occupation and property taxes and
any liability, whether disputed or not, imposed by the U.S. or any state,
municipality, country or foreign government or subdivision or agency
thereof.
"Third Party" has the meaning ascribed thereto in section 6.3.
"Third Party Claim" has the meaning ascribed thereto in section 6.3.
"Transaction" means the transfer of the Target Company Shares in
exchange for cash, as contemplated by this Agreement.
"TSE" means The Toronto Stock Exchange.
"UESI" means United Eco Systems, Inc.
1.2 Disclosure. Any fact or circumstance or combination of facts and/or
----------
circumstances disclosed in this Agreement or in any schedules hereto shall
be deemed to be disclosed for all purposes of this Agreement.
1.3 Act. Any reference in this Agreement to any act, by-law, rule or
---
regulation or to a provision thereof shall be deemed to include a reference
to any act, by-law, rule or regulation or provision enacted in substitution
or amendment thereof.
1.4 Central Daylight Time. Except where otherwise expressly provided in
---------------------
this Agreement any reference to time shall be deemed to be a reference to
Central Daylight Time.
1.5 Gender and Extended Meanings. In this Agreement words and personal
----------------------------
pronouns relating thereto shall be read and construed as the number and
genda of the party or parties referred to in each case require and the
verb shall be construed as agreeing with the required word and pronoun.
For greater certainty and without limitation, in this Agreement the word
"shall" has the same meaning as the word "will".
1.6 U.S. Dollars and Payment. All dollar amounts referred to in this
------------------------
Agreement are in U.S. funds, unless otherwise expressly specified.
1.7 Section Headings. The division of this Agreement into sections is for
----------------
convenience of reference only and shall not effect the interpretation or
construction of this Agreement.
1.8 Business Day. In the event that the date for the taking of any action
------------
under this Agreement falls on a day which is not a Business Day, then such
action shall be taken on the next following Business Day.
2. AGREEMENT TO EXCHANGE
---------------------
2.1 Transfer. Subject to the terms and conditions hereof, on the Closing
--------
Date at the Time of Closing, Seller shall transfer to ECO and ECO shall
accept from Seller the Company Shares and Seller shall deliver to ECO
certificates representing its Shares duly endorsed in blank for transfer
together with new certificates therefor.
2.2 Purchase Price. The purchase price for the UESI Shares shall equal
--------------
the sum of $2,520,000 satisfied by ECO by the issuance to UESI of 315,000
fully paid and non-assessable common shares in the capital of ECO issued at
$8.00 per share. In addition, simultaneous with the execution hereof, ECO
shall enter into an Employment Agreement with William N. D'Angelo,
President of UESI.
2.3 Closing. Closing shall occur at the Time of Closing on the Closing
-------
Date at the offices of UESI or at such other place or other time and date
as the Parties may agree.
3. COVENANTS, REPRESENTATIONS AND WARRANTIES OF ECO
------------------------------------------------
3.1 Covenants, Representations and Warranties. ECO hereby covenants,
represents and warrants to Seller and UESI as follows and acknowledges and
confirms that they are relying upon such covenants, representations and
warranties in connection with the Transaction and that unless otherwise
indicated herein, such covenants, representations and warranties shall be
true and correct as at the Closing Date:
(a) Organization. ECO is duly incorporated and validly subsisting
------------
under the laws of the Province of Ontario and has the corporate power to
own or lease its property and to carry on its business as it is now being
conducted and subject to receipt of requisite regulatory approval including
approval from the TSE and NASDAQ with respect to the Transaction, on the
Closing Date, ECO will have the corporate power to execute, deliver and
perform its obligations under this Agreement. ECO is duly qualified to do
business in those jurisdictions wherein the failure to so qualify could
have a Material Adverse Effect on ECO.
(b) Corporate Authority. Subject to receipt of requisite regulatory
-------------------
approval including approval from the TSE and NASDAQ with respect to the
Transaction, on the Closing Date ECO will have taken all requisite
corporate action to authorize the valid execution, delivery and performance
of this Agreement and the consummation of the Transaction.
(c) Agreement Enforceable. Subject to receipt of requisite
---------------------
regulatory approval including approval from the TSE and NASDAQ with respect
to the Transaction, this Agreement constitutes a valid and legally binding
obligation of ECO enforceable against ECO in accordance with its terms.
(d) Securities Laws Matters. The common shares of ECO are listed and
-----------------------
posted for trading on the TSE and on NASDAQ. ECO is in compliance in all
material respects with all applicable requirements of the TSE and NASDAQ
concerning maintenance of such listing and has received no notification nor
has any reasonable basis to believe that such listing may or will be
terminated. ECO is a "reporting issuer" under the Securities Act, Ontario
and the Securities Act, Quebec and is not in material default of any of its
requirements under any such legislation, regulations or published policies
thereunder.
(e) No Violations. Subject to receipt of requisite regulatory
-------------
approval including approval from the TSE and NASDAQ with respect to the
Transaction, the execution and delivery of this Agreement and all other
agreements contemplated herein by ECO and the observance and performance of
the terms and provisions of this Agreement and any such agreements: (i)
does not and will not require ECO to obtain or make any consent,
authorization, approval, filing or registration under any law, by-law,
rule, regulation, judgment, order, writ, injunction or decree which is
binding upon ECO; (ii) does not and will not constitute a violation or
breach of the charter documents or by-laws of ECO; (iii) does not and will
not constitute a violation or breach of applicable law, any material
provision of any Contract to which ECO is a party or by which ECO is bound
or any law, by-law, rule, regulation, judgment, order, writ, injunction or
decree applicable to ECO; and (iv) does not and will not constitute a
material default (nor would with the passage of time or the giving of
notice or both or otherwise, constitute a material default) under any
Contract, to which ECO is a party or by which ECO is bound.
(f) Brokers. ECO shall be responsible for the payment of all
-------
brokerage commissions, and finder's fees or other like payment incurred by
ECO in connection with this transaction, including a $400,000.00 finder's
fee payable by ECO on Closing to Network Capital Management Group, Inc. and
ECO will indemnify and save harmless UESI of and from any such claims.
(g) ECO will be responsible for the assumption of ESI's liabilities,
covenants and obligations as more particularly set forth in a certain Asset
Purchase Agreement between ESI and ENSCI Corporation, (including the
assumption of all of ESI's liabilities and obligations to Branch Banking &
Trust Company) attached hereto as Exhibit "A" and made a part hereof, and
the release of WND's obligations to ESI, plus ten ($10.00) Dollars.
4. COVENANTS, REPRESENTATIONS AND WARRANTIES OF SELLER AND UESI
------------------------------------------------------------
4.1 Covenants, Representations and Warranties. Seller and UESI hereby
-----------------------------------------
covenant, represent and warrants to ECO as follows and acknowledges and
confirms that ECO is relying upon such covenants, representations and
warranties in connection with the Transaction and that unless otherwise
indicated herein, such covenants, representations and warranties shall be
true and correct as at the Closing Date:
(a) Legal Capacity. UESI has the legal capacity and competence to
--------------
execute, deliver and perform its obligations under this Agreement.
(b) Organization. Each of UESI and the Target Company is duly
------------
incorporated and validly subsisting under the laws of its jurisdiction of
incorporation and has the corporate power to own or lease its property and
to carry on its business as it is now being conducted and has the corporate
power to execute, deliver and perform its obligations under this Agreement.
The Target Company is duly qualified to do business in those jurisdictions
wherein the failure to so qualify could have a Material Adverse Effect on
the Target Company, being the State of North Carolina and the Commonwealth
of Virginia.
(c) Corporate Authority. UESI has taken all requisite corporate
-------------------
action to authorize the valid execution, delivery and performance of this
Agreement and the consummation of the Transaction.
(d) No Violations. The execution and delivery of this Agreement and
-------------
all other agreements contemplated herein by UESI and the Target and the
observance and performance of the terms and provisions of this Agreement
and any such agreements: (i) does not and will not require UESI or the
Target to obtain or make any consent, authorization, approval, filing or
registration under any law, by-law, rule, regulation, judgment, order,
writ, injunction or decree which is binding upon UESI or the Target; (ii)
does not and will not constitute a violation or breach of the charter
documents or by-laws of UESI or the Target; (iii) does not and will not
constitute a violation or breach of applicable law, any material provision
of any Contract to which UESI or the Target is a party or by which UESI or
the Target is bound or any law, by-law, rule, regulation, judgment, order,
writ, injunction or decree applicable to UESI or the Target; (iv) does not
and will not constitute a default or require a consent or approval (nor
would with the passage of time or the giving of notice or both or
otherwise, constitute a default) under any Contract, to which UESI or the
Target is a party or by which UESI or the Target is bound; and (v) does not
and will not result in the creation or imposition of any Encumbrance on the
Target Shares or any property or assets of UESI or the Target.
(e) Issued Shares. The Company Shares comprise all of the issued and
-------------
outstanding shares of ESI. All of the Company Shares, have been duly
authorized, created and issued as fully paid and non-assessable shares.
There are outstanding no other shares, warrants, rights or securities
convertible into shares or any other evidence whatsoever of an interest in
the Target Company or UESI.
(f) Owner of the Target Company Shares. UESI is the owner
----------------------------------
beneficially and of record of the Target Company Shares and has good and
marketable title thereto, free and clear of any Encumbrances and/or
pre-emptive rights.
(g) Subsidiaries. Except as disclosed on Exhibit "A", the Target
------------
Company has no Subsidiaries and owns no shares of any other corporation or
entity nor any rights, warrants or other securities convertible into shares
of any other corporation or entity. The Target Company is not bound by or a
party to any Contract which contemplates its amalgamation, merger,
consolidation or other acquisition with or by any other entity.
(h) Acts of Bankruptcy. Neither UESI nor the Target Company is
------------------
insolvent, has proposed a compromise or arrangement to its or their
creditors generally, has taken any proceeding with respect to a compromise
or arrangement, has taken any proceeding to have itself declared bankrupt
or wound-up, has taken any proceeding to have a receiver appointed of any
part of their assets and at present, no encumbrancer or receiver has taken
possession of any of their property and no execution or distress is
enforceable or levied upon any of its property and no petition for a
receiving order in bankruptcy is filed against them.
(i) Private Company. UESI and the Target Company do not distribute
---------------
their securities to the public.
(j) Resident. UESI and the Target Company are residents of the
--------
United States.
(k) Actions - Company Shares. There is not pending or, to the Best
------------------------
Knowledge of Seller or UESI, threatened or contemplated, any suit, action,
legal proceeding, litigation or governmental investigation of any sort
which would: (i) in any manner restrain or prevent Seller or UESI from
effectually and legally transferring the Shares of UESI to ECO in
accordance with this Agreement; (ii) cause an Encumbrance to attach to the
UESI Shares; (iii) divest title to the UESI Shares in any manner
whatsoever; or (iv) make ECO liable for damages in connection with the
Transaction.
(l) Litigation. Except as disclosed on Schedule 4.1 and Exhibit "A"
----------
there is not pending, or, to the Best Knowledge of Seller or of UESI,
threatened or contemplated any suit, action, legal proceeding, litigation
or governmental investigation of any sort relating to UESI, the Target or
the Transaction nor is there any present state of facts or circumstances
which can be reasonably anticipated to be a basis for any such suit,
action, legal proceeding, litigation or governmental investigation nor is
there presently outstanding against Seller or UESI or the Target any
judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or arbitrator.
(m) Minute Books. The minute books of UESI contain accurate and
------------
complete copies of their incorporating documents together with minutes of
all meetings of directors, committees and shareholders of UESI. All of the
articles and the by-laws of UESI have been reviewed and received by ECO.
There are outstanding no applications or filings which would alter in any
way the constating documents or corporate status of UESI. No resolutions
or by-laws have been passed, enacted, consented to or adopted by the
directors or shareholders of UESI except as are contained in the minute
books of UESI. The directors and officers of UESI are as set forth in the
corporate minutes.
(n) Books of Account. The books of account and financial records of
----------------
UESI and the Target fairly set out and disclose in all material respects,
the current financial position of the Companies. All material transactions
involving both Companies have been accurately recorded in such books and
records. All bonuses, commissions and other payments relating to the
employees of UESI reflected in the books of UESI in a manner consistent
with past record keeping practices and are further described in Schedule
4.l(y)11.
(o) Permits and Licenses. UESI and the Target have all necessary
--------------------
permits, certificates, licenses, approvals, consents and other
authorizations required to carry on and conduct business and to own, lease
operate its assets at the places and in the manner in which such business
is conducted. Exhibit "A" contains a full, complete and accurate list of
such permits, certificates, licenses, approvals, consents and other
authorizations.
(p) Financial Statements. A true copy of the financial statements of
--------------------
the Target and the statements of operations (the "Target Company Financial
Statements") of the Target as of , 1996 is annexed hereto as
Schedule 4.1(p). The Target Company Financial Statements: (1) Have been
prepared in accordance with U.S. generally accepted accounting principles
applied on a basis consistent with those of the preceding fiscal period.
(2) Present fairly the assets, liabilities and financial position of the
Target as of 1996, and the results of operations for the period
then ended. Other than the liabilities specified in the balance sheet
forming part of the Target Company Financial Statements or incurred since
the Reference Date in the ordinary course of business (all of which is
consistent with past practice) or otherwise noted or disclosed in this
Agreement there are no known liabilities or obligations of the Target
(whether absolute, contingent or otherwise) including without limitation,
any Tax liabilities due or to become due or contingent losses for
unasserted claims which are capable of assertion. (3) Are substantially in
accordance with the books and records of the Target. (4) Contain and
reflect all necessary adjustments for a fair presentation of the results of
operations and financial position of the Target for the period covered
thereby. (5) Contain and reflect adequate provision or allowance for all
reasonably anticipated liabilities, expenses and losses of the Target.
(6) Financial Statements of UESI have not been prepared as of the date of
this Agreement.
(q) Guarantees. UESI does not have any outstanding guarantees or has
----------
any outstanding security for and liability, debt or obligation of any
Person, except as set forth in the Schedules and Exhibits.
(r) Bonds or Debentures. UESI does not have any outstanding bonds,
-------------------
debentures or other indebtedness nor is it under any agreement to create or
issue any bonds, debentures or other indebtedness.
(s) No Further Expenditures. No capital expenditures or leasehold
-----------------------
improvements have been made by the Target since the date of the Target
Company Financial Statements, other than in the ordinary course of
business.
(t) Related Parties. Since the Reference Date, UESI and the Target
have not made any payment or loan to or borrowed any moneys from and are
not otherwise indebted to, any officer, director, employee, shareholder or
any other Person not dealing at arm's length with UESI or the Target. UESI
and the Target are not a party to any Contract with any officer, director,
employee, shareholder or any other Person not dealing at arm's length, with
UESI or the Target. No officer, director or shareholder of UESI or the
Target and no entity that is an Affiliate or Associate of one or more of
such individuals:
(1) Owns, directly or indirectly, any interest in (except for shares
representing less than 2% the outstanding shares of any class of
securities of any publicly traded company) or is an officer,
director, employee or consultant of, any Person which is or is
engaged in business as a competitor of UESI or the Target or a
lessor, lessee, client or supplier of UESI or the Target.
(2) Owns, directly or indirectly, in whole or in part, any property
that UESI or the Target uses in the operation of business.
(3) Has any cause of action or any other claims whatsoever against or
owes any amount to UESI or the Target.
(u) Dividends or Distributions. No dividends or other distributions
--------------------------
on any of the shares in the capital of UESI or the Target Company have been
authorized, declared or paid since the date of the respective Target
Company Financial Statements and there has not been any direct or indirect
redemption, purchase or acquisition of any such shares.
(v) No Changes. Since the Financial Statement, UESI and the Target
----------
have carried on business and conducted their operations and affairs only in
the ordinary and normal course consistent with past practice and there has
not been:
(1) Any material adverse change in the condition (financial or
otherwise), assets, liabilities, operations, earnings, business
or prospects of UESI or the Target.
(2) Any damage, destruction or loss (whether or not covered by
insurance) affecting the property or assets of UESI or the Target
or any failure to regularly maintain and repair such property and
assets in the ordinary course of business.
(3) Any payment, discharge or satisfaction of any Encumbrance,
liability or obligation of UESI or the Target Company (whether
absolute, accrued, contingent or otherwise and whether due or to
become due) greater than $1,000.00 other than payment of
liabilities incurred in the ordinary course of business
consistent with past practice.
(4) Any issuance or sale by UESI or the Target Company or any
Contract entered into by UESI or the Target Company for the
issuance or sale by UESI or the target Company of any shares in
the capital of or securities convertible into or exercisable into
shares in the capital of UESI or the Target Company.
(5) Any labor disturbances adversely affecting UESI or the Target.
(6) Any license, sale, assignment, transfer, disposition, pledge,
mortgage or granting of a security interest or other Encumbrance
on or over any property or assets of UESI or the Target Company
other than in the ordinary course of business.
(7) Any write-off as uncollectible of any Accounts Receivable or any
portion thereof of UESI or the Target in amounts exceeding the
allowance set out in the respective Target Company Financial
Statements.
(8) Any cancellation of any other debts or claims or any amendment,
termination or waiver of any other rights of value to UESI or the
Target in amounts exceeding $1,000.00 in each instance or
$5,000.00 in the aggregate.
(9) Any general increase in the compensation of employees of UESI or
the Target (including without limitation, any increase pursuant
to any employee plan or commitment) or any increase in any such
compensation or bonus payable to any officer, employee,
consultant or agent thereof (having an annual salary or
remuneration in excess of $30,000.00), the execution of any
employment contract with any officer or employee (having an
annual salary or remuneration in excess of $30,000.00) or the
making of any loan to or engagement in any transaction with any
employee, officer or director of UESI or the Target.
(10) Any material change in the accounting or tax practices followed
by UESI or the Target.
(11) Any material change adopted in the depreciation or amortization
policies or rates or any material change in the credit terms
offered to customers of or by supplies to UESI or the Target.
(12) Any acquisition, transfer, assignment, sale or other disposition
of any of the assets shown in the Target Company Financial
Statements other than in the ordinary course of business.
(13) Any institution or settlement of any litigation, action or
proceeding before any court or governmental body by or against
UESI or the Target.
(14) The creation of any debts and for liabilities whatsoever (whether
accrued, absolute, contingent or otherwise) other than in the
ordinary course of business.
(15) Any Contract other than in the ordinary course of business and
consistent with past practice.
(w) Taxes. Except as reserved for UESI or in the Target Company
-----
Financial Statements:
(1) All returns, including reports of every kind with respect to
Taxes, which are due to have been filed by UESI or the Target in
accordance with applicable law, have been duly filed by the dates
prescribed by law and are complete and accurate.
(2) All Taxes, deposits or other payments for which UESI or the
Target may have any liability arising prior to Closing have been
paid in full or accrued as liabilities for Taxes on the books of
UESI or the Target.
(3) All installments for Taxes which UESI or the Target may be
required to make have been made on a timely basis.
(4) The amount so paid on or before the Reference Date together with
any amounts accrued as liabilities for Taxes (whether accrued as
currently payable or deferred taxes) on the books and in the
respective Target Company Financial Statements will be adequate
to satisfy all liabilities for Taxes of UESI or the Target in any
jurisdiction in respect of the periods covered.
(5) There not now any extensions of time in effect with respect to
the dates on which any returns, including elections, or reports
of Taxes were or are due to be filed by UESI or the Target and
there are no outstanding requests therefor.
(6) No U.S. federal and state income tax assessments have been issued
to UESI or the Target covering all past periods up to and
including the fiscal year ended December 31, 1995 since both UESI
and the Target were incorporated during the year 1996.
(7) No payments are or will be required to be made by UESI or the
Target pursuant to any tax indemnity, allocation or sharing
agreement and all such agreements will be terminated with respect
to UESI or Target as of the Reference Date:
(8) No claims, proposals, assessments or reassessments for any Taxes
are being asserted or, to the Best Knowledge of Seller or UESI,
proposed or threatened and, to the Best Knowledge of UESI, no
audit or investigation of any return or report of Taxes is
currently under way, pending or threatened.
(9) There are no outstanding waivers or agreements by UESI or the
Target for the extension of time for the assessment or
reassessment of any Taxes or deficiency thereof nor are there any
requests for rulings, outstanding subpoenas or requests for
information, notice of proposed reassessment of any property
owned or leased by UESI or the Target or any other matter pending
between the UESI or the Target and any taxing authority.
(10) There are no liens for Taxes upon any property or assets of UESI
or the Target except liens for current Taxes not yet due.
(11) To the Best Knowledge of Seller there are no facts which exist or
have existed which would constitute grounds for the assessment of
any Taxes on UESI or the Target with respect to the periods which
have not been audited by the Internal Revenue Service or other
taxing authorities.
(12) The Target Company has withheld from each payment made to its
officers, directors and employees and former officers, directors
and employees, the amount of all Taxes and other deductions
required to be withheld therefrom and has paid the same to the
proper tax and other receiving officers within the time required
under applicable legislation.
(13) Adequate provision, including provision in the deferred tax
account has been made for all deferred and accrued Tax
liabilities with respect to operations of UESI or the Target
Company for the period ending on the Reference Date.
(14) Neither UESI or the Target have been obligated to file U.S.
Corporate Income Tax Return as of this Agreement Date.
(x) Assets. UESI has good and marketable title to all of its assets
------
as reflected in the Financial Statements, free and clear of all
Encumbrances save and except for those assets sold, assigned, transferred
or disposed of in the ordinary course of business.
(y) Schedules. The Exhibits and Schedules hereto contain full,
---------
complete and accurate lists and descriptions of the following as of
the Reference Date and the date of the Financial Statement:
(1) All real property owned of record or beneficially of UESI or the
Target Company.
(2) All items of tangible personal property (other than raw material,
purchased parts, work in process, finished goods and other items
of inventory), if any, not reflected on any other Schedule hereto
having a book value of $200.00 or more and owned of record or
beneficially by UESI or the Target Company, including without
limitation, automobiles, trucks and other vehicles.
(3) All purchase commitments of UESI or the Target Company, including
accounts payable and any amounts owed under any subcontracts,
where the amount remaining unpaid is in excess of $500.00.
(4) All Contracts of UESI or the Target Company for the performance
of work, indicating any amounts due to UESI or the Target
Company, the percentage of the work to be performed that has been
completed, whether the Contract is bonded.
(5) Each lease (including all amendments thereto) where the total
amount remaining to be paid thereunder exceeds $500.00 under
which the UESI or Target Company is a lessee of any personal
property and each real property lease. All rentals due under all
such leases have been paid up to and including the Reference Date
and there are no defaults by UESI or the Target Company under the
terms of such leases and no event has occurred which, upon the
passage of time or the giving of notice or both would result in
an event of default by UESI or the Target Company or would
prevent UESI or the Target Company from exercising and obtaining
the benefits of any rights or options contained therein. UESI and
the Target Company has all right, title and interest of the
lessee under the terms of each such lease free and clear of any
Encumbrances and all such leases are valid and in full force and
effect. The Transaction does not constitute a default by UESI or
the Target Company under any such leases and the consent of the
lessors under such leases is not required with respect to this
Transaction.
(6) All Intellectual Property that is directly or indirectly owned,
licensed, used, required for use or controlled in whole or in
part by the Target Company and UESI and all material licenses and
other agreements allowing the Target Company and UESI to use the
Intellectual Property of other Persons. None of the Intellectual
Property of the Target Company and UESI infringes the
Intellectual Property of any other Person and to the Best
Knowledge of UESI, no activity of any other Person infringes upon
any of the Intellectual Property of the Target Company or UESI to
the extent that any such infringement in either case could have a
Material Adverse Effect on the Target Company or UESI. To the
Best Knowledge of UESI, the Target has been and is now conducting
business in a manner which has not been and is not now in
violation of any Intellectual Property of any other Person and
does not require a material license to operate such business as
currently conducted except as disclosed on Schedule 4.1(o). The
Intellectual Property of UESI or the Target is sufficient for the
conduct of business of the Target as currently conducted.
(7) Schedule 4.1(y)(7): The name and address of each bank, trust
company or other financial institution in which UESI or the
Target has an account and the names of all Persons authorized to
draw thereon as well as all powers of attorney granted by UESI or
the Target.
(8) Schedule 4.1(y)(8): All insurance policies now in full force and
effect (specifying the insurer, the amount of coverage, type of
insurance, the amount of deductible if any, the policy number,
expiry date and any pending claims thereunder) maintained the
Target on the lives of its directors and officers, together with
true copies thereof. The proceeds of such policies are fully
payable to UESI or the Target. All premiums in connection with
such policies are fully paid. Such insurance is in amounts
sufficient for compliance with all requirements of law and any
Contract to which UESI or the Target is a party with respect to
the assets, properties, business, operations, products and
services owned or conducted by UESI or the Target. There are no
claims, actions, suits or proceedings arising out of or based
upon any of such insurance policies and to the Best Knowledge of
UESI, no basis for any such claim, action, suit or proceeding
exists. Neither UESI nor the Target are in default with respect
to any provisions contained in any such insurance policy which
would adversely affect their rights to make any claim under any
such insurance policy.
(9) Schedule 4.l(y)(9): All major clients of UESI or the Target
(being those clients of UESI or the Target accounting for more
than 5% of revenues, as of the Reference Date There has been no
termination or cancellation of the business relationship of UESI
or the Target with any major client or group of major clients.
(10) Schedule 4.1(y)(10): All suppliers or vendors of products or
services to UESI or the Target aggregating more than $10,000.00
during the one-year period ending on the Reference Date, the
address of each such supplier or vendor and the amount sold to
UESI or the Target during such period.
(11) Schedule 4.1(y)(11): (a) All written contracts or arrangements
for the employment of any officer employee, agent or consultant
of UESI or the Target.
(b) A complete list of all permanent and full-time employees of UESI
or the Target, their salaries and wage rates, their positions and
their length of service and particulars of any Contracts,
arrangements or understandings, written or oral, with them.
(c) All bonus, deferred compensation, severance or termination pay,
insurance, medical, dental, drug, profit sharing, pension,
retirement, stock option, stock purchase, hospitalization
insurance or other material plans or arrangements providing
employee benefits to any current or forma director, officer,
employee or consultant of UESI or the Target and all relevant
vacation policies.
(z) Certain Contracts and Commitments. Schedule 4.(aa) sets forth a
---------------------------------
list and description of all contracts, leases and licenses of UESI or the
Target (the "Contracts") not included on any other Schedule. The
enforceability of the Contracts will not be affected in any manner by the
execution and delivery of this Agreement or the consummation of the
Transaction. UESI is not in default and there does not exist any event
that, with notice or lapse of time or both, would constitute an event of
default by UESI under any of the Contracts. To the Best Knowledge of UESI
there is no breach or default by any other party to the Contracts. A true
and complete copy of each such Contract has been delivered to ECO or will
be delivered to ECO prior to the Closing Date.
(aa) No Other Contracts. For greater certainty and without
------------------
limitation, or otherwise herein, UESI or the Target is not a party to
or bound by any Contract which in any way has or could have a Material
Adverse Effect on either Company. The Contracts set forth in the
Schedules hereto are not subject to renegotiation or cancellation
resulting from the Transaction. Except as described in the Schedules,
UESI or the Target (except in the ordinary course of business) is not
a party to or bound by:
(1) Any Contract for the purchase of materials, supplies, equipment
or services which involves the payment of $1,000.00 or more.
(2) Any Contract for the sale, license or provision of any assets or
services which involve the receipt of $1,000.00 or more.
(3) Any trust indenture, mortgage, promissory note, loan agreement,
guarantee or other Contract for the borrowing of money or a
leasing transaction of the type required to be capitalized in
accordance with generally accepted accounting principles.
(4) Any Contract for charitable contributions in excess of $500.00 in
the aggregate.
(5) Any Contract relating to a distributorship, sales representative
or sales agency agreement.
(6) Any Contract which involves the sharing of profits, a joint
venture, Company, joint development or bidding arrangement or any
material advertising contracts.
(7) Any Contract not made in the ordinary course of business.
(8) Any Contract restricting in any manner the conduct of UESI or the
Target or the ownership or use of the assets thereof.
(9) Any material warranties relating to products distributed or
services provided by UESI or the Target.
(10) Any Contract involving the payment or receipt of $5,000.00 or
more in any 12 month period.
(11) Any Contract required to be disclosed on a Schedule to this
Agreement that is not so disclosed.
(ab) Default of Contracts. UESI and the Target have performed all of
--------------------
the obligations required to be performed by it to the extent performance is
due and is entitled to all benefits under and is not in default or alleged
to be in default in respect of, any Contract to which they are a party or
by which it is bound. No event, condition or occurrence exists that, after
notice or lapse of time or both, would constitute a default under any of
such Contracts. UESI and the Target have the capacity, including the
necessary personnel, equipment and supplies, to materially perform all its
current obligations under all such Contracts.
(ac) Compliance with Laws. UESI and the Target have conducted and are
--------------------
now conducting business in compliance with all statutes, regulations,
by-laws, orders, covenants, restrictions or plans of all federal, state or
municipal authorities, agencies or boards applicable to such business.
UESI and the Target are not in default under any such statutes,
regulations, by-laws, orders, covenants, restrictions or plans applicable
to it. Neither UESI nor the Target nor any of its directors, officers,
agents, employees or other Persons acting on behalf of UESI or the Target
have, directly or indirectly, used any corporate funds of UESI or the
Target for unlawful contributions, gifts, entertainment or other unlawful
expenses relating to political activity, made any unlawful payments on
behalf of the UESI or the Target to foreign or domestic government
officials or employees or to foreign or domestic political parties or
campaigns from corporate funds, knowingly made any false or fictitious
entry on the books or records of UESI or the Target or made any bribe,
rebate, payoff, influence payment, kickback or other unlawful payment on
behalf of UESI or the Target.
(ad) Real Property. The occupation and use to which the real property
-------------
owned or leased by UESI or the Target have been put by UESI or the Target
is not in breach of any applicable statute, by-law, regulation, covenant or
restriction applicable to such real property. The zoning by-laws applicable
to such real property of UESI or the Target permit the operation of
business and the intended use to be made of such real property by UESI or
the Target. There are no outstanding work orders against such real property
of UESI or the Target or any part thereof nor are there any matters under
discussion between UESI or the Target and any governmental or municipal
authority which may give rise to work orders.
(ae) Environmental Matters. To the Best Knowledge of UESI, the
---------------------
buildings and premises at which UESI and the Target carry on business does
not contain any material quantities of noxious substances including without
limitation, urea formaldehyde foam insulation, aluminum wiring, asbestos,
materials containing asbestos, polychlorinated byphenyls or substances
containing polychlorinated byphenyls or radon at levels deemed unacceptable
by any health, labor or environmental authority or any federal, state or
municipal government. The operations of the UESI and the Target in all
material respects complies with all applicable environmental statutes,
regulations and decrees, whether federal, state or municipal. The Target
has not received any notices to the effect that the business carried on by
the Target is not in compliance with the requirements of applicable
environmental statutes, regulations or decrees or is subject to any
remedial control or action or any investigation or evaluation as to whether
any remedial action is required to respond to a release or threatened
release of any contaminant into the environment or into any facility or
structure which forms part of or is adjacent to the real property at which
the business is carried on.
(af) Employee Plans and Arrangements. All of the contracts, plans and
-------------------------------
arrangements referred to in subsection 4.1(y)(11) are in good standing and
UESI and the Target have made all payments required to be made by it in
connection therewith. All employee plans requiring funding on the part of
UESI and the Target are fully funded. UESI and the Target do not have any
employees receiving or claiming long term disability benefits or workers'
compensation benefits for which UESI or the Target will be liable. No
notice has been received by UESI or the Target of any complaints filed by
any employees claiming that UESI or the Target have violated any applicable
employee or human rights or similar legislation in any other jurisdiction
in which UESI or the Target carries on business or of any complaints or
proceedings of any kind involving UESI or the Target or any employees of
UESI or the Target before any labor relations board. There are no
outstanding orders or charges against UESI or the Target under any
applicable heath and safety legislation in the jurisdictions in which UESI
or the Target carries on business. All levies, assessments and penalties
made against the Target pursuant to any applicable workers' compensation
legislation in any jurisdictions in which UESI or the Target carries on
business have been paid by UESI or the Target and UESI or the Target have
been reassessed under any such legislation during the past 3 years. UESI
and the Target have not made any agreements with any labor union or
employee association or made commitments to or conducted negotiations with
any labor union or employee association with respect to any future
agreements and UESI is not aware of any current attempts to organize or
establish any labor union or employee association relating to UESI or the
Target. UESI and the Target have not entered into any agreement or made
any arrangements with any employees or consultants which would have the
effect of depriving UESI or the Target of the continued services of any
such employees and consultants following the Closing.
(ag) Omissions and Misrepresentations. None of the foregoing
--------------------------------
covenants, representations and warranties knowingly contains any untrue
statement of material fact or omits to state any material fact necessary to
make any such covenant, warranty or representation not misleading to a
prospective purchase of the Company Shares seeking full information as to
UESI or the Target Company.
5. SURVIVAL OF COVENANTS. REPRESENTATIONS AND WARRANTIES
-----------------------------------------------------
5.1 Survival. No investigations made by or on behalf of any Party at any
--------
time shall have the effect of waiving, diminishing the scope of or
otherwise affecting any covenant, representation or warranty made by any
Party. No waiver by any Party of any condition, in whole or in part, shall
operate as a waiver of any other condition. The covenants, representations
and warranties contained in Article 3 and 4 respectively or in any
certificate or other document delivered in connection with the Closing
shall survive the making of this Agreement and the Closing for a period of
2 years (the "Survival Period") provided however that if a claim for a
breach of any such covenant, representation or warranty is brought prior to
the expiration of the applicable Survival Period such covenant,
representation or warranty shall, for the purposes of such claim, survive
the applicable Survival Period until such claim is finally resolved and all
obligations with respect thereto have been fully satisfied.
6. INDEMNITY
---------
6.1 Indemnity by ECO. ECO agrees to indemnify and save harmless Seller,
----------------
Target and UESI, its current and former officers and directors from all
Losses actually incurred by them as a result of any breach by ECO or any
inaccuracy of any covenant, representation or warranty contained in this
Agreement, as well as any breach by UESI in the assumption of liabilities,
covenants and obligations arising out of the Asset Purchase Agreement
attached hereto as Exhibit "A", or any claims or allegations derived from
or arising out of the negotiations leading to the execution of Exhibit "A".
6.2 Indemnity by Seller. Seller agrees to indemnify and save harmless ECO
-------------------
from all Losses actually incurred by ECO as a result of any breach by UESI
or any inaccuracy of any covenant, representation or warranty contained in
this Agreement, as well as any breach by UESI in the assumption of
liabilities, covenants and obligations arising out of the Asset Purchase
Agreement attached hereto as Exhibit "A", or any claims or allegations
derived from or arising out of the negotiations leading to the execution of
Exhibit "A".
6.3 Notice of Claims
----------------
(a) In the event that a Party (the "Indemnified Party") shall become
aware of any Loss in respect of which another Party (the "Indemnifying
Party") agreed to indemnify the Indemnified Party pursuant to this
Agreement (the "Indemnification Claim"), the Indemnified Party shall
promptly give written notice thereof to the Indemnifying Party. Such notice
shall specify whether the Indemnification Claim arises as a result of a
claim by a Person against the Indemnified Party (a "Third Party Claim") or
whether the Loss does not so arise (a "Direct Claim") and shall also
specify with reasonable particularity (to the extent that the information
is available) the factual basis for the Indemnification Claim and the
amount of the Loss if known.
(b) If through the fault of the Indemnified Party the Indemnifying
Party does not receive notice of any Indemnification Claim in time to
contest effectively the determination of any liability susceptible of being
contested, the Indemnifying Party shall be entitled to set off against the
amount claimed by the Indemnified Party the amount of any Losses incurred
by the Indemnifying Party resulting from the Indemnified Party's failure to
give such notice on a timely basis.
6.4 Investigation of Claims. With respect to any Direct Claim, following
-----------------------
receipt of notice from the Indemnified Party of the Indemnification Claim,
the Indemnifying Party shall have 60 days to make such investigation of the
Indemnification Claim as is considered necessary or desirable. For the
purpose of such investigation, the Indemnified Party shall make available
to the Indemnifying Party the information relied upon by the Indemnified
Party to substantiate the Indemnification Claim, together with all such
other information as the Indemnifying Party may reasonably request. If all
Parties agree at or prior to the expiration of such 60 day period (or any
mutually agreed upon extension thereof) to the validity and amount of such
Indemnification Claim, the Indemnifying Party shall immediately pay to the
Indemnified Party the full agreed upon amount of the Indemnification Claim,
failing which the matter shall be determined by a court of competent
jurisdiction.
6.5 Supplemental Rights. The rights and benefits provided in this Article
-------------------
are supplemental to and are without prejudice to any other rights, actions
or causes of action which may arise pursuant to any other section of this
Agreement or pursuant to applicable law.
7. PRE-CLOSING COVENANTS
---------------------
7.1 Operations Before Closing. For greater certainty and without
-------------------------
limitation, without the prior written consent of ECO during the period
commencing on the Reference Date and terminating at the close of business
on the Closing Date, UESI: (i) shall not make nor shall UESI permit to be
made any Material change in the way the Target is being operated; and
(ii) shall comply with all laws in connection with the business of the
Target.
8. CONDITIONS PRECEDENT TO UESI's OBLIGATIONS AT CLOSING
-----------------------------------------------------
8.1 Conditions Precedent. All obligations of Seller to sell UESI Shares
--------------------
at Closing under this Agreement are subject to the fulfillment (or waiver
in writing by Seller) prior to or at the Closing of the following
conditions:
(a) Covenants, Representations and Warranties. The covenants,
-----------------------------------------
representations and warranties made by ECO in or under this Agreement shall
be true in all material respects on and as of the Closing Date.
(b) Actions. Etc. All actions, proceedings, instruments and
------------
documents required to carry out the Transaction shall have been approved by
Seller and it shall have been furnished with such certified copies of
actions and proceedings and other such instruments and documents as
requested.
(c) Approvals. ECO shall have received all requisite regulatory
---------
approvals including approvals of the TSE and NASDAQ and board of director
approvals in connection with the Transaction.
(d) Compliance with Covenants. ECO shall have complied with all
-------------------------
covenants and agreements herein agreed to be performed or caused to be
performed by ECO.
(e) Approvals and Consents. At or before Closing there shall have
----------------------
been obtained from all appropriate federal, state, provincial, municipal or
other governmental or administrative bodies all such approvals and
consents, if any, in form and on terms satisfactory to Seller as provided
in this Agreement.
(f) Corporate Authorizations. ECO shall have delivered to Seller
------------------------
evidence satisfactory to Seller that all necessary corporate authorizations
by ECO authorizing and approving the Transaction have been obtained.
(g) No Orders. No order of any court or administrative agency shall
---------
be in effect which restrains or prohibits the Transaction and no suit,
action, inquiry, investigation or proceeding in which it will be or it is
sought to restrain, prohibit or change the terms of or obtain damages or
other relief in connection with the Transaction and which in the judgment
of UESI makes it inadvisable to proceed with the consummation of the
Transaction shall have been made, instituted or threatened by any Person.
In case any of the foregoing conditions cannot be fulfilled at or before
the Time of Closing to the satisfaction of Seller, Seller may rescind this
Agreement by notice to ECO and in such event all of the Parties shall be
released from all monetary obligations hereunder; provided however that any
such conditions may be waived in whole or in part by Seller without
prejudice to Seller's rights of rescission in the event of the
non-fulfillment of any other condition or conditions, any such waiver to be
binding on Seller only if the same is in writing.
9. CONDITIONS PRECEDENT TO ECO'S OBLIGATIONS AT CLOSING
----------------------------------------------------
9.1 Conditions Precedent. All obligations of ECO to purchase UESI Shares
--------------------
at Closing under this Agreement are subject to the fulfillment (or waiver
in writing by ECO) prior to or at the Closing of the following conditions:
(a) Actions, Etc. All actions, proceedings, instruments and
------------
documents required to carry out the Transaction including without
limitation, the transfer of Seller's Shares and all other related legal
matters shall have been approved by ECO and ECO shall have been furnished
with such certified copies of actions and proceedings and other such
instruments and documents as ECO shall have requested.
(b) Covenants, Representations and Warranties. The covenants,
-----------------------------------------
representations and warranties made by Seller and UESI in or under this
Agreement shall be true in all material respects on and as of the Closing
Date.
(c) Approvals. ECO shall have received all requisite regulatory
---------
approval including without limitation approvals of TSE and NASDAQ and board
of director approvals in connection with the Transaction.
(d) Resignations. All of the directors and officers of UESI and the
------------
Target Company shall have resigned as directors and officers of UESI and
the Target Company in favor of nominees of ECO and the resigning directors
and officers of UESI and the Target Company shall have delivered releases
to UESI and the Target Company and ECO in form and substance reasonably
satisfactory to ECO.
(e) Compliance with Covenants. UESI shall have complied with all
-------------------------
covenants and agreements herein agreed to be performed or caused to be
performed by UESI.
(f) Approvals and Consents. At or before Closing there shall have
----------------------
been obtained from all appropriate federal, state municipal or other
governmental or administrative bodies all such approvals and consents, if
any, in form and on tams satisfactory to ECO as may be required in order to
transfer the UESI Shares at Closing as herein provided.
(g) Permits and Licenses. ECO shall have been furnished with
--------------------
evidence that UESI and the Target Company holds all valid permits and
licenses as may be requisite for carrying on business.
(h) Corporate Authorizations. UESI shall have delivered to ECO
------------------------
evidence satisfactory to ECO that all necessary corporate authorizations by
UESI authorizing and approving the Transaction have been obtained.
(i) No Orders. No order of any court or administrative agency shall
---------
be in effect which restrains or prohibits the Transaction and no suit,
action, inquiry, investigation or proceeding in which it will be or it is
sought to restrain, prohibit or change the terms of or obtain damages or
other relief in connection with the Transaction and which in the judgment
of ECO makes it inadvisable to proceed with the consummation of the
Transaction shall have been made, instituted or threatened by any Person.
10. MISCELLANEOUS
-------------
10.1 Tender. Any tender of documents or money hereunder may be made upon
------
the Parties or upon their respective solicitors as set forth herein.
10.2 Notice. All notices, requests, demands or other communications by the
------
Parties required or permitted to be given by one Party to another shall be
given in writing by personal delivery, telecopy or by registered or
certified mail, postage prepaid, addressed, telecopied or delivered to such
other Party as follows:
(a) if to Seller, to:
1108 Old Thomasville Road
High Point, NC 27260
Attention: William D'Angelo
(b) if to ECO, to:
11011 Jones Road
Houston, TX 77070
Attention: Michael E. McGinnis
or at such other address or telecopier number as may be given by any of
them to the others in writing from time to time and such notices, requests,
demands or other communications shall be deemed to have been received when
delivered, if personally delivered, on the date telecopied (with receipt
confirmed) if telecopied and received at or prior to 5:00 p.m. local time
and, if not, on the next Business Day, and if mailed, on the date received
as certified.
10.3 Further Assurances. The Parties shall sign such other papas, cause
------------------
such meetings to be held, resolutions passed and by-laws enacted and
exercise their vote and influence, do and perform and cause to be done and
performed such further and other acts and things as may be necessary or
desirable in order to give full effect to this Agreement and every part
hereof.
10.4 Laws. This Agreement shall be governed by the laws of Texas and the
----
Parties hereby irrevocably attorney to the Courts of Harris County, Texas.
10.5 Advice of Counsel. The provisions of this Agreement and their legal
-----------------
effect have been fully explained to the Parties by Warren L. Soffian,
Esquire who has functioned solely as scrivener of this Agreement, based
upon the terms which have been agreed upon by the Parties. Each Party
acknowledges that they have been advised by Warren L. Soffian to secure
independent legal advice from counsel and that he or it has either received
independent legal advice from counsel of his or its selection or has waived
the right to such advice and that each fully understands the facts and have
been fully informed as to his or its legal rights and obligations and each
Party acknowledges and accepts this Agreement is, under the circumstances,
fair and equitable and is being entered into freely and voluntarily, after
having received or waived such advice and each with such knowledge that the
execution of this Agreement is not the result of any duress or undue
influence and that it is not the result of any collusion or improper or
illegal agreement or agreements. The Parties further acknowledge that
Warren L. Soffian. Esquire is not a member of the Bar of the State of
North Carolina, the State of Texas, nor the State of Delaware, and that he
has and continues to represent William N. D'Angelo and Eco in individual
and corporate capacity.
10.6 Time of the Essence. Time shall be of the essence of this Agreement
-------------------
and of every part hereof and no extension nor variation of this Agreement
shall operate as a waiver of this provision.
10.7 Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the Parties with respect to all of the matters herein. This
Agreement supersedes any and all agreements, understandings and
representations made between the Parties prior to the date hereof. This
Agreement shall not be amended except by a memorandum in writing signed by
all of the Parties and any amendment hereof shall be null and void and
shall not be binding upon any Party which has not given its consent as
aforesaid.
10.8 Assignment. No Party may assign this Agreement or any part hereof
----------
without the prior written consent of the other Parties which consent may be
unreasonably withheld. Subject to the foregoing, this Agreement shall
inure to the benefit of and be binding upon the Parties and their
respective successors and permitted assigns. but no other Person.
10.9 Invalidity. In the event that any of the covenants, representations
----------
and warranties or any portion of them contained in this Agreement are
unenforceable or are declared invalid for any reason whatsoever, such
unenforceability or invalidity shall not affect the enforceability or
validity of the remaining tams or portions thereof contained in this
Agreement and such unenforceable or invalid, covenant, representation and
warranty or covenant or portion thereof shall be severable from the
remainder of this Agreement.
10.10 Counterpart. This Agreement may be executed in several
-----------
counterparts, each of which so executed shall be deemed to be an original
and such counterparts when taken together shall constitute one and the same
original agreement which shall be binding on the Parties hereto.
10.11 Waiver of Jury Trial. The Parties hereby agree to waive the right
--------------------
to a trial by jury in any action arising hereunder.
10.12 Schedules. The parties acknowledge that as of the Closing Date,
---------
not all of the Schedules and exhibits referred to in the Agreement have
been approved by the parties and attached to this Agreement. Accordingly,
the parties agree to fully cooperate with each other in good faith in the
completion and approval of all Schedules not attached hereto as of the
Closing Date by no later than December 31, 1996, unless a different
compliance date is provided for within any specific Schedule.
IN WITNESS WHEREOF, the parties have hereunto set their hands and
seals the day and year first above written.
ATTEST: UNITED ECO SYSTEMS, INC.
By: /s/ V. Williams By: /s/ William D'Angelo
--------------------------- ---------------------------
ATTEST: AMERICAN ECO CORPORATION
By: /s/ [illegible] By: /s/ Michael E. McGinnis
--------------------------- ------------------------------
Exhibit 10.6.1
---------------
MERRILL LYNCH NO. 582-07596
WCMA (R) NOTE, LOAN AND SECURITY AGREEMENT
WCMA NOTE, LOAN AND SECURITY AGREEMENT ("Loan Agreement") dated
as of August 23, 1996, between AMERICAN ECO/SP CORPORATION, a
corporation organized and existing under the laws of the State of
Delaware having its principal office at 1013 Centre Road,
Wilmington, DE 19805 ("Customer"), and MERRILL LYNCH BUSINESS
FINANCIAL SERVICES INC., a corporation organized and existing
under the laws of the State of Delaware having its principal
office at 33 West Monroe Street, Chicago, IL 60603 ("MLBFS").
In accordance with that certain WORKING CAPITAL MANAGEMENT
ACCOUNT AGREEMENT NO. 582-07596 ("WCMA Agreement") between
Customer and MLBFS' affiliate, MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED ("MLPF&S"), Customer has subscribed to the
WCMA Program described in the WCMA Agreement. The WCMA Agreement
is by this reference incorporated as a part hereof. In
conjunction therewith and as part of the WCMA Program, Customer
has requested that MLBFS provide, and subject to the terms and
conditions herein set forth MLBFS has agreed to provide, a
commercial line of credit for Customer (the "WCMA Line of
Credit").
Accordingly, and in consideration of the premises and of the
mutual covenants of the parties hereto, Customer and MLBFS hereby
agree as follows:
1. DEFINITIONS
(a) Specific Terms. In addition to terms defined elsewhere in
this Loan Agreement, when used herein the following terms shall
have the following meanings:
(i) "Account Debtor" shall mean any party who is or may become
obligated with respect to an Account or Chattel Paper.
(ii) "Activation Date" shall mean the date upon which MLBFS shall
cause the WCMA Line of Credit to be fully activated under MLPF&S'
computer system as part of the WCMA Program.
(iii) "Additional Agreements" shall mean all agreements,
instruments, documents and opinions other than this Loan
Agreement, whether with or from Customer or any other party,
which are contemplated hereby or otherwise reasonably required by
MLBFS in connection herewith, or which evidence the creation,
guaranty or collateralization of any of the Obligations or the
granting or perfection of liens or security interests upon the
Collateral or any other collateral for the Obligations.
(iv) "Business Day" shall mean any day other than a Saturday,
Sunday, federal holiday or other day on which the New York Stock
Exchange is regularly closed.
(v) "Collateral" shall mean all Accounts, Chattel Paper, Contract
Rights, Inventory, Equipment, Fixtures, General Intangibles,
Deposit Accounts, Documents and Instruments of Customer,
howsoever arising, whether now owned or existing or hereafter
acquired or arising, and wherever located; together with all
parts thereof (including spare parts), all accessories and
accessions thereto, all books and records (including computer
records) directly related thereto, all proceeds thereof
(including, without limitation, proceeds in the form of Accounts
and insurance proceeds), and the additional collateral described
in Section 9 (b) hereof.
(vi) "Commitment Expiration Date" shall mean September 30, 1997.
(vii) "General Funding Conditions" shall mean each of the
following conditions to any WCMA Loan by MLBFS hereunder: (A) no
Event of Default, or event which with the giving of notice,
passage of time, or both, would constitute an Event of Default,
shall have occurred and be continuing or would result from the
making of any WCMA Loan hereunder by MLBFS; (B) there shall not
have occurred any material adverse change in the business or
financial condition of Customer or any Guarantor; (C) all
representations and warranties of Customer or any Guarantor
herein or in any Additional Agreements shall then be true and
correct in all material respects; (D) MLBFS shall have received
this Loan Agreement and all of the Additional Agreements, duly
executed and filed or recorded where applicable, all of which
shall be in form and substance reasonably satisfactory to MLBFS;
(E) MLBFS shall have received evidence reasonably satisfactory to
it as to the ownership of the Collateral and the perfection and
priority of MLBFS' liens and security interests thereon, as well
as the ownership of and the perfection and priority of MLBFS'
liens and security interests on any other collateral for the
Obligations furnished pursuant to any of the Additional
Agreements; (F) MLBFS shall have received evidence reasonably
satisfactory to it of the insurance required hereby or by any of
the Additional Agreements; and (G) any additional conditions
specified in the "WCMA Line of Credit Approval" letter executed
by MLBFS with respect to the transactions contemplated hereby
shall have been met to the reasonable satisfaction of MLBFS.
(viii) "Guarantor" shall mean a person or entity who has either
guaranteed or provided collateral for any or all of the
Obligations; and "Business Guarantor" shall mean any such
Guarantor that is a corporation, partnership, proprietorship,
limited liability company or other entity regularly engaged in a
business activity.
(ix) "Interest Rate" shall mean a variable per annum rate of
interest equal to the sum of 2.75% and the 30-Day Commercial
Paper Rate. The "30-Day Commercial Paper Rate" shall mean, as of
the date of any determination, the interest rate from time to
time published in the "Money Rates" section of The Wall Street
Journal for 30-day high-grade unsecured notes sold through
dealers by major corporations. The Interest Rate will change as
of the date of publication in The Wall Street Journal of a 30-Day
Commercial Paper Rate that is different from that published on
the preceding Business Day. In the event that The Wall Street
Journal shall, for any reason, fail or cease to publish the
30-Day Commercial Paper Rate, MLBFS will choose a reasonably
comparable index or source to use as the basis for the Interest
Rate.
(x) "Line Fee" shall mean a fee of $100,000.00 payable to MLBFS
in connection with the WCMA Line of Credit for the period from
the Activation Date to the Maturity Date.
(xi) "Location of Tangible Collateral" shall mean the address of
Customer set forth at the beginning of this Loan Agreement,
together with any other address or addresses set forth on an
exhibit hereto as being a Location of Tangible Collateral.
(xii) "Maturity Date" shall mean September 30,1997, or such later
date as may be consented to in writing by MLBFS.
(xiii) "Maximum WCMA Line of Credit" shall mean $10,000,000.00.
(xiv) "Obligations" shall mean all liabilities, indebtedness and
other obligations of Customer to MLBFS, howsoever created,
arising or evidenced, whether now existing or hereafter arising,
whether direct or indirect, absolute or contingent, due or to
become due, primary or secondary or joint or several, and,
without limiting the foregoing, shall include interest accruing
after the filing of any petition in bankruptcy, and all present
and future liabilities, indebtedness and obligations of Customer
under this Loan Agreement.
(xv) Permitted Liens" shall mean (A) liens for current taxes not
delinquent, other non-consensual liens arising in the ordinary
course of business for sums not due, and, if MLBFS' rights to and
interest in the Collateral are not materially and adversely
affected thereby, any such liens for taxes or other nonconsensual
liens arising in the ordinary course of business being contested
in good faith by appropriate proceedings; (B) liens in favor of
MLBFS; (C) liens which will be discharged with the proceeds of
the initial WCMA Loan; and (D) any other liens expressly
permitted in writing by MLBFS.
(xvi) "WCMA Account" shall mean and refer to the Working Capital
Management Account of Customer with MLPF&S identified as Account
No. 582-07596.
(xvii) "WCMA Loan" shall mean each advance made by MLBFS pursuant
to this Loan Agreement.
(b) OTHER TERMS. Except as otherwise defined herein: (i) all
terms used in this Loan Agreement which are defined in the
Uniform Commercial Code of Illinois ("UCC") shall have the
meanings set forth in the UCC, and (ii) capitalized terms used
herein which are defined in the WCMA Agreement shall have the
meaning set forth in the WCMA Agreement.
2. WCMA PROMISSORY NOTE
FOR VALUE RECEIVED, Customer hereby promises to pay to the order
of MLBFS, at the times and in the manner set forth in this Loan
Agreement, or in such other manner and at such place as MLBFS may
hereafter designate in writing, the following: (a) on the
Maturity Date, the aggregate unpaid principal amount of all WCMA
Loans (the "WCMA Loan Balance"); (b) interest at the Interest
Rate on the outstanding WCMA Loan Balance, from and including the
date on which the initial WCMA Loan is made until the date of
payment of all WCMA Loans in full; and (c) on demand, all other
sums payable pursuant to this Loan Agreement, including, but not
limited to, the Line Fee and any late charges. Except as
otherwise expressly set forth herein, Customer hereby waives
presentment, demand for payment, protest and notice of protest,
notice of dishonor, notice of acceleration, notice of intent to
accelerate and all other notices and formalities in connection
with this WCMA Promissory Note and this Loan Agreement.
3. WCMA LOANS
(a) Activation Date. Provided that: (i) the Commitment
Expiration Date shall not then have occurred, and (ii) Customer
shall have subscribed to the WCMA Program and its subscription to
the WCMA Program shall then be in effect, the Activation Date
shall occur on or promptly after the date, following the
acceptance of this Loan Agreement by MLBFS at its office in
Chicago, Illinois, upon which each of the General Funding
Conditions shall have been met or satisfied to the reasonable
satisfaction of MLBFS. No activation by MLBFS of the WCMA Line
of Credit for a nominal amount shall be deemed evidence of the
satisfaction of any of the conditions herein set forth, or a
waiver of any of the terms or conditions hereof. Customer hereby
authorizes MLBFS to pay out of and charge to Customer's WCMA
Account on the Activation Date all amounts necessary to fully pay
off any bank or other financial institution having a lien upon
any of the Collateral other than a Permitted Lien.
(b) WCMA LOANS. Subject to the terms and conditions hereof,
during the period from and after the Activation Date to the
Maturity Date: (i) MLBFS will make WCMA Loans to Customer in such
amounts as Customer may from time to time request in accordance
with the terms hereof, up to an aggregate outstanding amount not
to exceed the Maximum WCMA Line of Credit, and (ii) Customer may
repay any WCMA Loans in whole or in part at any time without
premium or penalty, and request a re-borrowing of amounts repaid
on a revolving basis. Customer may request WCMA Loans by use of
WCMA Checks, FTS, Visa charges, wire transfers, or such other
means of access to the WCMA Line of Credit as may be permitted by
MLBFS from time to time; it being understood that so long as the
WCMA Line of Credit shall be in effect, any charge or debit to
the WCMA Account which but for the WCMA Line of Credit would
under the terms of the WCMA Agreement result in an overdraft,
shall be deemed a request by Customer for a WCMA Loan.
(c) CONDITIONS OF WCMA LOANS. Notwithstanding the foregoing,
MLBFS shall not be obligated to make any WCMA Loan, and may
without notice refuse to honor any such request by Customer, if
at the time of receipt by MLBFS of Customer's request: (i) the
making of such WCMA Loan would cause the Maximum WCMA Line of
Credit to be exceeded; or (ii) the Maturity Date shall have
occurred, or the WCMA Line of Credit shall have otherwise been
terminated in accordance with the terms hereof; or (iii)
Customer's subscription to the WCMA Program shall have been
terminated; or (iv) an event shall have occurred and is
continuing which shall have caused any of the General Funding
Conditions to not then be met or satisfied to the reasonable
satisfaction of MLBFS. The making by MLBFS of any WCMA Loan at a
time when any one or more of said conditions shall not have been
met shall not in any event be construed as a waiver of said
condition or conditions or of any Event of Default, and shall not
prevent MLBFS at any time thereafter while any condition shall
not have been met from refusing to honor any request by Customer
for a WCMA Loan.
(d) FORCE MAJEURE. MLBFS shall not be responsible, and shall
have no liability to Customer or any other party, for any delay
or failure of MLBFS to honor any request of Customer for a WCMA
Loan or any other act or omission of MLBFS, MLPF&S or any of
their affiliates due to or resulting from any system failure,
error or delay in posting or other clerical error, loss of power,
fire, Act of God or other cause beyond the reasonable control of
MLBFS, MLPF&S or any of their affiliates unless directly arising
out of the willful wrongful act or active gross negligence of
MLBFS. In no event shall MLBFS be liable to Customer or any
other party for any incidental or consequential damages arising
from any act or omission by MLBFS, MLPF&S or any of their
affiliates in connection with the WCMA Line of Credit or this
Loan Agreement.
(e) Interest. The WCMA Loan Balance shall bear interest at the
Interest Rate. Interest shall be computed for the actual number
of days elapsed on the basis of a year consisting of 360 days.
Notwithstanding any provision to the contrary in this Agreement
or any of the Additional Agreements, no provision of this
Agreement or any of the Additional Agreements shall require the
payment or permit the collection of any amount in excess of the
maximum amount of interest permitted to be charged by law
("Excess Interest"). If any Excess Interest is provided for, or
is adjudicated as being provided for, in this Agreement or any of
the Additional Agreements, then: (a) Customer shall not be
obligated to pay any Exccess Interest; and (b) any Excess
Interest that MLBFS may have received hereunder or under any of
the Additional Agreements shall, at the option of MLBFS, be: (i)
applied as a credit against the then unpaid balance of the WCMA
Line of Credit, (ii) refunded to the payer thereof, or (iii) any
combination of the foregoing. Except as otherwise provided
herein, accrued and unpaid interest on the WCMA Loan Balance
shall be payable monthly on the last Business Day of each
calendar month, commencing with the last Business Day of the
calendar month in which the Activation Date shall occur.
Customer hereby irrevocably authorizes and directs MLPF&S to pay
MLBFS such accrued interest from any available free credit
balances in the WCMA Account, and if such available free credit
balances are insufficient to satisfy any interest payment due, to
liquidate any investments in the Money Accounts (other than any
investments constituting any Minimum Money Accounts Balance under
the WCMA Directed Reserve program) in an amount up to the balance
of such accrued interest, and pay to MLBFS the available proceeds
on account thereof. If available free credit balances in the
WCMA Account and available proceeds of the Money Accounts are
insufficient to pay the entire balance of accrued interest, and
Customer otherwise fails to make such payment when due, MLBFS
may, in its sole discretion, make a WCMA Loan in an amount equal
to the balance of such accrued interest and pay the proceeds of
such WCMA Loan to itself on account of such interest. The amount
of any such WCMA Loan will be added to the WCMA Loan Balance. If
MLBFS declines to extend a WCMA Loan to Customer under these
circumstances, Customer hereby authorizes and directs MLPF&S to
make all such interest payments to MLBFS from any Minimum Money
Accounts Balance. If there is no Minimum Money Accounts Balance,
or it is insufficient to pay all such interest, MLBFS will
invoice Customer for payment of the balance of the accrued
interest, and Customer shall pay such interest as directed by
MLBFS within 5 Business Days of receipt of such invoice.
(f) PAYMENTS. All payments required or permitted to be made
pursuant to this Loan Agreement shall be made in lawful money of
the United States. Unless otherwise directed by MLBFS, payments
on account of the WCMA Loan Balance may be made by the delivery
of checks (other than WCMA Checks), or by means of FTS or wire
transfer of funds (other than funds from the WCMA Line of Credit)
to MLPF&S for credit to Customer's WCMA Account. Notwithstanding
anything in the WCMA Agreement to the contrary, Customer hereby
irrevocably authorizes and directs MLPF&S to apply available free
credit balances in the WCMA Account to the repayment of the WCMA
Loan Balance prior to application for any other purpose.
Payments to MLBFS from funds in the WCMA Account shall be deemed
to be made by Customer upon the same basis and schedule as funds
are made available for investment in the Money Accounts in
accordance with the terms of the WCMA Agreement. All funds
received by MLBFS from MLPF&S pursuant to the aforesaid
authorization shall be applied by MLBFS to repayment of the WCMA
Loan Balance. The acceptance by or on behalf of MLBFS of a check
or other payment for a lesser amount than shall be due from
Customer, regardless of any endorsement or statement thereon or
transmitted therewith, shall not be deemed an accord and
satisfaction or anything other than a payment on account, and
MLBFS or anyone acting on behalf of MLBFS may accept such check
or other payment without prejudice to the rights of MLBFS to
recover the balance actually due or to pursue any other remedy
under this Loan Agreement or applicable law for such balance.
All checks accepted by or on behalf of MLBFS in connection with
the WCMA Line of Credit are subject to final collection.
(g) EXCEEDING THE MAXIMUM WCMA LINE OF CREDIT. In the event
that the WCMA Loan Balance shall at any time exceed the Maximum
WCMA Line of Credit, Customer shall within 1 Business Day of the
first to occur of (i) any request or demand of MLBFS, or (ii)
receipt by Customer of a statement from MLPF&S showing a WCMA
Loan Balance in excess of the Maximum WCMA Line of Credit,
deposit sufficient funds into the WCMA Account to reduce the WCMA
Loan Balance below the Maximum WCMA Line of Credit.
(h) LINE FEE; EXTENSIONS. (i) In consideration of the extension
of the WCMA Line of Credit by MLBFS to Customer during the period
from the Activation Date to the Maturity Date, Customer has paid
or shall pay the Line Fee to MLBFS. If such fee has not
heretofore been paid by Customer, Customer hereby authorizes
MLBFS, at its option, to either cause said fee to be paid with a
WCMA Loan which is added to the WCMA Loan Balance, or invoice
Customer for said fee (in which event Customer shall pay said fee
within 5 Business Days after receipt of such invoice). No delay
in the Activation Date, howsoever caused, shall entitle Customer
to any rebate or reduction in the Line Fee or extension of the
Maturity Date.
(ii) In the event MLBFS and Customer, in their respective sole
discretion, agree to renew the WCMA Line of Credit beyond the
current Maturity Date, Customer agrees to pay a renewal Line Fee
or Line Fees (if the Maturity Date is extended for more than one
12-month period), in the amount per 12-month period or other
applicable period then set forth in the writing signed by MLBFS
which extends the Maturity Date; it being understood that any
request by Customer for a WCMA Loan or failure of Customer to pay
any WCMA Loan Balance outstanding on the immediately prior
Maturity Date, after the receipt by Customer of a writing signed
by MLBFS extending the Maturity Date, shall be deemed a consent
by Customer to both the renewal Line Fees and the new Maturity
Date. If no renewal Line Fees are set forth in the writing
signed by MLBFS extending the Maturity Date, the renewal Line Fee
for each 12-month period shall be deemed to be the same as the
immediately preceding periodic Line Fee. Each such renewal Line
Fee may, at the option of MLBFS, either be paid with a WCMA Loan
which is added to the WCMA Loan Balance or invoiced to Customer,
as aforesaid, on or at any time after the first Business Day of
the first month of the 12-month period for which such fee is due.
(i) STATEMENTS. MLPF&S will include in each monthly statement
it issues under the WCMA Program information with respect to WCMA
Loans and the WCMA Loan Balance. Any questions that Customer may
have with respect to such information should be directed to
MLBFS; and any questions with respect to any other matter in such
statements or about or affecting the WCMA Program should be
directed to MLPF&S.
(j) USE OF LOAN PROCEEDS; SECURITIES TRANSACTIONS. On the
Activation Date, a WCMA Loan will be made to pay any indebtedness
of Customer to a third party secured by all or any part of the
Collateral. The proceeds of each subsequent WCMA Loan shall be
used by Customer solely for working capital for itself and each
of the US-based Business Guarantors in the ordinary course of
their respective businesses, or, with the prior written consent
of MLBFS, for other lawful business purposes of Customer not
prohibited hereby. CUSTOMER AGREES THAT UNDER NO CIRCUMSTANCES
WILL FUNDS BORROWED FROM MLBFS THROUGH THE WCMA LINE OF CREDIT BE
USED: (I) FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OF ANY
PERSON WHATSOEVER, (II) TO PURCHASE, CARRY OR TRADE IN
SECURITIES, INCLUDING SHARES OF THE MONEY ACCOUNTS, OR (III) TO
REPAY DEBT INCURRED TO PURCHASE, CARRY OR TRADE IN SECURITIES;
NOR WILL ANY SUCH FUNDS BE REMITTED, DIRECTLY OR INDIRECTLY, TO
MLPF&S OR ANY OTHER BROKER OR DEALER IN SECURITIES, BY WCMA
CHECK, CHECK, FTS, WIRE TRANSFER, OR OTHERWISE.
4. REPRESENTATIONS AND WARRANTIES
Customer represents and warrants to MLBFS that:
(a) ORGANIZATION AND EXISTENCE. Customer is a corporation, duly
organized and validly existing in good standing under the laws of
the State of Delaware and is qualified to do business and in good
standing in each other state where the nature of its business or
the property owned by it make such qualification necessary; and,
where applicable, each Business Guarantor is duly organized,
validly existing and in good standing under the laws of the state
of its formation and is qualified to do business and in good
standing in each other state where the nature of its business or
the property owned by it make such qualification necessary.
(b) EXECUTION, DELIVERY AND PERFORMANCE. The execution,
delivery and performance by Customer of this Loan Agreement and
by Customer and each Guarantor of such of the Additional
Agreements to which it is a party: (i) have been duly authorized
by all requisite action, (ii) do not and will not violate or
conflict with any law or other governmental requirement, or any
of the agreements, instruments or documents which formed or
govern Customer or any such Guarantor, and (iii) do not and will
not breach or violate any of the provisions of, and will not
result in a default by Customer or any such Guarantor under, any
other agreement, instrument or document to which it is a party or
by which it or its properties are bound.
(c) NOTICES AND APPROVALS. Except as may have been given or
obtained, no notice to or consent or approval of any governmental
body or authority or other third party whatsoever (including,
without limitation, any other creditor) is required in connection
with the execution, delivery or performance by Customer or any
Guarantor of such of this Loan Agreement and the Additional
Agreements to which it is a party.
(d) ENFORCEABILITY. This Loan Agreement and such of the
Additional Agreements to which it is a party are the legal, valid
and binding obligations of Customer and each Guarantor,
enforceable against it or them, as the case may be, in accordance
with their respective terms, except as enforceability may be
limited by bankruptcy and other similar laws affecting the rights
of creditors generally or by general principles of equity.
(e) COLLATERAL. Subject to any Permitted Liens: (i) Customer
has good and marketable title to the Collateral, (ii) none of the
Collateral is subject to any lien, encumbrance or security
interest, and (iii) upon the filing of all Uniform Commercial
Code financing statements executed by Customer with respect to
the Collateral in the appropriate jurisdiction(s) and/or the
completion of any other action required by applicable law to
perfect its liens and security interests, MLBFS will have valid
and perfected first liens and security interests upon all of the
Collateral.
(f) FINANCIAL STATEMENTS. Except as expressly set forth in
Customer's or any Business Guarantor's financial statements, all
financial statements of Customer and each Business Guarantor
furnished to MLBFS have been prepared in conformity with
generally accepted accounting principles, consistently applied,
are true and correct, and fairly present the financial condition
of it as at such dates and the results of its operations for the
periods then ended; and since the most recent date covered by
such financial statements, there has been no material adverse
change in any such financial condition or operation. All
financial statements furnished to MLBFS of any Guarantor other
than a Business Guarantor are true and correct and fairly
represent such Guarantor's financial condition as of the date of
such financial statements, and since the most recent date of such
financial statements, there has been no material adverse change
in such financial condition.
(g) LITIGATION. No litigation, arbitration, administrative or
governmental proceedings are pending or, to the knowledge of
Customer, threatened against Customer or any Guarantor, which
would, if adversely determined, materially and adversely affect
the liens and security interests of MLBFS hereunder or under any
of the Additional Agreements, the financial condition of Customer
or any such Guarantor or the continued operations of Customer or
any Business Guarantor.
(h) TAX RETURNS. All federal, state and local tax returns,
reports and statements required to be filed by Customer and each
Guarantor have been filed with the appropriate governmental
agencies and all taxes due and payable by Customer and each
Guarantor have been timely paid (except to the extent that any
such failure to file or pay will not materially and adversely
affect either the liens and security interests of MLBFS hereunder
or under any of the Additional Agreements, the financial
condition of Customer or any Guarantor, or the continued
operations of Customer or any Business Guarantor).
(i) COLLATERAL LOCATION. All of the tangible Collateral is
located at a Location of Tangible Collateral.
Each of the foregoing representations and warranties are
continuing and shall be deemed remade by Customer concurrently
with each request for a WCMA Loan.
5. FINANCIAL AND OTHER INFORMATION
Customer shall furnish or cause to be furnished to MLBFS during
the term of this Loan Agreement all of the following:
(a) ANNUAL FINANCIAL STATEMENTS. Within 120 days after the
close of each fiscal year of American Eco Corporation ("Parent"),
Customer shall furnish or cause to be furnished to MLBFS a copy
of the annual audited financial statements of Parent, Customer,
and all direct and indirect subsidiaries of Parent and Customer
(collectively, the "Consolidated Group") consisting of at least a
balance sheet as at the close of such fiscal year and related
statements of income, retained earnings and cash flows, certified
by its current independent certified public accountants or other
independent certified public accountants reasonably acceptable to
MLBFS.
(b) INTERIM FINANCIAL STATEMENTS. Within 45 days after the
close of each fiscal semi-annual period of the Customer, Customer
shall furnish or cause to be furnished to MLBFS: (i) a
consolidating statement of profit and loss for the fiscal quarter
then ended for each of the Business Guarantors, and (ii) a
consolidating balance sheet as at the close of such fiscal
quarter for each of the Business Guarantors; all in reasonable
detail and certified by their respective chief financial officer.
(c) AGING OF ACCOUNTS. Within 45 days after the close of each
fiscal quarter of Customer, Customer shall furnish or cause to be
furnished to MLBFS a consolidated aging of the Accounts and any
Chattel Paper of Customer and each of the U.S. based Business
Guarantors certified by its chief financial officer.
(d) SEC REPORTS. Within 10 days after filing with the SEC of
each 20F and 6K report of Parent, Customer shall furnish a copy
thereof to MLBFS.
(e) OTHER INFORMATION. Customer shall furnish or cause to be
furnished to MLBFS such other information as MLBFS may from time
to time reasonably request relating to Customer, any Guarantor or
the Collateral.
6. OTHER COVENANTS
Customer further agrees during the term of this Loan Agreement
that:
(a) FINANCIAL RECORDS; INSPECTION. Customer and each Business
Guarantor will: (i) maintain at its principal place of business
complete and accurate books and records, and maintain all of its
financial records in a manner consistent with the financial
statements heretofore furnished to MLBFS, or prepared on such
other basis as may be approved in writing by MLBFS; and (ii)
permit MLBFS or its duly authorized representatives, upon
reasonable notice and at reasonable times, to inspect its
properties (both real or personal), operations, books and
records.
(b) TAXES. Customer and each Guarantor will pay when due all
taxes, assessments and other governmental charges, howsoever
designated, and all other liabilities and obligations, except to
the extent that any such failure to pay will not materially and
adversely affect either the liens and security interests of MLBFS
hereunder or under any of the Additional Agreements, the
financial condition of Customer or any Guarantor or the continued
operations of Customer or any Business Guarantor.
(c) COMPLIANCE WITH LAWS AND AGREEMENTS. Neither Customer nor
any Guarantor will violate any law, regulation or other
governmental requirement, any judgment or order of any court or
governmental agency or authority, or any agreement, instrument or
document to which it is a party or by which it is bound, if any
such violation will materially and adversely affect either the
liens and security interests of MLBFS hereunder or under any of
the Additional Agreements, the financial condition of Customer or
any Guarantor, or the continued operations of Customer or any
Business Guarantor.
(d) CONTINUITY. Except upon the prior written consent of MLBFS,
which consent will not be unreasonably withheld: (i) neither
Customer nor any Business Guarantor will be a party to any merger
or consolidation with, or purchase or otherwise acquire all or
substantially all of the assets or stock of, or any material
partnership or joint venture interest in, any person or entity,
or sell, transfer or lease all or any substantial part of its
assets if any such action causes a material change in its control
or principal business, or a material adverse change in its
financial condition or operations; (ii) Customer and each
Business Guarantor will preserve its existence and good standing
in the jurisdictions of establishment and operation, and will not
operate in any material business other than a business
substantially the same as its business as of the date of
application by Customer for credit from MLBFS; and (iii) neither
Customer nor any Business Guarantor will cause or permit any
material change in its controlling ownership, controlling senior
management or, except upon not less than 30 days prior written
notice to MLBFS, its name or principal place of business.
(e) TANGIBLE NET WORTH. The consolidated "tangible net worth"
of the Consolidated Group, consisting of the Consolidated Group's
net worth as shown on their regular financial statements prepared
in a manner consistent with the terms hereof, but excluding an
amount equal to: (i) any assets which are ordinarily classified
as "intangible" in accordance with generally accepted accounting
principles, and (ii) any amounts now or hereafter directly or
indirectly owing to the Consolidated Group by officers,
shareholders or affiliates of the Consolidated Group, shall at
all times exceed $15,000,000.
(f) DEBT TO WORTH. The ratio of the Consolidated Group's total
debt to the Consolidated Group's tangible net worth, determined
as aforesaid, shall not at any time exceed 1.75 to 1.
(g) MINIMUM WORKING CAPITAL RATIO. The ratio of the
Consolidated Group's current assets to its current liabilities,
as shown on the Consolidated Group's regular books and records,
shall at all time be not less than 1.25 to 1.
(h) ACQUISITIONS. Customer shall provide MLBFS with not less
than 10 days prior written notice of the acquisition by any
member of the Consolidated Group of all or substantially all of
the assets of any other entity, and, if such other entity shall
in its latest fiscal year had revenues in excess of
$50,000,000.00, furnish to MLBFS detailed financial information
about said entity and such other information as MLBFS may from
time to time reasonably request. Except upon the prior written
consent of MLBFS, no member of the Consolidated Group shall
acquire all or substantially all of the assets or stock of any
other entity whose annual revenues in the latest fiscal year
exceeded $100,000,000.00, or which sustained a net loss in the
latest fiscal year which exceeded $2,000,000.00.
(i) NEGATIVE PLEDGE. Except upon the prior written consent of
MLBFS, Parent shall not directly or indirectly mortgage,
encumber, pledge or grant a lien or security interest to anyone
other than MLBFS in any of its assets or property, now owned or
hereafter acquired.
7. COLLATERAL
(a) PLEDGE OF COLLATERAL. To secure payment and performance of
the Obligations, Customer hereby pledges, assigns, transfers and
sets over to MLBFS, and grants to MLBFS first liens and security
interests in and upon all of the Collateral, subject only to
Permitted Liens.
(b) LIENS. Except upon the prior written consent of MLBFS,
Customer shall not create or permit to exist any lien,
encumbrance or security interest upon or with respect to any
Collateral now owned or hereafter acquired other than Permitted
Liens.
(c) PERFORMANCE OF OBLIGATIONS. Customer shall perform all of
its obligations owing on account of or with respect to the
Collateral; it being understood that nothing herein, and no
action or inaction by MLBFS, under this Loan Agreement or
otherwise, shall be deemed an assumption by MLBFS of any of
Customer's said obligations.
(d) SALES AND COLLECTIONS. So long as no Event of Default shall
have occurred and is continuing, Customer may in the ordinary
course of its business: (i) sell any Inventory normally held by
Customer for sale, (ii) use or consume any materials and supplies
normally held by Customer for use or consumption, and (iii)
collect all of its Accounts. Customer shall take such action
with respect to protection of its Inventory and the other
Collateral and the collection of its Accounts as MLBFS may from
time to time reasonably request.
(e) ACCOUNT SCHEDULES. Upon the request of MLBFS, made now or
at any reasonable time or times hereafter, Customer shall deliver
to MLBFS, in addition to the other information required
hereunder, a schedule identifying, for each Account and all
Chattel Paper subject to MLBFS' security interests hereunder,
each Account Debtor by name and address and amount, invoice or
contract number and date of each invoice or contract. Customer
shall furnish to MLBFS such additional information with respect
to the Collateral, and amounts received by Customer as proceeds
of any of the Collateral, as MLBFS may from time to time
reasonably request.
(f) ALTERATIONS AND MAINTENANCE. Except upon the prior written
consent of MLBFS, Customer shall not make or permit any material
alterations to any tangible Collateral which might materially
reduce or impair its market value or utility. Customer shall at
all times keep the tangible Collateral in good condition and
repair and shall pay or cause to be paid all obligations arising
from the repair and maintenance of such Collateral, as well as
all obligations with respect to each Location of Tangible
Collateral, except for any such obligations being contested by
Customer in good faith by appropriate proceedings.
(g) LOCATION. Except for movements required in the ordinary
course of Customer's business, Customer shall give MLBFS 30 days'
prior written notice of the placing at or movement of any
tangible Collateral to any location other than a Location of
Tangible Collateral. In no event shall Customer cause or permit
any material tangible Collateral to be removed from the United
States without the express prior written consent of MLBFS.
(h) INSURANCE. Customer shall insure all of the tangible
Collateral under a policy or policies of physical damage
insurance providing that losses will be payable to MLBFS as its
interests may appear pursuant to a Lender's Loss Payable
Endorsement and containing such other provisions as may be
reasonably required by MLBFS. Customer shall further provide and
maintain a policy or policies of comprehensive public liability
insurance naming MLBFS as an additional party insured. Customer
and each Business Guarantor shall maintain such other insurance
as may be required by law or is customarily maintained by
companies in a similar business or otherwise reasonably required
by MLBFS. All such insurance shall provide that MLBFS will
receive not less than 10 days prior written notice of any
cancellation, and shall otherwise be in form and amount and with
an insurer or insurers reasonably acceptable to MLBFS. Customer
shall furnish MLBFS with a copy or certificate of each such
policy or policies and, prior to any expiration or cancellation,
each renewal or replacement thereof.
(i) EVENT OF LOSS. Customer shall at its expense promptly
repair all repairable damage to any tangible Collateral. In the
event that any tangible Collateral is damaged beyond repair,
lost, totally destroyed or confiscated (an "Event of Loss") and
such Collateral had a value prior to such Event of Loss of
$25,000.00 or more, then, on or before the first to occur of (i)
90 days after the occurrence of such Event of Loss, or (ii) 10
Business Days after the date on which either Customer or MLBFS
shall receive any proceeds of insurance on account of such Event
of Loss, or any underwriter of insurance on such Collateral shall
advise either Customer or MLBFS that it disclaims liability in
respect of such Event of Loss, Customer shall, at Customer's
option, either replace the Collateral subject to such Event of
Loss with comparable Collateral free of all liens other than
Permitted Liens (in which event Customer shall be entitled to
utilize the proceeds of insurance on account of such Event of
Loss for such purpose, and may retain any excess proceeds of such
insurance), or consent to a reduction in the WCMA Line of Credit
in an amount equal to the actual cash value of such Collateral as
determined by either the applicable insurance company's payment
(plus any applicable deductible) or, in absence of insurance
company payment, as reasonably determined by MLBFS.
Notwithstanding the foregoing, if at the time of occurrence of
such Event of Loss or any time thereafter prior to replacement or
line reduction, as aforesaid, an Event of Default shall occur
hereunder, then MLBFS may at its sole option, exercisable at any
time while such Event of Default shall be continuing, require
Customer to either replace such Collateral or, on its own
volition and without the consent of Customer, reduce the WCMA
Line of Credit, as aforesaid.
(j) NOTICE OF CERTAIN EVENTS. Customer shall give MLBFS
immediate notice of any attachment, lien, judicial process,
encumbrance or claim affecting or involving $25,000.00 or more of
the Collateral.
(k) INDEMNIFICATION. Customer shall indemnify, defend and save
MLBFS harmless from and against any and all claims, liabilities,
losses, costs and expenses (including, without limitation,
reasonable attorneys' fees and expenses) of any nature whatsoever
which may be asserted against or incurred by MLBFS arising out of
or in any manner occasioned by (i) the ownership, collection,
possession, use or operation of any Collateral, or (ii) any
failure by Customer to perform any of its obligations hereunder;
excluding, however, from said indemnity any such claims,
liabilities, etc. arising directly out of the willful wrongful
act or active gross negligence of MLBFS. This indemnity shall
survive the expiration or termination of this Loan Agreement as
to all matters arising or accruing prior to such expiration or
termination.
8. EVENTS OF DEFAULT
The occurrence of any of the following events shall constitute an
"Event of Default" under this Loan Agreement:
(a) FAILURE TO PAY. Customer shall fail to pay to MLBFS or
deposit into the WCMA Account when due any amount owing or
required to be deposited by Customer under this Loan Agreement,
or shall fail to pay when due any other Obligations, and any such
failure shall continue for more than 5 Business Days after
written notice thereof shall have been given by MLBFS to
Customer.
(b) FAILURE TO PERFORM. Customer or any Guarantor shall default
in the performance or observance of any covenant or agreement on
its part to be performed or observed under this Loan Agreement or
any of the Additional Agreements (not constituting an Event of
Default under any other clause of this Section), and such default
shall continue unremedied for 10 Business Days after written
notice thereof shall have been given by MLBFS to Customer.
(c) BREACH OF WARRANTY. Any representation or warranty made by
Customer or any Guarantor contained in this Loan Agreement or any
of the Additional Agreements shall at any time prove to have been
incorrect in any material respect when made.
(d) DEFAULT UNDER OTHER AGREEMENT. A default or Event of
Default by Customer or any Guarantor shall occur under the terms
of any other agreement, instrument or document with or intended
for the benefit of MLBFS, MLPF&S or any of their affiliates, and
any required notice shall have been given and required passage of
time shall have elapsed.
(e) BANKRUPTCY, ETC. A proceeding under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt or
receivership law or statute shall be filed by Customer or any
Guarantor, or any such proceeding shall be filed against Customer
or any Guarantor and shall not be dismissed or withdrawn within
60 days after filing, or Customer or any Guarantor shall make an
assignment for the benefit of creditors, or Customer or any
Guarantor shall become insolvent or generally fail to pay, or
admit in writing its inability to pay, its debts as they become
due.
(f) MATERIAL IMPAIRMENT. Any event shall occur which shall
reasonably cause MLBFS to in good faith believe that the prospect
of payment or performance by Customer or any Guarantor has been
materially impaired.
(g) ACCELERATION OF DEBT TO OTHER CREDITORS. Any event shall
occur which results in the acceleration of the maturity of any
indebtedness of $100,000.00 or more of Customer or any Guarantor
to another creditor under any indenture, agreement, undertaking,
or otherwise.
(h) SEIZURE OR ABUSE OF COLLATERAL. The Collateral, or any
material part thereof, shall be or become subject to any material
abuse or misuse, or any levy, attachment, seizure or confiscation
which is not released within 10 Business Days.
9. REMEDIES
(a) REMEDIES UPON DEFAULT. Upon the occurrence and during the
continuance of any Event of Default, MLBFS may at its sole option
do any one or more or all of the following, at such time and in
such order as MLBFS may in its sole discretion choose:
(i) TERMINATION. MLBFS may without notice terminate the WCMA
Line of Credit and all obligations to provide the WCMA Line of
Credit or otherwise extend any credit to or for the benefit of
Customer; and upon any such termination MLBFS shall be relieved
of all such obligations.
(ii) ACCELERATION. MLBFS may declare the principal of and
interest on the WCMA Loan Balance, and all other Obligations to
be forthwith due and payable, whereupon all such amounts shall be
immediately due and payable, without presentment, demand for
payment, protest and notice of protest, notice of dishonor,
notice of acceleration, notice of intent to accelerate or other
notice or formality of any kind, all of which are hereby
expressly waived.
(iii) EXERCISE RIGHTS OF SECURED PARTY. MLBFS may exercise any
or all of the remedies of a secured party under applicable law,
including, but not limited to, the UCC, and any or all of its
other rights and remedies under this Loan Agreement and the
Additional Agreements.
(iv) POSSESSION. MLBFS may require Customer to make the
Collateral and the records pertaining to the Collateral available
to MLBFS at a place designated by MLBFS which is reasonably
convenient, or may take possession of the Collateral and the
records pertaining to the Collateral without the use of any
judicial process and without any prior notice to Customer.
(v) SALE. MLBFS may sell any or all of the Collateral at public
or private sale upon such terms and conditions as MLBFS may
reasonably deem proper. MLBFS may purchase any Collateral at any
such public sale. The net proceeds of any such public or private
sale and all other amounts actually collected or received by
MLBFS pursuant hereto, after deducting all costs and expenses
incurred at any time in the collection of the Obligations and in
the protection, collection and sale of the Collateral, will be
applied to the payment of the Obligations, with any remaining
proceeds paid to Customer or whoever else may be entitled
thereto, and with Customer and each Guarantor remaining jointly
and severally liable for any amount remaining unpaid after such
application.
(vi) DELIVERY OF CASH, CHECKS, ETC. MLBFS may require Customer
to forthwith upon receipt, transmit and deliver to MLBFS in the
form received, all cash, checks, drafts and other instruments for
the payment of money (properly endorsed, where required, so that
such items may be collected by MLBFS) which may be received by
Customer at any time in full or partial payment of any
Collateral, and require that Customer not commingle any such
items which may be so received by Customer with any other of its
funds or property but instead hold them separate and apart and in
trust for MLBFS until delivery is made to MLBFS.
(vii) NOTIFICATION OF ACCOUNT DEBTORS. MLBFS may notify any
Account Debtor that its Account or Chattel Paper has been
assigned to MLBFS and direct such Account Debtor to make payment
directly to MLBFS of all amounts due or becoming due with respect
to such Account or Chattel Paper; and MLBFS may enforce payment
and collect, by legal proceedings or otherwise, such Account or
Chattel Paper.
(viii) CONTROL OF COLLATERAL. MLBFS may otherwise take control
in any lawful manner of any cash or noncash items of payment or
proceeds of Collateral and of any rejected, returned, stopped in
transit or repossessed goods included in the Collateral and
endorse Customer's name on any item of payment on or proceeds of
the Collateral.
(b) SETOFF. MLBFS shall have the further right upon the
occurrence and during the continuance of an Event of Default to
set-off, appropriate and apply toward payment of any of the
Obligations, in such order of application as MLBFS may from time
to time and at any time elect, any cash, credit, deposits,
accounts, securities and any other property of Customer which is
in transit to or in the possession, custody or control of MLBFS,
MLPF&S or any agent, bailee, or affiliate of MLBFS or MLPF&S,
including, without limitation, the WCMA Account and any Money
Accounts, and all cash and securities therein or controlled
thereby, and all proceeds thereof. Customer hereby collaterally
assigns and grants to MLBFS a security interest in all such
property as additional Collateral.
(c) REMEDIES ARE SEVERABLE AND CUMULATIVE. All rights and
remedies of MLBFS herein are severable and cumulative and in
addition to all other rights and remedies available in the
Additional Agreements, at law or in equity, and any one or more
of such rights and remedies may be exercised simultaneously or
successively.
(d) NOTICES. To the fullest extent permitted by applicable law,
Customer hereby irrevocably waives and releases MLBFS of and from
any and all liabilities and penalties for failure of MLBFS to
comply with any statutory or other requirement imposed upon MLBFS
relating to notices of sale, holding of sale or reporting of any
sale, and Customer waives all rights of redemption or
reinstatement from any such sale. Any notices required under
applicable law shall be reasonably and properly given to Customer
if given by any of the methods provided herein at least 5
Business Days prior to taking action. MLBFS shall have the right
to postpone or adjourn any sale or other disposition of
Collateral at any time without giving notice of any such
postponed or adjourned date. In the event MLBFS seeks to take
possession of any or all of the Collateral by court process,
Customer further irrevocably waives to the fullest extent
permitted by law any bonds and any surety or security relating
thereto required by any statute, court rule or otherwise as an
incident to such possession, and any demand for possession prior
to the commencement of any suit or action.
10. MISCELLANEOUS
(a) NON-WAIVER. No failure or delay on the part of MLBFS in
exercising any right, power or remedy pursuant to this Loan
Agreement or any of the Additional Agreements shall operate as a
waiver thereof, and no single or partial exercise of any such
right, power or remedy shall preclude any other or further
exercise thereof, or the exercise of any other right, power or
remedy. Neither any waiver of any provision of this Loan
Agreement or any of the Additional Agreements, nor any consent to
any departure by Customer therefrom, shall be effective unless
the same shall be in writing and signed by MLBFS. Any waiver of
any provision of this Loan Agreement or any of the Additional
Agreements and any consent to any departure by Customer from the
terms of this Loan Agreement or any of the Additional Agreements
shall be effective only in the specific instance and for the
specific purpose for which given. Except as otherwise expressly
provided herein, no notice to or demand on Customer shall in any
case entitle Customer to any other or further notice or demand in
similar or other circumstances.
(b) DISCLOSURE. Customer and each Guarantor hereby irrevocably
authorizes MLBFS and each of its affiliates, including without
limitation MLPF&S, to at any time (whether or not an Event of
Default shall have occurred) obtain from and disclose to each
other any and all financial and other information about Customer
or any Guarantor.
(c) COMMUNICATIONS. All notices and other communications
required or permitted hereunder shall be in writing, and shall be
either delivered personally, mailed by postage prepaid certified
mail or sent by express overnight courier or by facsimile. Such
notices and communications shall be deemed to be given on the
date of personal delivery, facsimile transmission or actual
delivery of certified mail, or one Business Day after delivery to
an express overnight courier. Unless otherwise specified in a
notice sent or delivered in accordance with the terms hereof,
notices and other communications in writing shall be given to the
parties hereto at their respective addresses set forth at the
beginning of this Loan Agreement, or, in the case of facsimile
transmission, to the parties at their respective regular
facsimile telephone number.
(d) COSTS, EXPENSES AND TAXES. Customer shall upon demand pay
or reimburse MLBFS for: (i) all Uniform Commercial Code filing
and search fees and expenses incurred by MLBFS in connection with
the verification, perfection or preservation of MLBFS' rights
hereunder or in the Collateral or any other collateral for the
Obligations; (ii) any and all stamp, transfer and other taxes and
fees payable or determined to be payable in connection with the
execution, delivery and/or recording of this Loan Agreement or
any of the Additional Agreements; and (iii) all reasonable fees
and out-of-pocket expenses (including, but not limited to,
reasonable fees and expenses of outside counsel) incurred by
MLBFS in connection with the preparation or enforcement of this
Loan Agreement or any of the Additional Agreements or the
protection of MLBFS' rights hereunder or thereunder, excluding,
however, salaries and expenses of MLBFS' employees. The
obligations of Customer under this paragraph shall survive the
expiration or termination of this Loan Agreement and the
discharge of the other Obligations.
(e) RIGHT TO PERFORM OBLIGATIONS. If Customer shall fail to do
any act or thing which it has covenanted to do under this Loan
Agreement or any representation or warranty on the part of
Customer contained in this Loan Agreement shall be breached,
MLBFS may, in its sole discretion, after 5 days written notice is
sent to Customer (or such lesser notice, including no notice, as
is reasonable under the circumstances), do the same or cause it
to be done or remedy any such breach, and may expend its funds
for such purpose. Any and all reasonable amounts so expended by
MLBFS shall be repayable to MLBFS by Customer upon demand, with
interest at the Interest Rate during the period from and
including the date funds are so expended by MLBFS to the date of
repayment, and all such amounts shall be additional Obligations.
The payment or performance by MLBFS of any of Customer's
obligations hereunder shall not relieve Customer of said
obligations or of the consequences of having failed to pay or
perform the same, and shall not waive or be deemed a cure of any
Event of Default.
(f) LATE CHARGE. Any payment required to be made by Customer
pursuant to this Loan Agreement not paid within 10 days of the
applicable due date shall be subject to a late charge in an
amount equal to the lesser of: (i) 5% of the overdue amount, or
(ii) the maximum amount permitted by applicable law. Such late
charge shall be payable on demand, or, without demand, may in the
sole discretion of MLBFS be paid by a WCMA Loan and added to the
WCMA Loan Balance in the same manner as provided herein for
accrued interest.
(g) FURTHER ASSURANCES. Customer agrees to do such further acts
and things and to execute and deliver to MLBFS such additional
agreements, instruments and documents as MLBFS may reasonably
require or deem advisable to effectuate the purposes of this Loan
Agreement or any the Additional Agreements, or to establish,
perfect and maintain MLBFS' security interests and liens upon the
Collateral, including, but not limited to: (i) executing
financing statements or amendments thereto when and as reasonably
requested by MLBFS; and (ii) if in the reasonable judgment of
MLBFS it is required by local law, causing the owners and/or
mortgagees of the real property on which any Collateral may be
located to execute and deliver to MLBFS waivers or subordinations
reasonably satisfactory to MLBFS with respect to any rights in
such Collateral.
(h) BINDING EFFECT. This Loan Agreement and the Additional
Agreements shall be binding upon, and shall inure to the benefit
of MLBFS, Customer and their respective successors and assigns.
Customer shall not assign any of its rights or delegate any of
its obligations under this Loan Agreement or any of the
Additional Agreements without the prior written consent of MLBFS.
Unless otherwise expressly agreed to in a writing signed by
MLBFS, no such consent shall in any event relieve Customer of any
of its obligations under this Loan Agreement or the Additional
Agreements.
(i) HEADINGS. Captions and section and paragraph headings in
this Loan Agreement are inserted only as a matter of convenience,
and shall not affect the interpretation hereof.
(j) GOVERNING LAW. This Loan Agreement, and, unless otherwise
expressly provided therein, each of the Additional Agreements,
shall be governed in all respects by the laws of the State of
Illinois.
(k) SEVERABILITY OF PROVISIONS. Whenever possible, each
provision of this Loan Agreement and the Additional Agreements
shall be interpreted in such manner as to be effective and valid
under applicable law. Any provision of this Loan Agreement or
any of the Additional Agreements which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective only to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of
this Loan Agreement and the Additional Agreements or affecting
the validity or enforceability of such provision in any other
jurisdiction.
(l) TERM. This Loan Agreement shall become effective on the
date accepted by MLBFS at its office in Chicago, Illinois, and,
subject to the terms hereof, shall continue in effect so long
thereafter as the WCMA Line of Credit shall be in effect or there
shall be any Obligations outstanding.
(m) INTEGRATION. THIS LOAN AGREEMENT, TOGETHER WITH THE
ADDITIONAL AGREEMENTS, CONSTITUTES THE ENTIRE UNDERSTANDING AND
REPRESENTS THE FULL AND FINAL AGREEMENT BETWEEN THE PARTIES WITH
RESPECT TO THE SUBJECT MATTER HEREOF, AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR WRITTEN AGREEMENTS OR PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS OF THE PARTIES. Without limiting the
foregoing, Customer acknowledges that: (i) no promise or
commitment has been made to it by MLBFS, MLPF&S or any of their
respective employees, agents or representatives to extend the
availability of the WCMA Line of Credit or the due date of the
WCMA Loan Balance beyond the current Maturity Date, or to
increase the Maximum WCMA Line of Credit, or otherwise extend any
other credit to Customer or any other party; (ii) no purported
extension of the Maturity Date, increase in the Maximum WCMA Line
of Credit or other extension or agreement to extend credit shall
be valid or binding unless expressly set forth in a written
instrument signed by MLBFS; and (iii) except as otherwise
expressly provided herein, this Loan Agreement supersedes and
replaces any and all proposals, letters of intent and approval
and commitment letters from MLBFS to Customer, none of which
shall be considered an Additional Agreement. No amendment or
modification of this Agreement or any of the Additional
Agreements to which Customer is a party shall be effective unless
in a writing signed by both MLBFS and Customer.
(n) JURISDICTION; WAIVER. CUSTOMER ACKNOWLEDGES THAT THIS LOAN
AGREEMENT IS BEING ACCEPTED BY MLBFS IN PARTIAL CONSIDERATION OF
MLBFS' RIGHT AND OPTION, IN ITS SOLE DISCRETION, TO ENFORCE THIS
LOAN AGREEMENT AND THE ADDITIONAL AGREEMENTS IN EITHER THE STATE
OF ILLINOIS OR IN ANY OTHER JURISDICTION WHERE CUSTOMER OR ANY
COLLATERAL FOR THE OBLIGATIONS MAY BE LOCATED. CUSTOMER CONSENTS
TO JURISDICTION IN THE STATE OF ILLINOIS AND VENUE IN ANY STATE
OR FEDERAL COURT IN THE COUNTY OF COOK FOR SUCH PURPOSES, AND
CUSTOMER WAIVES ANY AND ALL RIGHTS TO CONTEST SAID JURISDICTION
AND VENUE. CUSTOMER FURTHER WAIVES ANY RIGHTS TO COMMENCE ANY
ACTION AGAINST MLBFS IN ANY JURISDICTION EXCEPT IN THE COUNTY OF
COOK AND STATE OF ILLINOIS. MLBFS AND CUSTOMER HEREBY EACH
EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE
PARTIES AGAINST THE OTHER PARTY WITH RESPECT TO ANY MATTER
RELATING TO, ARISING OUT OF OR IN ANY WAY CONNECTED WITH THE WCMA
LINE OF CREDIT, THIS LOAN AGREEMENT, ANY ADDITIONAL AGREEMENTS
AND/OR ANY OF THE TRANSACTIONS WHICH ARE THE SUBJECT MATTER OF
THIS LOAN AGREEMENT.
IN WITNESS WHEREOF, this Loan Agreement has been executed as of
the day and year first above written.
AMERICAN ECO/SP CORPORATION
By: /s/ Michael E. McGinnis
------------------------------------------------
Signature(1) Signature(2)
Michael E. McGinnis
----------------------------------------------------
Printed Name Printed Name
President
----------------------------------------------------
Title Title
Accepted at Chicago, Illinois:
MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC.
By: /s/ [illegible]
-------------------------------
EXHIBIT 10.6.2
No. 582-07596
=================================================================
SECURITY AGREEMENT
SECURITY AGREEMENT ("Agreement") dated as of August 26, 1996,
between C.A. TURNER MAINTENANCE, INC., a corporation organized
and existing under the laws of the State of Texas having its
principal office at 6201 Proctor Street Ext., Port Arthur, Texas
77643 ("Grantor"), and MERRILL LYNCH BUSINESS FINANCIAL SERVICES
INC., a corporation organized and existing under the laws of the
State of Delaware having its principal office at 33 West Monroe
Street, Chicago, IL 60603 ("MLBFS").
In order to induce MLBFS to extend or continue to extend credit
to AMERICAN ECO/SP CORPORATION ("customer"), under the Loan
Agreement (as defined below) or otherwise, and for good and
valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, Grantor hereby agrees with MLBFS as follows:
1. DEFINITIONS
(a) SPECIFIC TERMS. In addition to terms defined elsewhere in
this Agreement, when used herein the following terms shall have
the following meanings:
(i) "Account Debtor" shall mean any party who is or may become
obligated with respect to an Account or Chattel Paper.
(ii) "Business Day" shall mean any day other than a Saturday,
Sunday, federal holiday or other day on which the New York Stock
Exchange is regularly closed.
(iii) "Collateral" shall mean all Accounts, Chattel paper,
Contract Rights, Inventory, Equipment, Fixtures, General
Intangibles, Deposit Accounts, Documents and instruments of
Grantor, howsoever arising, whether now owned or existing or
hereafter acquired or arising, and wherever located, together
with all parts thereof (including spare parts), all accessories
and accessions thereto, all books and records (including computer
records) directly related thereto, all proceeds thereof
(including, without limitation, proceeds in the form of Accounts
and insurance proceeds), and the additional collateral described
in Section 7(b) hereof.
(iv) "Loan Agreement" shall mean that certain WCMA NOTE, LOAN AND
SECURITY AGREEMENT NO. 582-07596 between Customer and MLBFS, as
the same may from time to time be or have been amended, extended
or supplemented.
(v) "Location of Tangible Collateral" shall mean the address of
Grantor set forth at the beginning of this Agreement, together
with any other address or addresses set forth on any exhibit
hereto as being a Location or Tangible Collateral.
(vi) "Obligations" shall mean all liabilities, indebtedness and
other obligations of Customer or Grantor to MLBFS, howsoever
created, arising or evidenced, whether now existing or hereafter
arising, whether direct or indirect, absolute or contingent, due
or to become due, primary or secondary or joint or several, and,
without limiting the foregoing, shall include interest accruing
after the filing of any petition in bankruptcy, and all present
and future liabilities, indebtedness and obligations of Customer
under the Loan Agreement and the agreements, instruments and
documents executed pursuant thereto, and of Grantor under this
Agreement.
(vii) "Permitted Liens" shall mean (A) liens for current
taxes not delinquent, other non-consensual liens arising in the
ordinary course of business for sums not due, and, if MLBFS"
rights to and interest in the Collateral are not materially and
adversely affected thereby, any such liens for taxes or other,
non-consensual liens arising in the ordinary course of business
being contested in good faith by appropriate proceedings; (B)
liens in favor of MLBFS; and (C) any other liens expressly
permitted in writing by MLBFS.
(b) OTHER TERMS. Except as otherwise defined herein, all terms
used in this Agreement which are defined in the Uniform
Commercial Code of Illinois ("UCC") shall have the meanings set
forth in the UCC.
2. COLLATERAL
(a) PLEDGE OF COLLATERAL. To secure payment and performance of
the Obligations, Grantor hereby pledges, assigns, transfers and
sets over to MLBFS, and grants to MLBFS a first lien and security
interest in and upon all of the Collateral, subject only to
Permitted Liens.
(b) LIENS. Except upon the prior written consent of MLBFS,
Grantor shall not create or permit to exist any lien, encumbrance
or security interest upon or with respect to any Collateral now
owned or hereafter acquired other than Permitted Liens.
(c) PERFORMANCE OF OBLIGATIONS. Grantor shall perform all of
its obligations owing on account of or with respect to the
Collateral; it being understood that nothing herein. and no
action or inaction by MLBFS, under this Agreement or otherwise,
shall be deemed an assumption by MLBFS of any of Grantor's said
obligations.
(d) NOTICE OF CERTAIN EVENTS. Grantor shall give MLBFS
immediate notice of any attachment, lien, judicial process,
encumbrance or claim affecting or involving $25,000.00 or more of
the Collateral.
(e) INDEMNIFICATION. Grantor shall indemnify, defend and save
MLBFS harmless from and against any and all claims, losses,
costs, expenses (including, without limitation, reasonable
attorneys' fees and expenses), demands, liabilities, penalties,
fines and forfeitures of any nature whatsoever which may be
asserted against or incurred by MLBFS arising out of or in any
manner occasioned by (i) the ownership, use, operation, condition
or maintenance of any Collateral, or (ii) any failure by Grantor
to perform any of its obligations hereunder; excluding, however,
from said indemnity any such claims, losses, etc. arising out of
the willful wrongful act or active gross negligence of MLBFS.
This indemnity shall survive the expiration or termination of
this Agreement as to all matters arising or accruing prior to
such expiration or termination.
(f) INSURANCE. Grantor shall insure all of the tangible
Collateral with an insurer or insurers reasonably acceptable to
MLBFS, under a policy or policies of physical damage insurance
reasonably acceptable to MLBFS providing that (i) losses will be
payable to MLBFS as its interests may appear pursuant to a
Lender's Loss Payable endorsement, and (ii) MLBFS will receive
not less than 10 days prior written notice of any cancellation;
and containing such other provisions as may be reasonably
required by MLBFS. Grantor shall maintain such other insurance as
may be required by law or otherwise reasonably required by MLBFS.
Grantor shall furnish MLBFS with a copy or certificate of each
such policy or policies and, prior to expiration or cancellation,
each renewal or replacement thereof.
(g) EVENT OF LOSS. Grantor shall at its expense promptly repair
all repairable damage to any tangible Collateral. in the event
that any tangible Collateral is damaged beyond repair, lost,
totally destroyed or confiscated (an "Event of Loss") and such
Collateral had a value prior to such Event of Loss of $25,000.00
or more, then, on or before the first to occur of (i) 90 days
after the occurrence of such Event of Loss, or (ii) 10 Business
Days after the date on which either Grantor or MLBFS shall
receive any proceeds of insurance on account of such Event of
Loss, or any underwriter of insurance on such tangible Collateral
shall advise either Grantor or MLBFS that it disclaims liability
in respect of such Event of Loss, Grantor shall, at Grantor's
option, either replace the Collateral subject to such Event of
Loss with comparable Collateral free of all liens other than
Permitted Liens (in which event Grantor shall be entitled to
utilize the proceeds of insurance on account of such Event of
Loss for such purpose, and may retain any excess proceeds of such
insurance), or pay to MLBFS on account of the Obligations an
amount equal to the actual cash value of such Collateral as
determined by either the applicable insurance company's payment
(plus any applicable deductible) or, in absence of insurance
company payment, as reasonably determined by MLBFS.
Notwithstanding the foregoing, if at the time of occurrence of
such Event of Loss or any time thereafter prior to replacement or
payment, as aforesaid, an Event of Default shall occur hereunder,
then MLBFS may at its sole option, exercisable at any time while
such Event of Default shall be continuing, require Grantor to
either replace such Collateral or make a payment on account of
the Obligations, as aforesaid.
(h) SALES AND COLLECTIONS. So long as no Event of Default shall
have occurred and is continuing, Grantor may in the ordinary
course of its business: (i) sell any inventory normally held by
Grantor for sale, (ii) use or consume any materials and supplies
normally held by Grantor for use or consumption, and (iii)
collect all of its Accounts. Grantor shall take such action with
respect to protection of its Inventory and the other Collateral
and the collection of its Accounts as MLBFS may from time to time
reasonably request.
(i) ACCOUNT SCHEDULES. Upon the request of MLBFS, made now or
at any time or times hereafter, Grantor shall deliver to MLBFS,
in addition to the other information required hereunder, a
schedule identifying, for each Account and all Chattel Paper
subject to MLBFS' security interests hereunder, each Account
Debtor by name and address and amount, invoice number and date of
each invoice. Grantor shall furnish to MLBFS such additional
information with respect to the Collateral, and amounts received
by Grantor as proceeds of any of the Collateral, as MLBFS may
from time to time reasonably request.
(j) LOCATION. Except for movements in the ordinary course of
its business, Grantor shall give MLBFS 30 days' prior written
notice of the placing at or movement of any tangible Collateral
to any location other than a Location of Tangible Collateral. In
no event shall Grantor cause or permit any tangible Collateral to
be removed from the United States without the express prior
written consent of MLBFS.
(k) ALTERATIONS AND MAINTENANCE. Except upon the prior written
consent of MLBFS, Customer shall not make or permit any material
alterations to any tangible Collateral which might materially
reduce or impair its market value or utility. Customer shall at
all times keep the tangible Collateral in good condition and
repair and shall pay or cause to be paid all obligations arising
from the repair and maintenance of such Collateral, as well as
all obligations with respect to each Location of Tangible
Collateral, except for any such obligations being contested by
Customer in good faith by appropriate proceedings.
3. REPRESENTATIONS AND WARRANTIES
Grantor represents and warrants to MLBFS that:
(a) GRANTOR. Grantor is a corporation, duly organized and
validly existing in good standing under the laws of the State of
Texas and is qualified to do business and in good standing in
each other state where the nature of its business or the property
owned by it make such qualification necessary.
(b) EXECUTION, DELIVERY AND PERFORMANCE. The execution,
delivery and performance by Grantor of this Agreement have been
duly authorized by all requisite action, do not and will not
violate or conflict with any law or other governmental
requirement, or any of the agreements, instruments or documents
which formed or governed Grantor, and do not and will not breach
or violate any of the provisions of, and will not result in a
default by Grantor under, any other agreement, instrument or
document to which it is a party or by which it or its properties
are bound.
(c) NOTICE OR CONSENT. Except as may have been given or
obtained, no notice to or consent or approval of any governmental
body or authority or other third party whatsoever (including,
without limitation, any other creditor) is required in connection
with the execution, delivery or performance by Grantor of this
Agreement.
(d) VALID AND BINDING. This Agreement is the legal, valid and
binding obligation of Grantor, enforceable against it in
accordance with its terms, except as enforceability may be
limited by bankruptcy and other similar laws affecting the rights
of creditors generally or by general principles of equity.
(e) FINANCIAL STATEMENTS. Except as expressly set forth in
Grantor's financial statements, all financial statements of
Grantor furnished to MLBFS have been prepared in conformity with
generally accepted accounting principles, consistently applied,
are true and correct, and fairly present the financial condition
of it as at such dates and the results of its operations for the
periods then ended; and since the most recent date covered by
such financial statements, there has been no material adverse
change in any such financial condition or operation.
(f) LITIGATION, ETC. No litigation, arbitration, administrative
or governmental proceedings are pending or threatened against
Grantor, which would, if adversely determined, materially and
adversely affect the financial condition or continued operations
of Grantor, or the liens and security interests of MLBFS
hereunder.
(g) TAXES. All federal, state and local tax returns, reports and
statements required to be filed by Grantor have been filed with
the appropriate governmental agencies and all taxes due and
payable by Grantor have been timely paid (except to the extent
that any such failure to file or pay will not materially and
adversely affect either the liens and security interests of MLBFS
hereunder or the financial condition or continued operations of
Grantor).
(h) COLLATERAL. Grantor has good and marketable title to the
Collateral, and, except for Permitted Liens: (i) none of the
Collateral is subject to any lien, encumbrance or security
interest, and (ii) upon the filing of all Uniform Commercial Code
financing statements executed by Grantor with respect to the
Collateral or a copy of this Agreement in the appropriate
jurisdiction(s) and/or the completion of any other action
required by applicable law to perfect is lien and security
interests, MLBFS will have valid and perfected first liens and
security interests upon all of the Collateral.
Each of the foregoing representations and warranties are
continuing and shall be deemed remade by Grantor concurrently
with each advance or extension of credit by MLBFS to Customer.
4. FINANCIAL AND OTHER INFORMATION
Grantor covenants and agrees that Grantor will furnish or cause
to be furnished to MLBFS during the term of this Agreement such
financial and other information as may be required by the Loan
Agreement or any other document evidencing the Obligations or as
MLBFS may from time to time reasonably request relating to
Grantor or the Collateral.
5. OTHER COVENANTS
Grantor further agrees during the term of this Agreement that:
(a) FINANCIAL RECORDS; INSPECTION. Grantor will: (i) maintain
complete and accurate books and records at its principal place of
business, and maintain all of its financial records in a manner
consistent with the financial statements heretofore furnished to
MLBFS, or prepared on such other basis as may be approved in
writing by MLBFS; and (ii) permit MLBFS or its duly authorized
representatives, upon reasonable notice and at reasonable times,
to inspect its properties (both real or personal), operations,
books and records.
(b) TAXES. Grantor will pay when due all taxes, assessments and
other governmental charges, howsoever designated, and all other
liabilities and obligations, except to the extent that any such
failure to pay will not materially and adversely affect either
the liens and security interests of MLBFS hereunder, or the
financial condition or continued operations of Grantor.
(c) COMPLIANCE WITH LAWS AND AGREEMENTS. Grantor will not
violate any law, regulation or other governmental requirement,
any judgment or order of any court or governmental agency or
authority, or any agreement, instrument or document to which it
is a party or by which it is bound, if any such violation will
materially and adversely affect either the liens and security
interests of MLBFS hereunder, or the financial condition or
continued operations of Grantor.
(d) CONTINUITY. Except upon the prior written consent of MLBFS,
which consent will not be unreasonably withheld: (i) Grantor will
not be a party to any merger or consolidation with, or purchase
or otherwise acquire all or substantially all of the assets or
stock of, or any material partnership or joint venture interest
in, any person or entity, or sell, transfer or lease all or any
substantial part of its assets if any such action causes a
material change in its control or principal business, or material
adverse change in the financial condition or operations, of
Grantor; (ii) Grantor will preserve its existence and good
standing in the jurisdictions of establishment and operation, and
will not operate in any material business other than a business
substantially the same as its business as of the date of
application by Customer for credit from MLBFS; and (iii) Grantor
will not cause or permit any material change in its controlling
ownership, controlling senior management or, except upon not less
than 30 days prior written notice to MLBFS, its name or principal
place of business.
6. EVENTS OF DEFAULT
The occurrence of any of the following events shall constitute an
"Event of Default" under this Agreement:
(a) DEFAULT UNDER LOAN AGREEMENT. An Event of Default shall
occur under the terms of the Loan Agreement.
(b) FAILURE TO PERFORM. Grantor shall default in the
performance or observance of any covenant or agreement on its
part to be performed or observed under this Agreement (not
constituting an Event of Default under any other clause of this
Section), and such default shall continue unremedied for 10
Business Days after written notice thereof shall have been given
by MLBFS to Grantor.
(c) BREACH OF WARRANTY. Any representation or warranty made by
Grantor contained in this Agreement shall at any time prove to
have been incorrect in any material respect when made.
(d) DEFAULT UNDER OTHER AGREEMENT. A default or Event of
Default by Grantor shall occur under the terms of any other
agreement, instrument or document with or intended for the
benefit of MLBFS, Merrill Lynch, Pierce, Fenner 8 Smith
Incorporated ("MLPF8S") or any of their affiliates, and any
required notice shall have been given and required passage of
time shall have elapsed.
(e) SEIZURE OR ABUSE OF COLLATERAL. The Collateral, or any
material part thereof, shall be or become subject to any levy,
attachment, seizure or confiscation which is not released within
10 Business Days.
(f) MATERIAL IMPAIRMENT. Any event shall occur which shall
reasonably cause MLBFS to in good faith believe that the prospect
of payment or performance by Grantor has been materially
impaired.
(g) ACCELERATION OF DEBT TO OTHER CREDITORS. Any event shall
occur which results in the acceleration of the maturity of any
indebtedness of $100,000.00 or more of Grantor to another
creditor under any indenture, agreement, undertaking, or
otherwise.
7. REMEDIES
(a) REMEDIES UPON DEFAULT. Upon the occurrence and during the
continuance of any Event of Default, MLBFS may at its sole option
do any one or more or all of the following, at such time and in
such order as MLBFS may in its sole discretion choose:
(i) ACCELERATION. MLBFS may declare all Obligations to be
forthwith due and payable, whereupon all such amounts shall be
immediately due and payable, without presentment, demand for
payment, protest and notice of protest, notice of dishonor,
notice of acceleration, notice of intent to accelerate or other
notice or formality of any kind, all of which are hereby
expressly waived.
(ii) EXERCISE RIGHTS OF SECURED PARTY. MLBFS may exercise any or
all of the remedies of a secured party under applicable law,
including, but not limited to, the UCC, and any or all of its
other rights and remedies under this Agreement.
(iii) POSSESSION. MLBFS may require Grantor to make the
Collateral and the records pertaining to the Collateral available
to MLBFS at a place designated by MLBFS which is reasonably
convenient or may take possession of the Collateral and the
records pertaining to the Collateral without the use of any
judicial process and without any prior notice to Grantor.
(iv) SALE. MLBFS may sell any or all of the Collateral at public
or private sale upon such terms and conditions as MLBFS may
reasonably deem proper, and MLBFS may purchase any Collateral at
any such public sale; and the net proceeds of any such public or
private sale and all other amounts actually collected or received
by MLBFS pursuant hereto, after deducting all costs and expenses
incurred at any time in the collection of the Obligations and in
the protection, collection and sale of the Collateral, will be
applied to the payment of the Obligations, with any remaining
proceeds paid to Grantor or whoever else may be entitled thereto,
and with Customer and each guarantor of Customer's obligations
remaining jointly and severally liable for any amount remaining
unpaid after such application.
(v) DELIVERY OF CASH, CHECKS, ETC. MLBFS may require Grantor to
forthwith upon receipt, transmit and deliver to MLBFS in the form
received, all cash, checks, drafts and other instruments for the
payment of money (properly endorsed, where required, so that such
items may be collected by MLBFS) which may be received by Grantor
at any time in full or partial payment of any Collateral, and
require that Grantor not commingle any such items which may be so
received by Grantor with any other of its funds or property but
instead hold them separate and apart and in trust for MLBFS until
delivery is made to MLBFS.
(vi) NOTIFICATION OF ACCOUNT DEBTORS. MLBFS may notify any
Account Debtor that its Account or Chattel Paper has been
assigned to MLBFS and direct such Account Debtor to make payment
directly to MLBFS of all amounts due or becoming due with respect
to such Account or Chattel Paper; and MLBFS may enforce payment
and collect, by legal proceedings or otherwise, such Account or
Chattel Paper.
(vii) CONTROL OF COLLATERAL. MLBFS may otherwise take control
in any lawful manner of any cash or noncash items of payment or
proceeds of Collateral and of any rejected, returned, stopped in
transit or repossessed goods included in the Collateral and
endorse Grantor name on any item of payment on or proceeds of the
Collateral, and, in connection therewith, MLBFS may notify the
postal authorities to change the address for delivery of mail
addressed to Grantor to such address as MLBFS may designate.
(b) SET-OFF. MLBFS shall have the further right upon the
occurrence and during the continuance of an Event of Default to
set-off, appropriate and apply toward payment of any of the
Obligations, in such order of application as MLBFS may from time
to time and at any time elect, any cash, credits, deposits,
accounts, securities and any other property of Grantor which is
in transit to or in the possession, custody or control of MLBFS,
MLBFS or any agent, bailee, or affiliate of MLBFS or MLPF8S,
including, without limitation, all securities accounts with
MLPF8S and all cash and securities therein or controlled thereby,
and all proceeds thereof. Grantor hereby collaterally assigns and
grants to MLBFS a security interest in all such property as
additional Collateral.
(c) REMEDIES ARE SEVERABLE AND CUMULATIVE. All rights and
remedies of MLBFS herein are severable and cumulative and in
addition to all other rights and remedies available at law or in
equity, and any one or more of such rights and remedies may be
exercised simultaneously or successively. Any notice required
under this Agreement or under applicable law shall be deemed
reasonably and properly given to Grantor if given at the address
and by any of the methods of giving notice set forth in this
Agreement at least 5 Business Days before taking any action
specified in such notice.
(d) NOTICES. To the fullest extent permitted by applicable law,
Grantor hereby irrevocably waives and releases MLBFS of and from
any and all liabilities and penalties for failure of MLBFS to
comply with any statutory or other requirement imposed upon MLBFS
relating to notices of sale, holding of sale or reporting of any
sale, and Grantor waives all rights of redemption or
reinstatement from any such sale. MLBFS shall have the right to
postpone or adjourn any sale or other disposition of Collateral
at any time without giving notice of any such postponed or
adjourned date. In the event MLBFS seeks to take possession of
any or all of the Collateral by court process, Grantor further
irrevocably waives to the fullest extent permitted by law any
bonds and any surety or security relating thereto required by any
statute, court rule or otherwise as an incident to such
possession, and any demand for possession prior to the
commencement of any suit or action.
8. MISCELLANEOUS
(a) NON-WAIVER. No failure or delay on the part of MLBFS in
exercising any right, power or remedy pursuant to this Agreement
shall operate as a waiver thereof, and no single or partial
exercise of any such right, power or remedy shall preclude any
other or further exercise thereof, or the exercise of any other
right, power or remedy. Neither any waiver of any provision of
this Agreement, nor any consent to any departure by Grantor
therefrom, shall be effective unless the same shall be in writing
and signed by MLBFS. Any waiver of any provision of this
Agreement and any consent to any departure by Grantor from the
terms of this Agreement shall be effective only in the specific
instance and for the specific purpose for which given. Except as
otherwise expressly provided herein, no notice to or demand on
Grantor shall in any case entitle Grantor to any other or further
notice or demand in similar or other circumstances.
(b) COMMUNICATIONS. All notices and other communications
required or permitted hereunder shall be in writing, and shall be
either delivered personally, mailed by postage prepaid certified
mail or sent by express overnight courier or by facsimile. Such
notices and communications shall be deemed to be given on the
date of personal delivery, facsimile transmission or actual
delivery of certified mail, or one Business Day after delivery to
an express overnight courier. Unless otherwise specified in a
notice sent or delivered in accordance with the terms hereof,
notices and other communications in writing shall be given to the
parties hereto at their respective addresses set forth at the
beginning of this Agreement, and, in the case of facsimile
transmission, to the parties at their respective regular
facsimile telephone number.
(c) COSTS, EXPENSES AND TAXES. Grantor shall pay or reimburse
MLBFS upon demand for: (i) all Uniform Commercial Code filing and
search fees and expenses incurred by MLBFS in connection with the
verification, perfection or preservation of MLBFS' rights
hereunder or in the Collateral; (ii) any and all stamp, transfer
and other taxes and fees payable or determined to be payable in
connection with the execution, delivery and/or recording of this
Agreement; and (iii) all reasonable fees and out-of-pocket
expenses (including, but not limited to, reasonable fees and
expenses of outside counsel) incurred by MLBFS in connection with
the enforcement of this Agreement or the protection of MLBFS'
rights hereunder, excluding, however, salaries and expenses of
MLBFS' employees. The obligations of Grantor under this paragraph
shall survive the expiration or termination of this Agreement and
the discharge of the other Obligations.
(d) RIGHT TO PERFORM OBLIGATIONS. If Grantor shall fail to do
any act or thing which it has covenanted to do under this
Agreement or any representation or warranty on the part of
Grantor contained in this Agreement shall be breached, MLBFS may,
in its sole discretion, after 5 Business Days written notice is
sent to Grantor (or such lesser notice, including no notice, as
is reasonable under the circumstances), do the same or cause it
to be done or remedy any such breach, and may expend its funds
for such purpose. Any and all reasonable amounts so expended by
MLBFS shall be repayable to MLBFS by Grantor upon demand, with
interest at the "Interest Rate" (as that term is defined in the
Loan Agreement or any document incorporated into the Loan
Agreement) during the period from and including the date funds
are so expended by MLBFS to the date of repayment, and any such
amounts due and owing MLBFS shall be additional Obligations. The
payment or performance by MLBFS of any of Grantor's obligations
hereunder shall not relieve Grantor of said obligations or of the
consequences of having failed to pay or perform the same, and
shall not waive or be deemed a cure of any Event of Default.
(e) FURTHER ASSURANCES. Grantor agrees to do such further acts
and things and to execute and deliver to MLBFS such additional
agreements, instruments and documents as MLBFS may reasonably
require or deem advisable to effectuate the purposes of this
Agreement, or to establish, perfect and maintain MLBFS' security
interests and liens upon the Collateral, including, but not
limited to: (i) executing financing statements or amendments
thereto when and as reasonably requested by MLBFS; and (ii) if in
the reasonable judgment of MLBFS it is required by local law,
causing the owners and/or mortgagees of the real property on
which any Collateral may be located to execute and deliver to
MLBFS waivers or subordinations reasonably satisfactory to MLBFS
with respect to any rights in such Collateral.
(f) BINDING EFFECT. This Agreement shall be binding upon Grantor
and its successors and assigns, and shall inure to the benefit of
MLBFS and its successors and assigns.
(g) HEADINGS. Captions and section and paragraph headings in
this Agreement are inserted only as a matter of convenience, and
shall not affect the interpretation hereof.
(h) GOVERNING LAW. This Agreement shall be governed in all
respects by the laws of the State of Illinois.
(i) SEVERABILITY OF PROVISIONS. Whenever possible, each
provision of this Agreement shall be interpreted in such manner
as to be effective and valid under applicable law. Any provision
of this Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective only
to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Agreement or
affecting the validity or enforceability of such provision in any
other jurisdiction.
(j) TERM. This Agreement shall become effective upon acceptance
by MLBFS, and, subject to the terms hereof, shall continue in
effect so long thereafter as either MLBFS shall be committed to
advance funds or extend credit to Customer or there shall be any
Obligations outstanding.
(k) INTEGRATION. THIS WRITTEN AGREEMENT CONSTITUTES THE ENTIRE
UNDERSTANDING AND REPRESENTS THE FULL AND FINAL AGREEMENT BETWEEN
THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF, AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR WRITTEN AGREEMENTS OR
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS OF THE PARTIES.
NO AMENDMENT OR MODIFICATION OF THIS AGREEMENT SHALL BE EFFECTIVE
UNLESS IN A WRITING SIGNED BY BOTH MLBFS AND GRANTOR.
(k) JURISDICTION; WAIVER. GRANTOR ACKNOWLEDGES THAT THIS
AGREEMENT IS BEING ACCEPTED BY MLBFS IN PARTIAL CONSIDERATION OF
MLBFS' RIGHT AND OPTION, IN ITS SOLE DISCRETION, TO ENFORCE THIS
AGREEMENT IN EITHER THE STATE OF ILLINOIS OR IN ANY OTHER
JURISDICTION WHERE GRANTOR OR ANY COLLATERAL FOR THE OBLIGATIONS
MAY BE LOCATED. GRANTOR CONSENTS TO JURISDICTION IN THE STATE OF
ILLINOIS AND VENUE IN ANY STATE OR FEDERAL COURT IN THE COUNTY OF
COOK FOR SUCH PURPOSES, AND GRANTOR WAIVES ANY AND ALL RIGHTS TO
CONTEST SAID JURISDICTION AND VENUE. GRANTOR FURTHER WAIVES ANY
RIGHTS TO COMMENCE ANY ACTION AGAINST MLBFS IN ANY JURISDICTION
EXCEPT IN THE COUNTY OF COOK AND STATE OF ILLINOIS. MLBFS AND
GRANTOR HEREBY EACH EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY
EITHER OF THE PARTIES AGAINST THE OTHER PARTY WITH RESPECT TO ANY
MATTER RELATING TO, ARISING OUT OF OR IN ANY WAY CONNECTED WITH
THE LOAN AGREEMENT, THIS AGREEMENT AND/0R ANY OF THE TRANSACTIONS
WHICH ARE THE SUBJECT MATTER OF THE LOAN AGREEMENT OR THIS
AGREEMENT.
IN WITNESS WHEREOF, this Agreement has been executed as of the
day and year first above written.
C.A. TURNER MAINTENANCE, INC.
By: /s/ Michael E. McGinnis
----------------------------------------
Signature (1) Signature (2)
Michael E. McGinnis
--------------------------------------------
Printed Name Printed Name
President
--------------------------------------------
Title Title
Accepted at Chicago, Illinois:
MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC.
By: /s/ [illegible]
--------------------------------
EXHIBIT 10.6.3
--------------
Ref. No. 582-07596
=================================================================
UNCONDITIONAL GUARANTY
FOR VALUE RECEIVED, and in order to induce MERRILL LYNCH BUSINESS
FINANCIAL SERVICES INC. ("MLBFS") to advance moneys or extend or
continue to extend credit to or for the benefit of, or modify its
credit relationship with AMERICAN ECO/SP CORPORATION (with any
successor-in-interest, including, without limitation, any
successor by merger or by operation of law, herein collectively
referred to as "Customer"), under: (a) that certain WCMA NOTE,
LOAN AND SECURITY AGREEMENT NO. 582-07596 between MLBFS and
Customer (the "Loan Agreement"), (b) any "Additional Agreements",
as that term is defined in the Loan Agreement (including, without
limitation, the NOTE incorporated by reference into the Loan
Agreement), and (c) all present and future amendments and other
evidences of any extensions, increases, renewals and other
changes of or to the Loan Agreement or Additional Agreements
(collectively, the "Guaranteed Documents"), and for other good
and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, THE UNDERSIGNED C.A. TURNER MAINTENANCE,
INC., a corporation organized and existing under the laws of the
State of Texas ("Guarantor"), HEREBY UNCONDITIONALLY GUARANTEES
TO MLBFS (i) the prompt and full payment when due, by
acceleration or otherwise, of all sums now or any time hereafter
due from Customer to MLBFS under the Guaranteed Documents; (ii)
the prompt, full and faithful performance and discharge by
Customer of each and every other covenant and warranty of
Customer set forth in the Guaranteed Documents, and (iii) the
prompt and full payment and performance of all other
indebtedness, liabilities and obligations of customers to MLBFS,
howsoever created or evidenced and whether now existing or
hereafter arising (collectively, the "Obligations"). Guarantor
further agrees to pay all reasonable costs and expenses
(including, but not limited to, court costs and reasonable
attorneys' fees) paid or incurred by MLBFS in endeavoring to
collect or enforce performance of any of the Obligations, or in
enforcing this Guaranty.
This Guaranty is absolute, unconditional and continuing and shall
remain in effect until all of the Obligations shall have been
fully paid, performed and discharged. Upon the occurrence and
during the continuance of any default or Event of Default under
the Guaranteed Documents, any or all of the indebtedness hereby
guaranteed then existing shall, at the option of MLBFS, become
immediately due and payable from Guarantor. Notwithstanding the
occurrence of any such event, this Guaranty shall continue and
remain in full force and effect.
The liability of Guarantor hereunder shall in no event be
affected or impaired by any of the following, any of which may be
done or omitted by MLBFS from time to time, without notice to or
the consent of Guarantor: (a) any renewals, amendments,
modifications or supplements of or to any of the Guaranteed
Documents, or any extensions, forbearances, compromises or
releases of any of the Obligations or any of MLBFS' rights under
any of the Guaranteed Documents; (b) any acceptance by MLBFS of
any collateral or security for, or other guarantors of, any of
the Obligations; (c) any failure, neglect or omission on the part
of MLBFS to realize upon or protect any of the Obligations, or
any collateral or security therefor, or to exercise any lien upon
or right of appropriation of any moneys, credits or property of
Customer or any other guarantor, possessed by or under the
control of MLBFS or any of its affiliates, toward the liquidation
or reduction of the Obligations; (d) any application of payments
or credits by MLBFS; (e) the granting of credit from time to time
by MLBFS to Customer in excess of the amount set forth in the
Guaranteed Documents; or (f) any other act or commission or
omission of any kind or at any time upon the part of MLBFS or any
of its affiliates or any of their respective employees or agents
with respect to any matter whatsoever. MLBFS shall not be
required at any time, as a condition of Guarantor's obligations
hereunder, to resort to payment from Customer or other persons or
entities whatsoever, or any of their properties or estates, or
resort to any collateral or pursue or exhaust any other rights or
remedies whatsoever.
No release or discharge in whole or in part of any other
guarantor of the Obligations shall release or discharge Guarantor
unless and until all of the Obligations shall have been fully
paid and discharged. Guarantor expressly waives presentment,
protest, demand, notice of dishonor or default, notice of
acceptance of this Guaranty, notice of advancement of funds under
the Guaranteed Documents and all other notices and formalities to
which Customer or Guarantor might be entitled, by statute or
otherwise, and, so long as there are any Obligations or MLBFS is
committed to extend credit to Customer, waives any right to
revoke or terminate this Guaranty without the express written
consent of MLBFS.
So long as there any Obligations, Guarantor shall not have any
claim, remedy or right of subrogation, reimbursement,
exoneration, contribution, indemnification or participation in
any claim, right, or remedy of MLBFS against Customer or any
security which MLBFS now has or hereafter acquires, whether or
not such claim, right or remedy arises in equity, under contract,
by statute, under common law, or otherwise.
MLBFS is hereby irrevocably authorized by Guarantor at any time
during the continuance of an Event of Default under the Loan
Agreement or any other of the Guaranteed Documents or in respect
of any of the Obligations, in its sole discretion and without
demand or notice of any kind, to appropriate, hold, set off and
apply toward the payment of any amount due hereunder, in such
order of application as MLBFS may elect, all cash, credits,
deposits, accounts, securities and any other property of
Guarantor which is in transit to or in the possession, custody or
control of MLBFS or Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S"), or any of their respective agents,
bailees or affiliates, including, without limitation, all
securities accounts with MLPF&S and all cash and securities
therein or controlled thereby, and all proceeds thereof.
Guarantor hereby collaterally assigns and grants to MLBFS a
security interest in all such property as additional security for
the Obligations. Upon the occurrence and during the continuance
of an Event of Default, MLBFS shall have all rights in such
property available to collateral assignees and secured parties
under all applicable laws, including, without limitation, the
UCC.
Guarantor agrees to furnish to MLBFS such financial information
concerning Guarantor as may be required by any of the Guaranteed
Documents or as MLBFS may otherwise from time to time reasonably
request. Guarantor further hereby irrevocably authorizes MLBFS
and each of its affiliates, including without limitation MLPF&S,
to at any time (whether or not an Event of Default shall have
occurred) obtain from and disclose to each other any and all
financial and other information about Guarantor.
No delay on the part of MLBFS in the exercise of any right or
remedy under any agreement (including, but not limited to, this
Guaranty) shall operate as a waiver thereof, and, without
limiting the foregoing, no delay in the enforcement of any
security interest, and no single or partial exercise by MLBFS of
any right or remedy shall preclude any other or further exercise
thereof or the exercise of any other right or remedy. This
Guaranty may be executed in any number of counterparts, each of
which counterparts, once they are executed and delivered, shall
be deemed to be an original and all of which counterparts, taken
together, shall constitute but one and the same Guaranty. This
Guaranty shall be binding upon Guarantor and its successors and
assigns, and shall inure to the benefit of MLBFS and its
successors and assigns. If there are more than one guarantor of
the Obligations, all of the obligations and agreements of
Guarantor are joint and several with such other guarantors.
This Guaranty shall be governed by the laws of the State of
Illinois. GUARANTOR AGREES THAT THIS GUARANTY MAY BE ENFORCED BY
MLBFS IN ANY JURISDICTION AND VENUE IN WHICH THE LOAN AGREEMENT
MAY BE ENFORCED. GUARANTOR AND MLBFS HEREBY EACH EXPRESSLY WAIVE
ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST THE
OTHER PARTY IN ANY WAY RELATED TO OR ARISING OUT OF THIS GUARANTY
OR THE OBLIGATIONS. Wherever possible each provision of this
Guaranty shall be interpreted in such manner as to be effective
and valid under applicable law, but if any provision of this
Guaranty shall be prohibited by or invalid under such law, such
provision shall be ineffective only to the extent of such
prohibition of invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Guaranty. No
modification or waiver of any of the provisions of this Guaranty
shall be effective unless in writing and signed by both Guarantor
and an officer of MLBFS. Each signatory on behalf of Guarantor
warrants that he or she has authority to sign on behalf of
Guarantor, and by so signing, to bind Guarantor hereunder.
Dated as of August 26, 1996.
C.A. TURNER MAINTENANCE, INC.
By: /s/ Michael E. McGinnis
--------------------------------------------------------
Signature (1) Signature (2)
Michael E. McGinnis
------------------------------------------------------------
Printed Name Printed Name
Chairman
------------------------------------------------------------
Title Title
Address of Guarantor:
6201 Procter Street
Port Arthur, TX 77643
<PAGE>
MERRILL LYNCH
=================================================================
CERTIFICATE OF SECRETARY
(GUARANTY)
THE UNDERSIGNED CERTIFIES that the undersigned is the duly
appointed and acting Secretary (or Assistant Secretary) of C.A.
TURNER MAINTENANCE, INC., a corporation duly organized, validly
existing and in good standing under the laws of the State of
Texas; that the following is a true, accurate and compared
transcript of resolutions duly, validly and lawfully adopted on
the __________ day of _________________, 1996 by the Board of
Directors of said corporation acting in accordance with the laws
of the state of incorporation and the charter and by-laws of said
corporation:
"RESOLVED, that it is advisable and in the best interests and to
the benefit of this Corporation to guaranty the obligations of
AMERICAN ECO/SP CORPORATION ("Customer") to MERRILL LYNCH
BUSINESS FINANCIAL SERVICES INC. ("MLBFS"); and
"FURTHER RESOLVED, that the President, any Vice President,
Treasurer, Secretary or other officer of this Corporation, or any
one or more of them, be and each of them hereby is authorized and
empowered for and on behalf of this Corporation to: (a) execute
and deliver to MLBFS: (i) an Unconditional Guaranty of the
obligations of Customer, (ii) any other agreements, instruments
and documents required by MLBFS in connection therewith,
including, without limitation, any agreements, instruments and
documents evidencing liens or security interests on any present
or future amendments to any of the foregoing; all in such form as
such officer shall approve, as evidenced by his signature
thereon; and (b) to do and perform all such acts and things deemed
by any such officer to be necessary or advisable to carry out and
perform the undertakings and agreements of this Corporation set
forth therein; and all prior acts of said officers in these
premises are hereby ratified and confirmed; and
"FURTHER RESOLVED, that MLBFS is authorized to rely upon the
foregoing resolutions until it receives written notice of any
change or revocation, which change or revocation shall not in any
event affect the obligations of this Corporation with respect to
any transaction committed to by MLBFS or having its inception
prior to the receipt of such notice by MLBFS."
THE UNDERSIGNED FURTHER CERTIFIES that the foregoing resolutions
have not been rescinded, modified or repealed in any manner and
are in full force and effect as of the date of this Certificate,
and that the following individuals are now the duly elected and
acting officers of said corporation:
President: /s/ Michael E. McGinnis
---------------------------------------
Vice President:
----------------------------------
Secretary: /s/ John D. Walker
---------------------------------------
Treasurer:
---------------------------------------
IN WITNESS WHEREOF, the undersigned has executed this Certificate
and has affixed the seal of said corporation hereto, pursuant to
due authorization, all as of this 27 day of August, 1996.
(Corporate Seal) /s/ John D. Walker
-----------------------------
Secretary
John D. Walker
-----------------------------
Printed Name
EXHIBIT 10.6.4
--------------
Merrill Lynch Ref. No. 582-07596
-------------------------------------------------------------------
UNCONDITIONAL GUARANTY
FOR VALUE RECEIVED, and in order to induce MERRILL LYNCH BUSINESS
FINANCIAL SERVICES INC. ("MLBFS") to advance moneys or extend or
continue to extend credit to or for the benefit of AMERICAN
ECO/SP CORPORATION, a corporation organized and existing under
the laws of the State of Delaware (with any successor-in
interest, including, without limitation, any successor by merger
or by operation of law, herein collectively referred to as
"Customer") under (a) that certain WCMA NOTE, LOAN AND SECURITY
AGREEMENT NO. 582-7596 between MLBFS and Customer (the "Loan
Agreement"), (b) any "Additional Agreements", as that term is
defined in the Loan Agreement, and (c) all present and future
amendments and other evidences of any extensions, increases,
renewals and other changes of or to the Loan Agreement or
Additional Agreements (collectively, the "Guaranteed Documents"),
the undersigned hereby unconditionally guarantees to MLBFS: (i)
the prompt and full payment when due, by acceleration or
otherwise, of all sums now or any time hereafter due from
Customer to MLBFS under the Guaranteed Documents; (ii) the
prompt, full and faithful performance and discharge by Customer
of each and every other covenant and warranty of Customer set
forth in the Guaranteed Documents, and (iii) the prompt and full
payment and performance of all other indebtedness, liabilities
and obligations of Customer to MLBFS, howsoever created or
evidenced, and whether now existing or hereafter arising
(collectively, the "Obligations"). The undersigned further
agrees to pay all reasonable costs and expenses (including, but
not limited to, court costs and reasonable attorneys' fees) paid
or incurred by MLBFS in endeavoring to collect or enforce
performance of any of the Obligations, or in enforcing this
Guaranty.
This Guaranty is absolute, unconditional and continuing and shall
remain in effect until all of the Obligations shall have been
fully paid, performed and discharged. Upon the occurrence and
during the continuance of any Event of Default under the
Guaranteed Documents, any or all of the indebtedness hereby
guaranteed then existing shall, at the option of MLBFS, become
immediately due and payable from the undersigned.
Notwithstanding the occurrence of any such event, this Guaranty
shall continue and remain in full force and effect.
The liability of the undersigned hereunder shall in no event be
affected or impaired by any of the following, any of which may be
done or omitted by MLBFS from time to time, without notice to or
the consent of the undersigned: (a) any renewals, amendments,
modifications or supplements of or to any of the Guaranteed
Documents, or any extensions, forbearances, compromises or
releases of any of the Obligations or any of MLBFS' rights under
any of the Guaranteed Documents; (b) any acceptance by MLBFS of
any collateral or security for, or other guarantors of, any of
the Obligations; (c) any failure, neglect or omission on the part
of MLBFS to realize upon or protect any of the Obligations, or
any collateral or security therefor, or to exercise any lien upon
or right of appropriation of any moneys, credits or property of
Customer or any other guarantor, possessed by or under the
control of MLBFS or any of its affiliates, toward the liquidation
or reduction of the Obligations; (d) any application of payments
or credits by MLBFS; (e) the granting of credit from time to time
by MLBFS to Customer in excess of the amount set forth in the
Guaranteed Documents; or (f) any other act of commission or
omission of any kind or at any time upon the part of MLBFS or any
of its affiliates or any of their respective employees or agents
with respect to any matter whatsoever. MLBFS shall not be
required at any time, as a condition of the undersigned's
obligations hereunder, to resort to payment from Customer or
other persons or entities whatsoever, or any of their properties
or estates, or resort to any collateral or pursue or exhaust any
other rights or remedies whatsoever.
No release or discharge in whole or in part of any other
guarantor of the Obligations shall release or discharge the
undersigned or any other guarantor, unless and until all of the
Obligations shall have been fully paid and discharged. The
undersigned expressly waives presentment, protest, demand, notice
of dishonor or default, notice of acceptance of this Guaranty,
notice of advancement of funds under the Guaranteed Documents and
all other notices and formalities to which Customer or the
undersigned might be entitled, by statute or otherwise, and, so
long as there are any Obligations or MLBFS is committed to extend
credit to Customer, waives any right to revoke or terminate this
Guaranty without the express written consent of MLBFS.
So long as there are any Obligations, the undersigned shall not
have any claim, remedy or right of subrogation, reimbursement,
exoneration, contribution, indemnification, or participation in
any claim, right, or remedy of MLBFS against Customer or any
security which MLBFS now has or hereafter acquires, whether or
not such claim, right or remedy arises in equity, under contract,
by statute, under common law, or otherwise.
MLBFS is hereby irrevocably authorized by Guarantor at any time
during the continuance of an Event of Default under the Loan
Agreement or any other of the Guaranteed Documents or in respect
of any of the Obligations, in its sole discretion and without
demand or notice of any kind, to appropriate, hold, set off and
apply toward the payment of any amount due hereunder, in such
order of application as MLBFS may elect, all cash, credits,
deposits, accounts, securities and any other property of the
undersigned which is in transit to or in the possession, custody
or control of MLBFS or Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S"), or any of their respective agents,
bailees or affiliates, including, without limitation, all
securities accounts with MLPF&S and all cash and securities
therein or controlled thereby, and all proceeds thereof. The
undersigned hereby collaterally assigns and grants to MLBFS a
security interest in all such property as additional security for
the Obligations. Upon the occurrence and during the continuance
of an Event of Default, MLBFS shall have all rights in such
property available to collateral assignees and secured parties
under all applicable laws, including, without limitation, the
UCC.
The undersigned agrees to furnish to MLBFS such financial
information concerning the undersigned as may be required by any
of the Guaranteed Documents or as MLBFS may otherwise from time
to time reasonably request. The undersigned further hereby
irrevocably authorizes MLBFS and each of its affiliates,
including without limitation MLPF&S, to at any time (whether or
not an Event of Default shall have occurred) obtain from and
disclose to each other any and all financial and other
information about the undersigned.
No delay on the part of MLBFS in the exercise of any right or
remedy under any agreement (including, but not limited to, this
Guaranty) shall operate as a waiver thereof, and, without
limiting the foregoing, no delay in the enforcement of any
security interest, and no single or partial exercise by MLBFS of
any right or remedy shall preclude any other or further exercise
thereof or the exercise of any other right or remedy. This
Guaranty may be executed in any number of counterparts, each of
which counterparts, once they are executed and delivered, shall
be deemed to be an original and all of which counterparts, taken
together, shall constitute but one and the same Guaranty. This
Guaranty shall be binding upon the undersigned and the
undersigned's heirs and personal representatives, and shall inure
to the benefit of MLBFS and its successors and assigns. If there
is more than one guarantor of the Obligations, all of the
obligations and agreements of the undersigned are joint and
several.
This Guaranty shall be governed by the laws of the State of
Illinois. THE UNDERSIGNED AGREES THAT THIS GUARANTY MAY BE
ENFORCED BY MLBFS IN ANY JURISDICTION AND VENUE IN WHICH THE LOAN
AGREEMENT MAY BE ENFORCED. THE UNDERSIGNED AND MLBFS HEREBY EACH
EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY OF THE PARTIES
AGAINST ANY OTHER PARTY IN ANY WAY RELATED TO OR ARISING OUT OF
THIS GUARANTY OR THE OBLIGATIONS. WHEREVER POSSIBLE EACH
PROVISION OF THIS GUARANTY SHALL BE INTERPRETED IN SUCH MANNER AS
TO BE EFFECTIVE AND VALID UNDER APPLICABLE LAW, BUT IF ANY
PROVISION OF THIS GUARANTY SHALL BE PROHIBITED BY OR INVALID
UNDER SUCH LAW, SUCH PROVISION SHALL BE INEFFECTIVE ONLY TO THE
EXTENT OF SUCH PROHIBITION OR INVALIDITY, WITHOUT INVALIDATING
THE REMAINDER OF SUCH PROVISION OR THE REMAINING PROVISIONS OF
THIS GUARANTY. NO MODIFICATION OR WAIVER OF ANY OF THE
PROVISIONS OF THIS GUARANTY SHALL BE EFFECTIVE UNLESS IN WRITING
AND SIGNED BY THE UNDERSIGNED AND AN OFFICER OF MLBFS.
<PAGE>
MERRILL LYNCH
--------------------------------------------------------------
CERTIFICATE OF SECRETARY
(WCMA LINE OF CREDIT)
THE UNDERSIGNED HEREBY CERTIFIES that the undersigned is the duly
appointed and acting Secretary (or Assistant Secretary) of
AMERICAN ECO/SP CORPORATION, a corporation duly organized,
validly existing and in good standing under the laws of the State
of Delaware, and that the following is a true, accurate and
compared transcript of resolutions duly, validly and lawfully
adopted on the ____ day of ________________,1996 by the Board of
Directors of said corporation acting in accordance with the laws
of the state of incorporation and the charter and by-laws of said
corporation:
"RESOLVED, that it is advisable and in the best interests of
this Corporation that in connection with Working Capital
Management Account No. 582-7596 that this Corporation is
subscribing from Merrill Lynch, Pierce, Fenner & Smith
Incorporated it obtain from MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC. ("MLBFS")a commercial line of credit referred
to by MLBFS as a "WCMA Line of Credit;" and
"FURTHER RESOLVED, that the President, any Vice President,
Treasurer, Secretary or other officer of this Corporation,
or any one or more of them, be and each of them hereby is
authorized and empowered for and on behalf of this
Corporation to: (a) execute and deliver to MLBFS: (i) a WCMA
Note, Loan and Security Agreement and all other agreements,
instruments and documents required by MLBFS in connection
with said Line of Credit, and (ii) any present or future
extensions of and amendments to any of the foregoing; all in
such form as such officer shall approve, as conclusively
evidenced by his signature thereon; (b) grant to MLBFS such
liens and security interests on any of the assets of this
Corporation as collateral therefor and/or the other
obligations of this Corporation to MLBFS as may be required
by MLBFS; and (c) do and perform all such acts and things
deemed by any such officer to be necessary or advisable to
carry out and perform the undertakings and agreements of
this Corporation in connection therewith; and all prior acts
of said officers in these premises are hereby ratified and
confirmed; and
"FURTHER RESOLVED, that MLBFS is authorized to rely upon the
foregoing resolutions until it receives written notice of
any change or revocation, which change or revocation shall
not in any event affect the obligations of this Corporation
with respect to any transaction committed to by MLBFS or
having its inception prior to the receipt of such notice by
MLBFS."
THE UNDERSIGNED FURTHER CERTIFIES that the foregoing resolutions
have not been rescinded, modified or repealed in any manner, and
are in full force and effect as of the date of this Certificate,
and that the following individuals are of the duly elected acting
officers of said corporation:
President: /s/ Michael E. McGinnis Michael E. McGinnis
-------------------------
Vice President: -------------------
Secretary: /s/ John D. Walker John D. Walker
-----------------------
Treasurer:
----------------------------
IN WITNESS WHEREOF, the undersigned has executed this Certificate
and has affixed the seal of said corporation hereto, pursuant to
due authorization, all as of this 27th day of August, 1996.
(CORPORATE SEAL)
/s/ John D. Walker
----------------------------
Secretary
/s/ John D. Walker
----------------------------
Printed Name
EXHIBIT 10.7
-----------
JIM WRIGHT, MARK L. CRAWFORD
AND AARON FINE
- and -
AMERICAN ECO CORPORATION
ACQUISITION AGREEMENT
AND
PLAN OF REORGANIZATION
FOR
ENVIRONMENTAL EVOLUTIONS, INC.
<PAGE>
INDEX TO SCHEDULES
Schedule 4.1(b) - Jurisdictions where Target Company
Carries
on Business
Schedule 4.1(e) - List of Pending and Threatened Legal
Proceedings and Claims
Schedule 4.1(f) - List of Registered Shares and Share
Ownership
Schedule 4.1(m) - Articles and By-Laws of Target Company
Schedule 4.1(m)(1) - Directors and Officers of Target Company
Schedule 4.1(o) - Permits and Licenses of Target Company
Schedule 4.1(p) - Target Company Financial Statements
Schedule 4.1(u) - Dividends and Distributions
Schedule 4.1(x) - Secured and Unsecured Indebtedness of
Target Company
Schedule 4.1(y)(1) - Real Property of Target Company
Schedule 4.1(y)(2) - Personal Property of Target Company
Schedule 4.1(y)(3) - Sales and Purchase Commitments of Target
Company
Schedule 4.1(y)(4) - Leases of Target Company
Schedule 4.1(y)(5) - Intellectual Property of Target Company
Schedule 4.1(y)(6) - Bank Accounts of Target Company
Schedule 4.1(y)(7) - Insurance of Target Company
Schedule 4.1(y)(8) - Major Clients of Target Company
Schedule 4.1(y)(9) - Major Suppliers of Target Company
Schedule 4.1(y)(10) - Target Company's Employee Particulars
Schedule 4.1(aa) - Contracts of Target Company
Schedule 8.1(h) - Aaron Fine Employment Agreement
Schedule 8.1(i) - Jim Wright Employment Agreement
Schedule 8.1(j) - Mark L. Crawford Employment Agreement
<PAGE>
THIS ACQUISITION AGREEMENT AND PLAN OF REORGANIZATION made
as of the 1st day of January, 1996.
B E T W E E N:
JIM WRIGHT, MARK L. CRAWFORD AND AARON FINE
individuals resident and domiciled in the State of
Texas
(collectively the "Shareholders")
OF THE FIRST PART
- and -
AMERICAN ECO CORPORATION
a corporation amalgamated pursuant to the laws of
the Province of Ontario
("ECO")
OF THE SECOND PART
WHEREAS the Shareholders are the owners, in the proportions and
amounts set forth below, of 100% of the issued and outstanding
shares in the capital of the Target Company (as hereinafter
defined) and the Shareholders seek to exchange the Target Company
Shares (as hereinafter defined) solely for voting stock in ECO
and ECO seeks to acquire the Target Company Shares from the
Shareholders, pursuant to this plan of reorganization within the
meaning of 368 (a) (1) (B) of the U.S. Internal Revenue Code of
1986, as amended, all on and subject to the terms and conditions
of this Agreement;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of
the mutual covenants, agreements and premises herein contained
and other good and valuable consideration (the receipt and
sufficiency whereof being hereby acknowledged by each party), the
parties hereto do hereby covenant and agree as follows:
1. DEFINITIONS AND SCHEDULES
-------------------------
1.1 Definitions. In this Agreement:
-----------
"Accounts Receivable" means all accounts receivable and
other book debts due or accruing to the Target Company as at
the Reference Date and the full benefit of all security, if
any, for such accounts or debts.
"Affiliate" has the meaning ascribed thereto in the OBCA.
"Agreement", "this Agreement", "hereto" and "herein" means
this Agreement and all schedules attached hereto, as may be
amended from time to time.
"Associate" has the meaning ascribed thereto in the OBCA.
"Best Knowledge" or "known" means actual knowledge or
awareness of the Party.
"Business Day" means a day other than a Saturday or a Sunday
or any other day which is a statutory holiday in the State
of Texas.
"Closing" means the consummation of the Transaction as
herein contemplated.
"Closing Date" means March 15, 1996 or such earlier or later
date as may be agreed to in writing by the Parties.
"Contract" means any agreement, indenture, contract, bond,
debenture, security agreement, lease, deed of trust,
license, option, instrument or other legally binding
commitment, whether written or oral.
"Direct Claim" has the meaning ascribed thereto in
subsection 6.3.
"ECO" means American ECO Corporation.
"ECO Shares" has the meaning ascribed thereto in Section
2(3).
"EEI" means Environmental Evolutions, Inc., a Texas
corporation
"Encumbrances" means any and all claims, liens, security
interests, mortgages, pledges, pre-emptive rights, charges,
options, equity interests, encumbrances, proxies, voting
agreements, voting trusts, leases, tenancies, easements or
other interests of any nature or kind whatsoever, howsoever
created.
"Five-Year Gain Recognition Agreement" means the agreement
to be executed and delivered by the Shareholders and the
Internal Revenue Service.
"Indemnified Party" has the meaning ascribed thereto in
section 6.3.
"Indemnifying Party" has the meaning ascribed thereto in
section 6.3.
"Indemnification Claim" has the meaning ascribed thereto in
section 6.3.
"Intellectual Property" means all patents, copyrights,
trademarks and trade names, service marks and all software,
data bases, trade secrets, know-how and other proprietary
rights as at the Reference Date.
"Losses" means any and all claims, demands, debts, suits,
actions, obligations, proceedings, losses, damages,
liabilities, deficiencies, costs and expenses (including
without limitation, all reasonable legal and other
professional fees and disbursements, interest, penalties and
amounts paid in settlement).
"Material Adverse Effect" means a material adverse effect on
the business, assets, liabilities, condition (financial or
otherwise), operations or prospects of the Party in question
or upon such Party's ability to perform its obligations
under this Agreement or to consummate the Transaction.
"OBCA" means the Business Corporations Act, Ontario.
"Parties" means collectively, the parties to this Agreement.
"Person" means any individual, partnership, company,
corporation, unincorporated association, joint venture,
trust, the Crown or any other agency or instrumentality
thereof or any other judicial entity or person, government
or governmental agency, authority or entity howsoever
designated or constituted.
"Reference Date" means January 1, 1996.
"Subsidiary" has the meaning ascribed thereto in the OBCA.
"Survival Period" has the meaning ascribed thereto in
section 5.1
"Target Company" means EEI.
"Target Company Contracts" has the meaning ascribed thereto
in section 4.1(aa).
"Target Company Shares" means 100% of the issued and
outstanding shares of capital stock of the Target Company,
registered in the names of the Shareholders, as set forth on
Schedule 4.2(f), hereto.
"Target Company Financial Statements" has the meaning
attributed thereto in section 4.1(p).
"Taxes" means all income, profits, franchise, royalty,
withholding, payroll, excise, sales, value added, use,
occupation and property taxes and any liability, whether
disputed or not, imposed by the U.S. or any state,
municipality, country or foreign government or subdivision
or agency thereof.
"Third Party" has the meaning ascribed thereto in section
6.3.
"Third Party Claim" has the meaning ascribed thereto in
section 6.3.
"Time of Closing" means 11:00 a.m. (Houston time) on the
Closing Date or if the Transaction is not completed at such
time, then such other time on the Closing Date on which the
Transaction is completed.
"Transaction" means the transfer of the Target Company
Shares in exchange for the ECO Shares as contemplated by
this Agreement.
"TSE" means The Toronto Stock Exchange.
1.2 Disclosure. Any fact or circumstance or combination of
----------
facts and/or circumstances disclosed in this Agreement or in any
schedules hereto shall be deemed to be disclosed for all purposes
of this Agreement.
1.3 Act. Any reference in this Agreement to any act, by-law,
---
rule or regulation or to a provision thereof shall be deemed to
include a reference to any act, by-law, rule or regulation or
provision enacted in substitution or amendment thereof.
1.4 Houston Time. Except where otherwise expressly provided in
------------
this Agreement any reference to time shall be deemed to be a
reference to Houston, Texas time.
1.5 Gender and Extended Meanings. In this Agreement words and
----------------------------
personal pronouns relating thereto shall be read and construed as
the number and gender of the party or parties referred to in each
case require and the verb shall be construed as agreeing with the
required word and pronoun. For greater certainty and without
limitation, in this Agreement the word "shall" has the same
meaning as the word "will".
1.6 U.S. Dollars and Payment. All dollar amounts referred to in
------------------------
this Agreement are in U.S. funds, unless otherwise expressly
specified.
1.7 Section Headings. The division of this Agreement into
----------------
sections is for convenience of reference only and shall not
effect the interpretation or construction of this Agreement.
1.8 Business Day. In the event that the date for the taking of
------------
any action under this Agreement falls on a day which is not a
Business Day, then such action shall be taken on the next
following Business Day.
2. AGREEMENT TO EXCHANGE
2.1 Transfer. Subject to the terms and conditions hereof, on
--------
the Closing Date at the Time of Closing, the Shareholders shall
transfer to ECO and ECO shall accept from the Shareholders the
Target Company Shares and the Assets and the Shareholders shall
deliver to ECO certificates representing the Target Company
Shares duly endorsed in blank for transfer together with new
certificates therefor, which shall be as at the Reference Date.
2.2 [Purposely Deleted]
2.3 Purchase Price. The purchase price for the Target Company
--------------
Shares shall equal the sum of $2,400,000.00 and shall be
satisfied by the issuance to the Shareholders of 400,000 fully
paid and non-assessable common shares in the capital of ECO (the
"ECO Shares") issued at $6.00 per share. The ECO Shares shall be
fully tradeable 41 days after the Closing Date provided that the
buyer thereof is not a person in the United States and at the
time the buy order is originated, the buyer is outside the United
States or the Shareholders and any person acting on their behalf
reasonably believe that buyer is outside the United States or the
transaction is executed on or through the facilities of the TSE
and neither the Shareholders nor any person acting on their
behalf knows that the transaction has been pre-arranged with a
buyer in the United States.
2.4 Closing. Closing shall occur at the Time of Closing on the
-------
Closing Date at the offices of Moore, Landrey, Garth, Jones,
Burmeister & Hulett, L.L.P. at 390 Park Street, Suite 500,
Beaumont, Texas, or at such other place or other time and date as
the Parties may agree.
2.5 Rollover. At or within sixty (60) days after Closing, the
--------
Shareholders shall provide to ECO with an executed copy of the
Five-Year Gain Recognition Agreement.
2.6 Release from Personal Guarantees. ECO shall use its best
--------------------------------
efforts to have the Shareholders released from any and all
outstanding personal guarantees of Target Company indebtedness
with all such guarantees being assumed by ECO. In the event ECO
cannot obtain such releases from the lenders of any such
guaranteed indebtedness within forty-five (45) days subsequent to
the Closing Date, ECO shall pay off or otherwise retire such
indebtedness.
3. COVENANTS, REPRESENTATIONS AND WARRANTIES OF ECO
3.1 Covenants, Representations and Warranties. ECO hereby
-----------------------------------------
covenants, represents and warrants to the Shareholders as follows
and acknowledges and confirms that the Shareholders are relying
upon such covenants, representations and warranties in connection
with the Transaction and that unless otherwise indicated herein,
such covenants, representations and warranties shall be true and
correct as at the Closing Date:
(a) Organization. ECO is duly incorporated and validly
------------
subsisting under the laws of the Province of Ontario
and has the corporate power to own or lease its
property and to carry on its business as it is now
being conducted and subject to receipt of requisite
regulatory approval including approval from the TSE
with respect to the Transaction, on the Closing Date
ECO will have the corporate power to execute, deliver
and perform its obligations under this Agreement. ECO
is duly qualified to do business in those jurisdictions
wherein the failure to so qualify could have a Material
Adverse Effect on ECO.
(b) Corporate Authority. Subject to receipt of requisite
-------------------
regulatory approval including approval from the TSE
with respect to the Transaction, on the Closing Date
ECO will have taken all requisite corporate action to
authorize the valid execution, delivery and performance
of this Agreement and the consummation of the
Transaction.
(c) Agreement Enforceable. Subject to receipt of requisite
---------------------
regulatory approval including approval from the TSE
with respect to the Transaction, this Agreement
constitutes a valid and legally binding obligation of
ECO enforceable against ECO in accordance with its
terms.
(d) Securities Laws Matters. The common shares of ECO are
-----------------------
listed and posted for trading on the TSE and on NASDAQ.
ECO is in compliance in all material respects with all
applicable requirements of the TSE and NASDAQ
concerning maintenance of such listings and has
received no notification nor has any reasonable basis
to believe that such listings may or will be
terminated. ECO is a "reporting issuer" under the
Securities Act, Ontario and the Securities Act, Quebec
and is not in material default of any of its
requirements under any such legislation, regulations or
published policies thereunder.
(e) No Violations. Subject to receipt of requisite
-------------
regulatory approval including approval from the TSE
with respect to the Transaction, the execution and
delivery of this Agreement and all other agreements
contemplated herein by ECO and the observance and
performance of the terms and provisions of this
Agreement and any such agreements; (i) does not and
will not require ECO to obtain or make any consent,
authorization, approval, filing or registration under
any law, by-law, rule, regulation, judgment, order,
writ, injunction or decree which is binding upon ECO;
(ii) does not and will not constitute a violation or
breach of the charter documents or by-laws of ECO;
(iii) does not and will not constitute a violation or
breach of applicable law, any material provision of any
Contract to which ECO is a party or by which ECO is
bound or any law, by-law, rule, regulation, judgment,
order, writ, injunction or decree applicable to ECO;
and (iv) does not and will not constitute a material
default (nor would with the passage of time or the
giving of notice or both or otherwise, constitute a
material default) under any Contract, to which ECO is a
party or by which ECO is bound.
(f) Brokers. ECO shall be responsible for the payment of
-------
all brokerage commissions, and finder's fees or other
like payment incurred by ECO in connection with this
transaction, and ECO will indemnify and save harmless
the Shareholders of and from any such claims.
(g) Regulatory Approval. ECO shall diligently take all
-------------------
steps necessary or desirable to expeditiously obtain
requisite approval from the TSE with respect to the
Transaction. ECO shall not take any action that ECO
has reason to believe would result in the disapproval
by the TSE of the Transaction.
(h) Reorganization. The Transaction qualifies as a
--------------
reorganization within the meaning of 368(a)(1)(B) of
the Internal Revenue Code of 1986, as amended, (the
"Code") and no gain or loss shall be recognized by the
Shareholders upon the exchange of their Target Company
Shares for ECO shares provided that Shareholders fully
comply with the undertakings of Shareholders described
in this Agreement and provided that Shareholders comply
with all filing and other requirements imposed upon
them by the Code and the regulations.
4. COVENANTS, REPRESENTATIONS AND WARRANTIES OF THE
SHAREHOLDERS
4.1 Covenants, Representations and Warranties. The Shareholders
-----------------------------------------
hereby jointly and severally covenant, represent and warrant
to ECO as follows and acknowledge and confirm that ECO is
relying upon such covenants, representations and warranties
in connection with the Transaction and that unless otherwise
indicated herein, such covenants, representations and
warranties shall be true and correct as at the Closing Date:
(a) Legal Capacity. The Shareholders have the legal
--------------
capacity and competence to execute, deliver and perform
their obligations under this Agreement.
(b) Organization. The Target Company is duly incorporated
------------
and validly subsisting under the laws of the State of
Texas and has the corporate power to own or lease its
property and to carry on its business as it is now
being conducted and has the corporate power to execute,
deliver and perform its obligations under this
Agreement. The Target Company is duly qualified to do
business in those jurisdictions wherein the failure to
so qualify could have a Material Adverse Effect on the
Target Company, being those jurisdictions set forth on
Schedule 4.1(b).
(c) Corporate Authority. The Target Company has taken all
-------------------
requisite corporate action to authorize the valid
execution, delivery and performance of this Agreement
and the consummation of the Transaction.
(d) No Violations. The execution and delivery of this
-------------
Agreement and all other agreements contemplated herein
by the Shareholders and the observance and performance
of the terms and provisions of this Agreement and any
such agreements; (i) does not and will not require the
Shareholders or the Target Company to obtain or make
any consent, authorization, approval, filing or
registration under any law, by-law, rule, regulation,
judgment, order, writ, injunction or decree which is
binding upon the Shareholders or the Target Company;
(ii) does not and will not constitute a violation or
breach of the charter documents or by-laws of the
Target Company; (iii) does not and will not constitute
a violation or breach of applicable law, any material
provision of any Contract to which the Shareholders or
the Target Company is a party or by which the
Shareholders or the Target Company is bound or any law,
by-law, rule, regulation, judgment, order, writ,
injunction or decree applicable to the Shareholders or
the Target Company; (iv) does not and will not
constitute a default (nor would with the passage of
time or the giving of notice or both or otherwise,
constitute a default) under any Contract, to which the
Shareholders or the Target Company is a party or by
which the Shareholders or the Target Company is bound;
and (v) does not and will not result in the creation or
imposition of any Encumbrance on the Target Company
Shares or any property or assets of the Shareholders or
the Target Company.
(e) Issued Shares. All of the issued and outstanding
-------------
shares of the Target Company, being the Target Company
Shares, have been duly authorized, created and issued
as fully paid and non-assessable shares. There are
outstanding no other shares, warrants, rights or
securities convertible into shares or any other
evidence whatsoever of an interest in the Target
Company.
(f) Owner of the Target Company Shares. The Shareholders
----------------------------------
are the owners beneficially and of record of the Target
Company Shares in the amounts and proportions
identified on Schedule 4.1(f), hereto, and have good
and marketable title thereto, free and clear of any
Encumbrances and/or preemptive rights. The Shareholders
have the exclusive right and full power to transfer the
Target Company Shares to ECO as herein contemplated,
free and clear of any Encumbrances.
(g) Subsidiaries. The Target Company has no Subsidiaries
------------
and owns no shares of any other corporation or entity
nor any rights, warrants or other securities
convertible into shares of any other corporation or
entity. The Target Company is not bound by or a party
to any Contract which contemplates its amalgamation,
merger, consolidation or other acquisition with or by
any other entity.
(h) Acts of Bankruptcy. Neither the Shareholders nor the
------------------
Target Company is insolvent, has proposed a compromise
or arrangement to its or their creditors generally, has
taken any proceeding with respect to a compromise or
arrangement, has taken any proceeding to have itself
declared bankrupt or wound-up, has taken any proceeding
to have a receiver appointed of any part of their
assets and at present, no encumbrancer or receiver has
taken possession of any of their property and no
execution or distress is enforceable or levied upon any
of its property and no petition for a receiving order
in bankruptcy is filed against them.
(i) Private Company. The Target Company does not
---------------
distribute its securities to the public.
(j) Resident. Each of the Shareholders is a resident of
--------
the United States. The Target Company's principal
place of business is within the United States.
(k) Actions - Target Company Shares. There is not pending
-------------------------------
or, to the Best Knowledge of the Shareholders,
threatened or contemplated, any suit, action, legal
proceeding, litigation or governmental investigation of
any sort which would; (i) in any manner restrain or
prevent the Shareholders from effectually and legally
transferring the Target Company Shares to ECO in
accordance with this Agreement; (ii) cause an
Encumbrance to attach to the Target Company Shares;
(iii) divest title to the Target Company Shares in any
manner whatsoever; or (iv) make ECO liable for damages
in connection with the Transaction.
(l) Litigation. Except as set forth on Schedule 4.1(e),
----------
there is not pending, or, to the Best Knowledge of the
Shareholders, threatened or contemplated, any suit,
action, legal proceeding, litigation or governmental
investigation of any sort relating to the Shareholders,
the Target Company or the Transaction nor is there any
present state of facts or circumstances which can be
reasonably anticipated to be a basis for any such suit,
action, legal proceeding, litigation or governmental
investigation nor is there presently outstanding
against the Shareholders or the Target Company any
judgment, decree, injunction, rule or order of any
court, governmental department, commission, agency,
instrumentality or arbitrator.
(m) Minute Books. The minute book of the Target Company
------------
contains accurate and complete copies of its
organizational documents together with minutes of all
meetings of directors, committees and shareholders of
the Target Company. The articles and the by-laws of
the Target Company are attached as Schedule 4.1(m).
There are outstanding no applications or filings which
would alter in any way the organizational documents or
corporate status of the Target Company. No resolutions
or by-laws have been passed, enacted, consented to or
adopted by the directors or shareholders of the Target
Company except as are contained in the minute book of
the Target Company. The directors and officers of the
Target Company are as set forth on Schedule 4.1(m)(1).
(n) Books of Account. The books of account and financial
----------------
records of the Target Company fairly set out and
disclose in all material respects, the current
financial position of the Target Company. All material
transactions involving the Target Company have been
accurately recorded in such books and records. All
bonuses, commissions and other payments relating to the
employees of the Target Company are reflected in the
books of the Target Company in a manner consistent with
past record keeping practices and none of such payables
are in arrears.
(o) Permits and Licenses. The Target Company has all
--------------------
necessary permits, certificates, licenses, approvals,
consents and other authorizations required to carry on
and conduct business and to own, lease or operate its
assets at the places and in the manner in which such
business is conducted. Schedule 4.1(o) contains a
full, complete and accurate list of such permits,
certificates, licenses, approvals, consents and other
authorizations.
(p) Financial Statements. A true copy of the unaudited
--------------------
financial statements of the Target Company and the
statements of operations (the "Target Company Financial
Statements") of the Target Company as of December 31,
1995, is annexed hereto as Schedule 4.1(p). The Target
Company Financial Statements:
(1) Have been prepared in accordance with U.S.
generally accepted accounting principles applied
on a basis consistent with those of the preceding
fiscal period.
(2) Present fairly the assets, liabilities and
financial position of the Target Company as of
December 31, 1995, and the results of operations
for the period then ended subject to normal year
end adjustments, if applicable. Other than the
liabilities specified in the balance sheet forming
part of the Target Company Financial Statements or
incurred since the Reference Date in the ordinary
course of business (all of which is consistent
with past practice) or otherwise noted or
disclosed in this Agreement, to the Best Knowledge
of the Shareholders, there are no known
liabilities or obligations of the Target Company
(whether absolute, contingent or otherwise)
including without limitation, any Tax liabilities
due or to become due or contingent losses for
unasserted claims which are capable of assertion.
(3) Are substantially in accordance with the books and
records of the Target Company.
(4) Contain and reflect all necessary adjustments for
a fair presentation of the results of operations
and financial position of the Target Company for
the period covered thereby.
(5) Contain and reflect adequate provision or
allowance for all reasonably anticipated
liabilities, expenses and losses of the Target
Company.
(q) Guarantees. The Target Company does not have any
----------
outstanding guarantees or has any outstanding security
for any liability, debt or obligation of any Person.
(r) Bonds, Debentures. The Target Company does not have --
---------------
any outstanding bonds, debentures or other indebtedness
or is under any agreement to create or issue any bonds,
debentures or other indebtedness.
(s) No Further Expenditures. No capital expenditures or
-----------------------
leasehold improvements have been made by the Target
Company since the date of the Target Company Financial
Statements, other than in the ordinary course of
business.
(t) Related Parties. Except as disclosed on Schedule 4.1
---------------
(aa), since the Reference Date, the Target Company has
not made any payment or loan to or borrowed any moneys
from and is not otherwise indebted to, any officer,
director, employee, shareholder or any other Person not
dealing at arm's length with the Target Company. The
Target Company is not a party to any Contract with any
officer, director, employee, shareholder or any other
Person not dealing at arm's length with the Target
Company. No officer, director or shareholder of the
Target Company and no entity that is an Affiliate or
Associate of one or more of such individuals:
(1) Owns, directly or indirectly, any interest in
(except for shares representing less than 2% of
the outstanding shares of any class of securities
of any publicly traded company) or is an officer,
director, employee or consultant of, any Person
which is or is engaged in business as a competitor
of the Target Company or a lessor, lessee, client
or supplier of the Target Company.
(2) Owns, directly or indirectly, in whole or in part,
any property that the Target Company uses in the
operation of its business.
(3) Has any cause of action or any other claims
whatsoever against or owes any amount to the
Target Company.
(u) Dividends or Distributions. Except as disclosed on
--------------------------
Schedule 4.1(u), no dividends or other distributions on
any of the shares in the capital of the Target Company
have been authorized, declared or paid since the date
of the Target Company Financial Statements and there
has not been any direct or indirect redemption,
purchase or acquisition of any such shares.
(v) No Changes. Since the Reference Date, the Target
----------
Company has carried on business and conducted its
operations and affairs only in the ordinary and normal
course consistent with past practice and there has not
been:
(1) Any material adverse change in the condition
(financial or otherwise), assets, liabilities,
operations, earnings, business or prospects of the
Target Company.
(2) Any damage, destruction or loss (whether or not
covered by insurance) affecting the property or
assets of the Target Company or any failure to
regularly maintain and repair such property and
assets in the ordinary course of business.
(3) Any payment, discharge or satisfaction of any
Encumbrance, liability or obligation of the Target
Company (whether absolute, accrued, contingent or
otherwise and whether due or to become due)
greater than $1,000.00 other than payment of
accounts payable and Tax liabilities incurred in
the ordinary course of business consistent with
past practice.
(4) Any issuance or sale by the Target Company or any
Contract entered into by the Target Company for
the issuance or sale by the Target Company of any
shares in the capital of or securities convertible
into or exercisable into shares in the capital of
the Target Company.
(5) Any labor disturbances have a Material Adverse
Affect on the Target Company.
(6) Any license, sale, assignment, transfer,
disposition, pledge, mortgage or granting of a
security interest or other Encumbrance on or over
any property or assets of the Target Company other
than in the ordinary course of business.
(7) Any write-off as uncollectible of any Accounts
Receivable or any portion there of the Target
Company in amounts exceeding the allowance set out
in the Target Company Financial Statement.
(8) Any cancellation of any other debts or claims or
any amendment, termination or waiver of any other
rights of value to the Target Company in amounts
exceeding $1,000.00 in each instance or $5,000.00
in the aggregate.
(9) Any general increase in the compensation of
employees of the Target Company (including without
limitation, any increase pursuant to any employee
plan or commitment) or any increase in any such
compensation or bonus payable to any officer,
employee, consultant or agent thereof (having an
annual salary or remuneration in excess of
$30,000.00), the execution of any employment
contract with any officer or employee (having an
annual salary or remuneration in excess of
$30,000.00) or the making of any loan to or
engagement in any transaction with any employee,
officer or director of the Target Company.
(10) Any material change in the accounting or tax
practices followed by the Target Company.
(11) Any material change adopted in the depreciation or
amortization policies or rates or any material
change in the credit terms offered to customers of
or by suppliers to the Target Company.
(12) Any acquisition, transfer, assignment, sale or
other disposition of any of the assets shown in
the Target Company Financial Statements other than
in the ordinary course of business.
(13) Any institution or settlement of any litigation,
action or proceeding before any court or
governmental body by or against the Target
Company.
(14) The creation of any debts and/or liabilities
whatsoever (whether accrued, absolute, contingent
or otherwise) than in the ordinary course of
business.
(w) Taxes. Except as reserved for in the Target Company
-----
Financial Statements:
(1) All returns, including reports of every kind with
respect to Taxes, which are due to have been filed
by the Target Company in accordance with
applicable law, have been duly filed by the dates
prescribed by law and are complete and accurate.
(2) All Taxes, deposits or other payments for which
the Target Company may have any liability arising
prior to Closing have been paid in full or accrued
as liabilities for Taxes on the books of the
Target Company.
(3) All installments for Taxes which the Target
Company may be required to make have been made on
a timely basis.
(4) The amount so paid on or before the Reference Date
together with any amounts accrued as liabilities
for Taxes (whether accrued as currently payable or
deferred taxes) on the books and in the Target
Company Financial Statements will be adequate to
satisfy all liabilities for Taxes of the Target
Company in any jurisdiction in respect of the
periods covered.
(5) There are not now any extensions of time in effect
with respect to the dates on which any returns,
including elections, or reports of Taxes were or
are due to be filed by the Target Company and
there are no outstanding requests therefor.
(6) All assessments or reassessments of Taxes asserted
as a result of any examination of any return or
report of Taxes have been paid by the Target
Company, have been accrued on the books of the
Target Company and in the Target Company Financial
Statements or finally settled and no issue has
been raised in any such examination which, by
application of the same or similar principles,
reasonably could be expected to result in a
proposed deficiency for any other period not so
examined.
(7) No payments are or will be required to be made by
the Target Company pursuant to any tax indemnity,
allocation or sharing agreement and all such
agreements will be terminated with respect to the
Target Company as of the Reference Date.
(8) No claims, proposals, assessments or reassessments
for any Taxes are being asserted or, to the Best
Knowledge of the Shareholders, proposed or
threatened and, to the Best Knowledge of the
Shareholders, no audit or investigation of any
return or report of Taxes is currently under way,
pending or threatened.
(9) There are no outstanding waivers or agreements by
the Target Company for the extension of time for
the assessment or reassessment of any Taxes or
deficiency thereof nor are there any requests for
rulings, outstanding subpoenas or requests for
information, notice of proposed reassessment of
any property owned or leased by the Target Company
or any other matter pending between the Target
Company and any taxing authority.
(10) There are no liens for Taxes upon the Target
Company shares or upon any property or assets of
the Target Company except liens for current Taxes
not yet due.
(11) To the Best Knowledge of the Shareholders there
are no facts which exist or have existed which
would constitute grounds for the assessment of any
Taxes of the Target Company with respect to the
periods which have not been audited by the
Internal Revenue Service or other taxing
authorities.
(12) The Target Company has withheld from each payment
made to its officers, directors and employees and
former officers, directors and employees, the
amount of all Taxes and other deductions required
to be withheld therefrom and has paid the same to
the proper tax and other receiving officers within
the time required under applicable legislation.
(13) Adequate provision, including provision in the
deferred tax account, has been made for all
deferred and accrued Tax liabilities with respect
to operations of the Target Company for the period
ending on the Reference Date.
(14) The Target Company and the Shareholders have made
provision for the filing with the Internal Revenue
Service of all necessary statements and consents
required to revoke the status of the Target
Company as an S Corporation, effective for the
Target Company's fiscal year beginning January 1,
1996.
(x) Assets. The Target Company has good and
------
marketable title to all of its assets as reflected
on the Target Company Financial Statements, free
and clear of all Encumbrances save and except for
those assets sold, assigned, transferred or
disposed of in the ordinary course of business and
save and except for the encumbrances identified in
Schedule 4.1(x), hereto.
(y) Schedules. The Schedules hereto contain full,
---------
complete and accurate lists and descriptions of
the following as at the Reference Date:
(1) Schedule 4(y)(1): All real property owned of
record or beneficially of the Target Company.
(2) Schedule 4.1(y)(2): All items of tangible personal
property (other than raw material, purchased
parts, work in process, finished goods and other
items of inventory), if any, not reflected on any
other Schedule hereto having a book value of
$200.00 or more and owned of record or
beneficially by the Target Company, including
without limitation, automobiles, trucks and other
vehicles.
(3) Schedule 4.1(y)(3): All purchase commitments of
the Target Company where the amount remaining
unpaid is in excess of $500.00 and all sales
commitments where the total value of the
commitment which is presently unpaid exceeds
$1,000.00 of the Target Company.
(4) Schedule 4.1(y)(4): Each lease (including all
amendments thereto) where the total amount
remaining to be paid thereunder exceeds $500.00
under which the Target Company is a lessee of any
personal property and each real property lease.
All rentals due under all such leases have been
paid up to and including the Reference Date and
there are no defaults by the Target Company under
the terms of such leases and no event has occurred
which, upon the passage of time or the giving of
notice or both would result in an event of default
by the Target Company or would prevent the Target
Company from exercising and obtaining the benefits
of any rights or options contained therein. The
Target Company has all right, title and interest
of the lessee under the terms of each such lease
free and clear of any Encumbrances and all such
leases are valid and in full force and effect.
The Transaction does not constitute a default by
the Shareholders or the Target Company under any
such leases and the consent of the lessors under
such leases is not required with respect to this
Transaction.
(5) Schedule 4.1(y)(5): All Intellectual Property that
is directly or indirectly owned, licensed, used,
required for use or controlled in whole or in part
by the Target Company and the Shareholders and all
material licenses and other agreements allowing
the Target Company and the Shareholders to use the
Intellectual Property of other Persons. None of
the Intellectual Property of the Target Company
and the Shareholders infringes upon the
Intellectual Property of any other Person and to
the Best Knowledge of the Shareholders, no
activity of any other Person infringes upon any of
the Intellectual Property of the Target Company or
the Shareholders to the extent that any such
infringement in either case could have a Material
Adverse Effect on the Target Company or the
Shareholders. To the Best Knowledge of the
Shareholders, the Target Company has been and is
now conducting business in a manner which has not
been and is not now in violation of any
Intellectual Property of any other Person and does
not require a material license to operate such
business as currently conducted except as
disclosed on Schedule 4.1(o). The Intellectual
Property of the Target Company is sufficient for
the conduct of business of the Target Company as
currently conducted.
(6) Schedule 4.1(y)(6): The name and address of each
bank, trust company or other financial institution
in which the Target Company has an account and the
names of all Persons authorized to draw thereon as
well as all powers of attorney granted by the
Target Company.
(7) Schedule 4.1(y)(7): All insurance policies now in
full force and effect (specifying the insurer, the
amount of coverage, type of insurance, the amount
of deductible if any, the policy number, expiry
date and any pending claims thereunder) maintained
by the Target Company on its assets including
without limitation, business interruption,
personal and product liability coverage and by the
Target Company on the lives of its directors and
officers, together with true copies thereof. The
proceeds of such policies are fully payable to the
Target Company. All premiums in connection with
such policies are fully paid. Such insurance is
in amounts deemed by the Shareholders to be
sufficient for all policy periods prior to the
Reference Date with respect to the assets,
properties, business, operations, products and
services owned or conducted by the Target Company.
There are no claims, actions, suits or proceedings
arising out of or based upon any of such insurance
policies and to the Best Knowledge of the
Shareholders, no basis for any such claim, action,
suit or proceeding exists. The Target Company is
not in default with respect to any provisions
contained in any such insurance policy which would
adversely affect its rights to make any claim
under any such insurance policy.
(8) Schedule 4.1(y)(8): All major clients of the
Target Company (being those clients of the Target
Company accounting for more than 5% of revenues
for the financial year ended on December 31, 1995.
There has been no termination or cancellation of
the business relationship of the Target Company
with any major client or group of major clients.
(9) Schedule 4.1(y)(9): All suppliers or vendors of
products or services to the Target Company
aggregating more than $10,000.00 during the period
ending on the Reference Date, the address of each
such supplier or vendor and the amount sold to the
Target Company during such period.
(10) Schedule 4.1(y)(10):
(a) All written contracts or arrangements for the
employment of any officer, employee, agent or
consultant of the Target Company.
(b) A complete list of all permanent and
full-time employees of the Target Company,
their salaries and wage rates, their
positions and their length of service and
particulars of any Contracts, arrangements or
understandings, written or oral, with them.
(c) All bonus, deferred compensation, severance
or termination pay, insurance, medical,
dental, drug, profit sharing, pension,
retirement, stock option, stock purchase,
hospitalization insurance or other material
plans or arrangements providing employee
benefits to any current or former director,
officer, employee or consultant of the Target
Company and all relevant vacation policies.
(aa) Certain Contracts and Commitments. Schedule 4.1 (aa)
---------------------------------
sets forth a list and description of all contracts,
leases and licenses of the Target Company (the "Target
Company Contracts") not included on any other Schedule.
The enforceability of the Target Company Contracts will
not be affected in any manner by the execution and
delivery of this Agreement or the consummation of the
Transaction. The Target Company is not in default and
there does not exist any event that, with notice or
lapse of time or both, would constitute an event of
default by the Target Company under any of the Target
Company Contracts. None of the Shareholders has
knowledge of any breach or default by any other party
to the Target Company Contracts. A true and complete
copy of each such Target Contract has been delivered to
ECO or will be delivered to ECO prior to the Closing
Date.
(ab) No Other Contracts. For greater certainty and without
------------------
limitation, except as set forth in Schedule 4.1 (aa) or
otherwise herein, the Target Company is not a party to
or bound by any Contract which in any way has or could
have a Material Adverse Effect on the Target Company.
The Contracts set forth in the Schedules hereto are not
subject to renegotiation or cancellation resulting from
the Transaction. Except as described in the Schedules,
the Target Company is not a party to or bound by:
(1) Any Contract for the purchase of materials,
supplies, equipment or services which involves the
payment of $1,000.00 or more.
(2) Any Contract for the sale, license or provision of
any assets or services which involve the receipt
of $1,000.00 or more.
(3) Any trust indenture, mortgage, promissory note,
loan agreement, guarantee or other Contract for
the borrowing of money or a leasing transaction of
the type required to be capitalized in accordance
with generally accepted accounting principles.
(4) Any Contract for charitable contributions in
excess of $500.00 in the aggregate.
(5) Any Contract relating to a distributorship, sales
representative or sales agency agreement.
(6) Any Contract which involves the sharing of
profits, a joint venture, partnership, joint
development or bidding arrangement or any material
advertising contracts.
(7) Any Contract not made in the ordinary course of
business.
(8) Any Contract restricting in any manner the conduct
of the Target Company or the ownership or use of
the assets thereof.
(9) Any material warranties relating to products
distributed or services provided by the Target
Company.
(10) Any Contract involving the payment or receipt of
$5,000.00 or more in any 12 month period.
(11) Any Contract required to be disclosed on a
Schedule to this Agreement that is not so
disclosed.
(ac) Default of Contracts. The Target Company has performed
--------------------
all of the obligations required to be performed by it
to the extent performance is due and is entitled to all
benefits under and is not in default or alleged to be
in default in respect of, any Contract to which it is a
party or by which it is bound. No event, condition or
occurrence exists that, after notice or lapse of time
or both, would constitute a default under any of such
Contracts. The Target Company has the capacity,
including the necessary personnel, equipment and
supplies, to materially perform all its obligations
under all such Contracts.
(ad) Compliance with Laws. The Target Company has conducted
--------------------
and is now conducting business in compliance with all
statutes, regulations, by-laws, orders, covenants,
restrictions or plans of all federal, state or
municipal authorities, agencies or boards applicable to
such business. The Target Company is not in default
under any such statutes, regulations, by-laws, orders,
covenants, restrictions or plans applicable to it.
Neither the Target Company nor any of its directors,
officers, agents, employees or other Persons acting on
behalf of the Target Company have, directly or
indirectly, used any corporate funds of the Target
Company for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to
political activity, made any unlawful payments on
behalf of the Target Company to foreign or domestic
government officials or employees or to foreign or
domestic political parties or campaigns from corporate
funds, knowingly made any false or fictitious entry on
the books or records of the Target Company or made any
bribe, rebate, payoff, influence payment, kickback or
other unlawful payment on behalf of the Target Company.
(ae) Leased Premises. The occupation and use to which the
---------------
leased premises of the Target Company have been put by
the Target Company is not in breach of any applicable
statute, by-law, regulation, covenant or restriction
applicable to the leased premises. The zoning by-laws
applicable to the leased premises of the Target Company
permit the operation of business and the intended use
to be made of the leased premises by the Target
Company. There are no outstanding work orders against
the leased premises of the Target Company or any part
thereof nor are there any matters under discussion
between the Target Company and any governmental or
municipal authority which may give rise to work orders.
(af) Environmental Matters. To the Best Knowledge of the
---------------------
Shareholders, the buildings and premises at which the
Target Company carries on business does not contain any
material quantities of noxious substances including
without limitation, urea formaldehyde foam insulation,
aluminum wiring, asbestos, materials containing
asbestos, polychlorinated byphenyls or substances
containing polychlorinated byphenyls or radon at levels
deemed unacceptable by any health, labor or
environmental authority or any federal, state or
municipal government. The operations of the Target
Company in all material respects complies with all
applicable environmental statutes, regulations and
decrees, whether federal, state or municipal. The
Target Company has not received any notices to the
effect that the business carried on by the Target
Company is not in compliance with the requirements of
applicable environmental statutes, regulations or
decrees or is subject to any remedial control or action
or any investigation or evaluation as to whether any
remedial action is required to respond to a release or
threatened release of any contaminant into the
environment or into any facility or structure which
forms part of or is adjacent to the leased premises at
which the business is carried on.
(ag) Employee Plans and Arrangements. All of the contracts,
-------------------------------
plans and arrangements referred to in Schedule
4.1(y)(10) are in good standing and the Target Company
has made all payments required to be made by it in
connection therewith. All employee plans requiring
funding on the part of the Target Company are fully
funded. The Target Company does not have any employees
receiving or claiming long term disability benefits or
workers' compensation benefits. No notice has been
received by the Target Company of any complaints filed
by any employees claiming that the Target Company has
violated any applicable employee or human rights or
similar legislation in any other jurisdiction in which
the Target Company carries on business or of any
complaints or proceedings of any kind involving the
Target Company or any employees of the Target Company
before any labor relations board. There are no
outstanding orders or charges against the Target
Company under any applicable heath and safety
legislation in the jurisdictions in which the Target
Company carries on business. All levies, assessments
and penalties made against the Target Company pursuant
to any applicable workers' compensation legislation in
any jurisdictions in which any of the Target Company
carries on business have been paid by the Target
Company and the Target Company has been reassessed
under any such legislation during the past 3 years.
The Target Company has not made any agreements with any
labor union or employee association or made commitments
to or conducted negotiations with any labor union or
employee association with respect to any future
agreements and none of the Shareholders is aware of any
current attempts to organize or establish any labor
union or employee association relating to the Target
Company. The Target Company has not entered into any
agreement or made any arrangements with any employees
and consultants which would have the effect of
depriving the Target Company of the continued services
of any such employees and consultants following the
Closing.
(ah) No Brokers. All negotiations relating to this
---------
Agreement and the Transaction have been carried on by
the Shareholders directly with ECO without the
intervention of any other Person on behalf of the
Shareholders in such manner as to give rise to any
valid claim against ECO for a brokerage commission,
finder's fee or other like payment and the Shareholders
will indemnify and save harmless ECO of and from any
such claim.
(ai) Omissions and Misrepresentations. None of the
--------------------------------
foregoing covenants, representations and warranties
knowingly contains any untrue statement of material
fact or knowingly omits to state any material fact
necessary to make any such covenant, warranty or
representation not misleading to a prospective
purchaser of the Target Company Shares and the Assets
seeking full information as to the Target Company.
5. SURVIVAL OF COVENANTS, REPRESENTATIONS AND WARRANTIES
-----------------------------------------------------
5.1 Survival. No investigations made by or on behalf of any
--------
Party at any time shall have the effect of waiving, diminishing
the scope of or otherwise affecting any covenant, representation
or warranty made by any Party. No waiver by any Party of any
condition, in whole or in part, shall operate as a waiver of any
other condition. The covenants, representations and warranties
contained in Article 3 and 4 respectively or in any certificate
or other document delivered in connection with the Closing shall
survive the making of this Agreement and the Closing for a period
of 2 years and only 2 years, except the representations and
warranties set forth in Paragraphs (h) Reorganization of Section
3.1 and Section 4.1(w) Taxes and Section 4.1(af) Environmental
Matters, which representations and warranties shall survive the
Closing for a period of 5 years and only 5 years (the applicable
period of survival being herein referred to as the "Survival
Period"); provided, however, that if a claim for a breach of any
such covenant, representation or warranty is brought prior to the
expiration of the applicable Survival Period such covenant,
representation or warranty shall, for the purposes of such claim,
survive the applicable Survival Period until such claim is
finally resolved and all obligations with respect thereto have
been fully satisfied.
6. INDEMNITY
---------
6.1 Indemnity by ECO. ECO agrees to indemnify and save harmless
----------------
the Shareholders from all Losses actually incurred by the
Shareholders as a result of any breach by ECO or any inaccuracy
of any covenant, representation or warranty contained in this
Agreement.
6.2 Indemnity by the Shareholders. Each of the Shareholders
-----------------------------
agree to jointly and severally indemnify and save harmless ECO
from all Losses actually incurred by ECO as a result of:
(a) Any breach by the Shareholders or any inaccuracy of any
covenant, representation or warranty contained in this
Agreement.
(b) All debts and liabilities whatsoever (whether accrued,
absolute, contingent or otherwise) of the Target
Company as at the Reference Date which are not
disclosed on, provided for or included in the balance
sheets forming part of the Target Company Financial
Statements or which did not arise in the ordinary
course of business since the date of the Target Company
Financial Statements up to the Time of Closing.
(c) Any assessment or reassessment of Taxes, interest
and/or penalties for any period up to the Reference
Date for which no adequate reserve has been provided
and disclosed in the Target Company Financial
Statements;
provided, however, that the liability of each of the Shareholders
under this indemnity shall be limited to the value at Closing of
the pro rata portion of the purchase price received by each
Shareholder.
6.3 Notice of Claims
----------------
(a) In the event that a Party (the "Indemnified Party")
shall become aware of any Loss in respect of which
another Party (the "Indemnifying Party") agreed to
indemnify the Indemnified Party pursuant to this
Agreement (the "Indemnification Claim"), the
Indemnified Party shall promptly give written notice
thereof to the Indemnifying Party. Such notice shall
specify whether the Indemnification Claim arises as a
result of a claim by a Person against the Indemnified
Party (a "Third Party Claim") or whether the Loss does
not so arise (a "Direct Claim") and shall also specify
with reasonable particularity (to the extent that the
information is available) the factual basis for the
Indemnification Claim and the amount of the Loss if
known.
(b) If through the fault of the Indemnified Party the
Indemnifying Party does not receive notice of any
Indemnification Claim in time to contest effectively
the determination of any liability susceptible of being
contested, the Indemnifying Party shall be entitled to
set off against the amount claimed by the Indemnified
Party the amount of any Losses incurred by the
Indemnifying Party resulting from the Indemnified
Party's failure to give such notice on a timely basis.
6.4 Investigation of Claims. With respect to any Direct Claim,
-----------------------
following receipt of notice from the Indemnified Party of the
Indemnification Claim, the Indemnifying Party shall have 60 days
to make such investigation of the Indemnification Claim as is
considered necessary or desirable. For the purpose of such
investigation, the Indemnified Party shall make available to the
Indemnifying Party the information relied upon by the Indemnified
Party to substantiate the Indemnification Claim, together with
all such other information as the Indemnifying Party may
reasonably request. If all Parties agree at or prior to the
expiration of such 60 day period (or any mutually agreed upon
extension thereof) to the validity and amount of such
Indemnification Claim, the Indemnifying Party shall immediately
pay to the Indemnified Party the full agreed upon amount of the
Indemnification Claim, failing which the matter shall be
determined by a court of competent jurisdiction.
6.5 Supplemental Rights. The rights and benefits provided in
-------------------
this Article are supplemental to and are without prejudice to any
other rights, actions or causes of action which may arise
pursuant to any other section of this Agreement or pursuant to
applicable law.
7. PRE-CLOSING COVENANTS
7.1 Operations Before Closing. For greater certainty and
-------------------------
without limitation, without the prior written consent of ECO
during the period commencing on the Reference Date and
terminating at the close of business on the Closing Date, the
Shareholders; (i) shall not make nor shall the Shareholders
permit to be made any material change in the way the Target
Company is being operated; and (ii) shall comply with all laws in
connection with the business of the Target Company.
8. CONDITIONS PRECEDENT TO THE SHAREHOLDERS' OBLIGATIONS AT
--------------------------------------------------------
CLOSING
-------
8.1 Conditions Precedent. All obligations of the Shareholders
--------------------
to sell the Target Company Shares and the Assets at Closing under
this Agreement are subject to the fulfillment (or waiver in
writing by the Shareholders) prior to or at the Closing of each
of the following conditions:
(a) Covenants, Representations and Warranties. The
-----------------------------------------
covenants, representations and warranties made by ECO
in or under this Agreement shall be true in all
material respects on and as of the Closing Date and the
Shareholders shall have received from ECO a certificate
signed as of the Closing Date to such effect.
(b) Actions, Etc. All actions, proceedings, instruments
------------
and documents required to carry out the Transaction
including without limitation the issue of the ECO
Shares as contemplated in this Agreement and all other
related legal matters shall have been approved by the
Shareholders and the Shareholders shall have been
furnished with such certified copies of actions and
proceedings and other such instruments and documents as
the Shareholders shall have requested.
(c) Approvals. ECO shall have received all requisite
---------
regulatory approvals including approvals of the TSE and
board of director approvals in connection with the
Transaction.
(d) Compliance with Covenants. ECO shall have complied ---
----------------------
with all covenants and agreements herein agreed to be
performed or caused to be performed by ECO.
(e) Approvals and Consents. At or before Closing there ---
-------------------
shall have been obtained from all appropriate federal,
state, provincial, municipal or other governmental or
administrative bodies all such approvals and consents,
if any, in form and on terms satisfactory to the
Shareholders as may be required in order to permit the
issue of the ECO Shares as provided in this Agreement.
(f) Corporate Authorizations. ECO shall have delivered to
------------------------
the Shareholders evidence satisfactory to the
Shareholders that all necessary corporate
authorizations by ECO authorizing and approving the
Transaction have been obtained. The Closing ECO Shares
shall have been duly authorized, created and validly
issued as fully paid and non-assessable shares free and
clear of all Encumbrances and shall be listed and
posted for trading on the TSE and NASDAQ, subject only
to routine filings and subject to the matters contained
in this Agreement.
(g) No Orders. No order of any court or administrative
---------
agency shall be in effect which restrains or prohibits
the Transaction and no suit, action, inquiry,
investigation or proceeding in which it will be or it
is sought to restrain, prohibit or change the terms of
or obtain damages or other relief in connection with
the Transaction and which in the reasonable judgment of
the Shareholders makes it inadvisable to proceed with
the consummation of the Transaction shall have been
made, instituted or threatened by any Person.
(h) Employment Agreement - Jim Wright. EEI shall have
---------------------------------
entered into an employment agreement with Jim Wright in
the form set out in Schedule 8.1(h).
(i) Employment Agreement - Mark Crawford. EEI shall have
------------------------------------
entered into an employment with Mark Crawford in the
form set out in Schedule 8.1(i).
(j) Employment Agreement - Aaron Fine. EEI shall have
---------------------------------
entered into an employment agreement with Aaron Fine in
the form set out in Schedule 8.1(j).
In case any of the foregoing conditions cannot be fulfilled
at or before the Time of Closing to the reasonable satisfaction
of the Shareholders, the Shareholders may rescind this Agreement
by notice to ECO and in such event all of the Parties shall be
released from all obligations hereunder. Provided however that
any such conditions may be waived in whole or in part by the
Shareholders without prejudice to the Shareholders' rights of
rescission in the event of the non-fulfillment of any other
condition or conditions, any such waiver to be binding on the
Shareholders only if the same is in writing.
9. CONDITIONS PRECEDENT TO ECO'S OBLIGATIONS AT CLOSING
----------------------------------------------------
9.1 Conditions Precedent. All obligations of ECO to purchase
--------------------
the Target Company Shares this Agreement are subject to the
fulfillment (or waiver in writing by ECO) prior to or at the
Closing of each of the following conditions:
(a) Actions, Etc. All actions, proceedings, instruments
------------
and documents required to carry out the Transaction
including without limitation, the transfer of the
Target Company Shares and all other related legal
matters shall have been approved by ECO and ECO shall
have been furnished with such certified copies of
actions and proceedings and other such instruments and
documents as ECO shall have requested.
(b) Covenants, Representations and Warranties. The
-----------------------------------------
covenants, representations and warranties made by the
Shareholders in or under this Agreement shall be true
in all material respects on and as of the Closing Date
and ECO shall have received from the Shareholders a
certificate signed as of the Closing Date and to such
effect.
(c) Approvals. ECO shall have received all requisite
---------
regulatory approval including without limitation
approvals of TSE and board of director approvals in
connection with the Transaction.
(d) Resignations. All of the directors and officers of the
------------
Target Company shall have resigned as directors and
officers of the Target Company in favor of nominees of
ECO and the resigning directors and officers of the
Target Company shall have delivered releases to the
Target Company and ECO in form and substance.
(e) Compliance with Covenants. The Shareholders shall have
-------------------------
complied with all covenants and agreements herein
agreed to be performed or caused to be performed by the
Shareholders.
(f) Approvals and Consents. At or before Closing there ---
-------------------
shall have been obtained from all appropriate federal,
state, municipal or other governmental or
administrative bodies all such approvals and consents,
if any, in form and on terms reasonably satisfactory to
ECO as may be required in order to transfer the Target
Company Shares at Closing as herein provided.
(g) Permits and Licenses. ECO shall have been furnished
--------------------
with evidence that the Target Company holds all valid
permits and licenses as may be requisite for carrying
on business.
(h) Corporate Authorizations. The Shareholders shall have
------------------------
delivered to ECO evidence satisfactory to ECO that all
necessary corporate authorizations by the Shareholders
and the Target Company authorizing and approving the
Transaction have been obtained.
(i) No Orders. No order of any court or administrative
---------
agency shall be in effect which restrains or prohibits
the Transaction and no suit, action, inquiry,
investigation or proceeding in which it will be or it
is sought to restrain, prohibit or change the terms of
or obtain damages or other relief in connection with
the Transaction and which in the judgment of ECO makes
it inadvisable to proceed with the consummation of the
Transaction shall have been made, instituted or
threatened by any Person.
(j) Undertaking. The Shareholders shall have executed and
-----------
delivered to ECO an undertaking concerning those
matters to which the Shareholders covenanted in the
Five Year Gain Recognition Agreement in the form set
out in Schedule 9.1(k).
(k) Employment Agreement - Jim Wright. EEI shall have
---------------------------------
entered into a 36-month employment agreement with Jim
Wright in the form set out in Schedule 8.1(h).
(l) Employment Agreement - Mark L. Crawford. EEI shall
---------------------------------------
have entered into a 36-month employment with Mark L.
Crawford in the form set out in Schedule 8.1(i).
(m) Employment Agreement - Aaron Fine. EEI shall have
---------------------------------
entered into a 36-month employment contract with Aaron
Fine in the form set out in Schedule 8.1(j).
In case any of the foregoing conditions cannot be fulfilled
at or before the Time of Closing to the satisfaction of ECO, ECO
may rescind this Agreement by notice to the Shareholders and in
such event the Parties shall be released from all obligations
hereunder. Provided however that any such conditions may be
waived in whole or in part by ECO without prejudice to ECO's
rights of rescission in the event of the non-fulfillment of any
other condition or conditions, any such waiver to be binding on
ECO only if the same is in writing.
10. MISCELLANEOUS
--------------
10.1 Tender. Any tender of documents or money hereunder may be
------
made upon the Parties or upon their respective solicitors as set
forth herein.
10.2 Notice. All notices, requests, demands or other
------
communications by the Parties required or permitted to be given
by one Party to another shall be given in writing by personal
delivery, telecopy or by registered or certified mail, postage
prepaid, addressed, telecopied or delivered to such other Party
as follows:
(a) if to the Shareholders, to:
(1) Jim Wright
11618 Caliche Creek
Corpus Christi, TX 78410
(2) Mark L. Crawford
P. O. Box 23005
Corpus Christi, TX 78403
(3) Aaron Fine
P. O. Box 1376
Orange Grove, TX 78372
(b) if to ECO, to:
1325 South Creek
Suite 100
Houston, Texas
77084
Attention: Michael E. McGinnis, President
Telefax No.: 713-647-0080
Telephone No.: 713-647-0505
or at such other address or telecopier number as may be given by
any of them to the others in writing from time to time and such
notices, requests, demands or other communications shall be
deemed to have been received when delivered, if personally
delivered, on the date telecopied (with receipt confirmed) if
telecopied and received at or prior to 5:00 p.m. local time and,
if not, on the next Business Day, and if mailed, on the date
received as certified.
10.3 Further Assurances. The Parties shall sign such other
------------------
papers, cause such meetings to be held, resolutions passed and
by-laws enacted and exercise their vote and influence, do and
perform and cause to be done and performed such further and other
acts and things as may be necessary or desirable in order to give
full effect to this Agreement and every part hereof.
10.4 Laws. This Agreement shall be governed by the laws of Texas
----
and the Parties hereby irrevocably attorn to the Courts of Harris
County, Texas.
10.5 Expenses. All out-of-pocket expenses (including legal and
--------
accounting expenses) incurred in connection with the Transaction
shall be borne by the respective Parties.
10.6 Time of the Essence. Time shall be of the essence of this
-------------------
Agreement and of every part hereof and no extension nor variation
of this Agreement shall operate as a waiver of this provision.
10.7 Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the Parties with respect to all of the matters
herein. This Agreement supersedes any and all agreements,
understandings and representations made between the Parties prior
to the date hereof including without limitation, that certain
letter of intent dated February 1, 1996. This Agreement shall
not be amended except by a memorandum in writing signed by all of
the Parties and any amendment hereof shall be null and void and
shall not be binding upon any Party which has not given its
consent as aforesaid.
10.8 Assignment. No Party may assign this Agreement or any part
----------
hereof without the prior written consent of the other Parties
which consent may be unreasonably withheld. Subject to the
foregoing, this Agreement shall enure to the benefit of and be
binding upon the Parties and their respective successors and
permitted assigns, but no other Person.
10.9 Invalidity. In the event that any of the covenants,
----------
representations and warranties or any portion of them contained
in this Agreement are unenforceable or are declared invalid for
any reason whatsoever, such unenforceability or invalidity shall
not affect the enforceability or validity of the remaining terms
or portions thereof contained in this Agreement and such
unenforceable or invalid covenant, representation and warranty or
covenant or portion thereof shall be severable from the remainder
of this Agreement.
10.10 Counterpart. This Agreement may be executed in several
-----------
counterparts, each of which so executed shall be deemed to be an
original and such counterparts when taken together shall
constitute one and the same original agreement which shall be
binding on the Parties hereto.
10.11 Schedules. The parties acknowledge that as of the
---------
Closing Date, all of the Schedules and exhibits referred to in
this Agreement have been approved by the parties and are attached
to this Agreement.
<PAGE>
IN WITNESS WHEREOF the Parties have duly executed this
Agreement, in multiple counterparts, as of the date and year
first above written.
/s/ Jim Wright
_____________________________________
JIM WRIGHT
/s/ Mark L. Crawford
__________________________________
MARK L. CRAWFORD
/s/ Aaron Fine
_____________________________________
AARON FINE
AMERICAN ECO CORPORATION
BY: /s/ Michael E. McGinnis
_____________________________________
ITS: President
<PAGE>
FIRST AMENDMENT TO ACQUISITION AGREEMENT
__________________________________________
This First Amendment to Acquisition Agreement (the "First
Amendment") is made and entered into by and between American Eco
Corporation, an Ontario corporation ("Eco") and Jim Wright, Mark
L. Crawford and Aaron Fine, residents of the State of Texas
(collectively, the "Shareholders").
WHEREAS, Eco and the Shareholders have heretofore entered into a
certain Acquisition Agreement and Plan of Reorganization (the
"Agreement"), as of the Reference Date, whereby Eco exchanged
400,000 shares of its common stock to the Shareholders for 100%
of the issued and outstanding stock of Environmental Evolutions,
Inc., a Texas corporation (the "Target Company"); and
WHEREAS, the parties desire to amend and supplement the
Acquisition Agreement, in the manner hereinafter set forth.
NOW, THEREFORE, in consideration of the covenants, agreements and
premises herein contained and other good and valuable
consideration, the receipt and sufficiency of which is hereby
acknowledged by each party, the parties hereto do hereby agree
that the Agreement shall be amended and modified in the following
respects:
1. Section 3.1 of the Agreement shall be amended and
supplemented by the addition of the following sub-paragraphs:
(i) ECO CAPITALIZATION. Immediately after the closing of
the acquisition of the Target Company, Eco will have only
one class of stock outstanding, all such shares of
outstanding stock will have the same voting rights and the
total number of issued and outstanding shares of stock of
Eco, after giving effect to the transaction described in
this Agreement, will be at least 9,300,000 shares.
(j) ACTIVE TRADE OR BUSINESS. Eco or one of its affiliates
(as defined in Section 1504(a) of the Internal Revenue code
of 1986, as amended, without regard to Section 1504(b)(3))
has been engaged in the active conduct of a trade or
business, within the meaning of Section 1.367(a)-2T(b)(2)
and (3) of the Income Tax Regulations (the "Regulations")
promulgated by the U.S. Treasury Department, that is
substantial in comparison to the trade or business of the
Target Company, for the entire 36-month period immediately
preceding the date of the closing of the acquisition of the
Target Company.
(k) COMPLIANCE WITH REGULATIONS. Eco shall cause the
Target Company to comply with the reporting requirements
contained in Regulations Section 1.367(a)-3T(c)(4).
2. All reference in the Agreement and the Schedules to a Five
Year Gain Recognition Agreement are hereby deleted, and said
Agreement shall be read and construed as if said reference were
not contained therein.
3. Unless otherwise defined herein, all capitalized terms used
herein shall have the same meanings ascribed to them in the
Agreement.
4. Except as specifically amended, modified and supplemented by
this First Amendment, all of the provisions of the Agreement are
incorporated herein by reference and are hereby reaffirmed as
being fully binding and in full force and effect with respect to
each of the parties hereto.
IN EVIDENCE WHEREOF, the parties have caused this First Amendment
to be duly executed on the date set forth opposite each party's
signature hereto, but effective as of the Reference Date.
AMERICAN ECO CORPORATION
DATED: March 15, 1996 BY: /s/ Michael E. McGinnis
________________________
MICHAEL E. MCGINNIS
ITS: PRESIDENT AND CHIEF
EXECUTIVE OFFICER
SHAREHOLDERS:
DATED: March 15, 1996 /s/ Jim Wright
________________________
JIM WRIGHT
DATED: March 15, 1996 /s/ Aaron Fine
________________________
AARON FINE
DATED: March 15, 1996 /s/ Mark L. Crawford
_________________________
MARK L. CRAWFORD
Exhibit 10.8.2
---------------
ARRANGEMENT AGREEMENT
THIS ARRANGEMENT AGREEMENT dated for reference the 13th day
of November, 1996.
BETWEEN:
INDUSTRA SERVICE CORPORATION,
a company incorporated under the laws of
the Province of British Columbia,
(hereinafter referred to as "Industra"),
OF THE FIRST PART;
-AND-
519742 B.C. LTD.,
a company incorporated under the laws of
the Province of British Columbia,
(hereinafter referred to as "519742"),
OF THE SECOND PART;
-AND-
AMERICAN ECO CORPORATION,
a corporation incorporated under the laws of
the Province of Ontario,
(hereinafter called "American Eco"),
OF THE THIRD PART.
WHEREAS together with the Industra Common Shares acquired
pursuant to the Offer on the basis of an exchange of 0.425
American Eco Common Shares for each Industra Common Share,
American ECO owns 3,477,604 Industra Common Shares;
AND WHEREAS the Offer contemplated that American Eco might
complete a subsequent transaction pursuant to which Industra
would become a wholly-owned subsidiary of American Eco;
AND WHEREAS 519742 is a wholly-owned subsidiary of American
Eco incorporated for the sole purpose of effecting the
Arrangement;
AND WHEREAS Industra intends to propose to its shareholders
an arrangement under section 276 of the Act, in accordance with
the terms of the Arrangement;
AND WHEREAS the parties hereto wish to enter into this
Agreement to set forth their respective obligations with respect
to the Arrangement;
NOW THEREFORE THIS AGREEMENT WITNESSETH THAT in
consideration of the premises and the respective covenants and
agreements herein contained, the parties hereto covenant and
agree as follows:
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS
In this Agreement, unless the subject matter or context is
inconsistent therewith, the following terms and phrases shall
have the following meanings respectively:
"Act" means the British Columbia Company Act, R.S.B.C. 1979,
c.59, as amended from time to time;
"Agreement" means this arrangement agreement;
"Amalgamated Company" refers to Industra after completion of
the Arrangement;
"Amalgamating Companies" means Industra and 519742;
"American Eco Common Shares" means the common shares in the
capital of American Eco;
"American Eco Exchange Rights" means rights to exchange
shares of certain subsidiaries of Industra for American Eco
Common Shares to be issued to holders of Industra Exchange Rights
upon completion of the Arrangement;
"American Eco Options" means options of American Eco to be
issued to holders of Industra Options upon completion of the
Arrangement;
"Arrangement" means the arrangement under the provisions of
section 276 of the Act, on the terms and conditions set forth in
Schedule "A" hereto, or any amendment or variation thereto made
in accordance with Section 8.3 or 8.4 hereof;
"Business Day" means a day which is not a Saturday, a Sunday
or a statutory holiday within the meaning of the Interpretation
Act (Canada), as amended;
"Court" means the Supreme Court of British Columbia;
"Effective Date" means the date on which a certified copy of
the Final Order has been accepted for filing by the Registrar,
"Final Order" means the order of the Court approving the
Arrangement, following the application therefor contemplated by
Section 4.4 hereof;
"Industra Exchange Rights" means rights to exchange shares
of certain subsidiaries of Industra for Industra Shares;
"Industra Information Circular" means the management
information circular of Industra together with all schedules
thereto to be prepared in connection with the Industra Special
Meeting,
"Industra Options" means options and rights to acquire
shares of Industra as at the Effective Date;
"Industra Shares" means the issued and outstanding common
shares in the capital of Industra;
"Industra Shareholders" means collectively the holders of
the Industra Shares;
"Industra Special Meeting" means the special meeting of the
Industra Shareholders to be held to consider and, if deemed
advisable, among other things, to approve the Arrangement,
including any adjournments thereof;
"Interim Order" means the order of the Court providing for
among other things, the calling of the Industra Special Meeting;
"Offer means the offer made on June 28, 1996 by American Eco
to purchase all of the issued and outstanding Industra Shares;
and
"Plan of Arrangement" means the Plan of Arrangement appended
as Schedule "A" hereto;
"Registrar" means the Registrar of Companies under the Act.
1.2 CURRENCY
All sums of money which are referred to in this Agreement
are expressed in lawful money of Canada unless otherwise
specified.
1.3 INTERPRETATION NOT AFFECTED BY HEADING, ETC.
The division of this Agreement into articles, sections,
paragraphs and other portions and the insertion of headings are
for convenience of reference only and shall not affect the
construction or interpretation of this Agreement. The words "this
Agreement", "hereof", "herein" and "hereunder" and similar
expressions refer to this Agreement and not to any particular
article, section, paragraph or other portion hereof and include
any agreement or instrument supplementary or ancillary hereto.
1.4 NUMBER AND GENDER
Unless the subject matter or context requires the contrary,
words importing the singular number only shall include the plural
and vice versa; words importing the use of any gender shall
include all genders; and words importing persons shall include
firms and corporations.
1.5 DATE FOR ANY ACTION
In the event that any date on which any action is required
to be taken hereunder by either of the parties hereto is not a
Business Day, in the place where the action is required to be
taken, such action shall be required to be taken on the next
succeeding day which is a Business Day.
ARTICLE 2
ARRANGEMENT
2.1 ARRANGEMENT
The Amalgamating Companies have agreed to perform the
Arrangement pursuant to the provisions of Section 276 of the Act
whereby they shall amalgamate and holders of Industra Shares,
Industra Options and Industra Exchange Rights shall receive, on
the terms and subject to conditions contained in this Agreement
and the Plan of Arrangement, American Eco Common Shares, American
Eco Options and American Eco Exchange Rights, respectively, on
the following basis:
(a) .425 American Eco Common Shares for each Industra
Share;
(b) One American Eco Option for each Industra Option; and
(c) American Eco Exchange Rights entitling the holders to
acquire .425 American Eco Shares for each one Industra
Share that such holder would have been entitled to
acquire pursuant to any Industra Exchange Right.
2.2 EFFECTIVE DATE OF ARRANGEMENT
The Arrangement shall become effective at 12:01 a.m.
(Pacific Standard Time), on the Effective Date and at such time,
the Amalgamating Companies shall merge on the terms and subject
to the conditions contained in this Agreement.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF INDUSTRA
Industra represents and warrants to and in favour of 519742 and
American Eco as follows and acknowledges that each of 519742 and
American Eco is relying upon such representations and warranties
in connection with the matters contemplated by this Agreement:
(a)Industra is duly organized and is validly existing as a
company under the laws of the Province of British Columbia and
has the corporate power and authority to own or lease its
property and assets and to carry on its business as is now being
carried on;
(b) Industra has the corporate power and authority to enter
into this Agreement and, subject to obtaining the
requisite approvals contemplated herein, to perform its
obligations hereunder;
(c) the execution and delivery of this Agreement by
Industra and the performance by Industra of its
obligations hereunder and under the Arrangement have
been duly authorized by the Board of Directors of
Industra and this Agreement constitutes a valid and
binding obligation of Industra enforceable against it
in accordance with its terms, subject to the
availability of equitable remedies and the enforcement
of creditors' rights generally;
(d) as at the date hereof, the authorized share capital of
Industra consists of 10,000,000 common shares without
par value and such shares have the attributes described
in the Industra Information Circular;
(e) as at the date hereof, the issued share capital of
Industra consists of 3,687,500 all of which are issued
and outstanding as fully paid and non-assessable;
(f) no person holds any securities convertible into any
shares of Industra or has any agreement, warrant or
option or right capable of becoming an agreement,
warrant or option for the purchase of any unissued
shares of Industra except for Industra Exchange Rights
held by William Austin, Lee Reisinger and John Wong
pursuant to agreements entered into with Industra
entitling the holders to acquire 65,000 Industra Shares
and stock options granted by Industra pursuant to its
stock option plan;
(g) the execution and delivery of this Agreement by
Industra and the completion of the transactions
contemplated herein: (i) do not and will not result in
the breach of, or violate any term or provision of, the
articles or by-laws of Industra; (ii) will not as of
the Effective Date conflict with, result in the breach
of, constitute a default under, or accelerate or permit
the acceleration of the performance required by any
agreement, instrument, licence, permit or authority to
which Industra is a party or by which it is bound and
which is material to Industra, or to which any material
property of Industra is subject or result in the
creation of any lien, charge or encumbrance upon any of
the material assets of Industra under any such
agreement or instrument, or give to others any material
interest or right, including rights of purchase,
termination, cancellation or acceleration, under any
such agreement, instrument, licence, permit or
authority; and (iii) do not and will not as of the
Effective Date violate any provision of law or
administrative regulation or any judicial or
administrative award, judgment or decree applicable and
known to Industra (after due inquiry), the breach of
which would have a material adverse effect on Industra;
(h) the financial statements of Industra contained in the
Industra Information Circular present fairly the
financial position of Industra at the date thereof and
the results of operations and the changes in its
financial position for the period indicated and have
been prepared in accordance with accounting principles
generally accepted in Canada;
(i) except as disclosed in the Industra Information
Circular, there has been no material adverse change in
the business or condition, financial or otherwise, of
Industra, from that shown in the financial statements
referred to in Section 3.1(h);
(j) there are no known or anticipated material liabilities
of Industra of any kind whatsoever (including absolute,
accrued or contingent liabilities) nor any commitments
whether or not determined or determinable in respect of
which Industra is or may become liable other than the
liabilities disclosed on, reflected in or provided for
in the financial statements referred to in Section
3.1(h) or reflected in the Industra Information
Circular incurred in the ordinary course of business;
(k) the corporate records and minute books of Industra as
required to be maintained by it under the laws of its
jurisdiction of incorporation are up to date and
contain complete and accurate minutes of all meetings
of its directors and shareholders and all resolutions
consented to in writing;
(l) Industra owns good and marketable title to its property
and assets free and clear of any and all mortgages,
liens, pledges, charges, security interests,
encumbrances, actions, claims or demands of any nature
whatsoever or howsoever arising which would have a
materially adverse effect on the property or assets of
Industra except as disclosed in the Industra
Information Circular,
(m) Industra has duly filed on a timely basis all tax
returns required to be filed by it and has paid all
taxes which are due and payable and has paid all
assessments and reassessments and all other taxes,
governmental charges, penalties, interest and fines due
and payable on or before the date hereof; adequate
provision has been made for taxes payable for the
current period for which tax returns are not yet
required to be filed; there are no agreements, waivers
or other arrangements providing for an extension of
time with respect to the filing of any tax return by or
payment or any tax, governmental charge or deficiency
against Industra;
(n) Industra has withheld from each payment made to any of
its officers, directors, former directors and employees
the amount of all taxes including without limitation,
income tax and other deductions required to be withheld
therefrom and has paid the same to the proper tax and
other receiving officers within the time required under
any applicable tax legislation;
(o) to the best of the knowledge of Industra (after due
inquiry), there are no actions, suits, proceedings or
investigations commenced, contemplated or threatened
against or affecting Industra, at law or in equity,
before or by any governmental department, commission,
board, bureau, court, agency, arbitrator or
instrumentality, domestic or foreign, of any kind nor,
to the best of the knowledge of Industra (after due
inquiry), are there any existing facts or conditions
which may reasonably be expected to be a proper basis
for any actions, suits, proceedings or investigations
which in any case would prevent or hinder the
consummation of the transactions contemplated by this
Agreement or the Arrangement, or which can reasonably
be expected to have a material adverse eflfect on the
business, operations, properties, assets or affairs,
financial or otherwise, of Industra, either before or
after the Effective Date and other than those contained
in the Industra Information Circular, and
(p) the information set forth in the Industra Information
Circular relating to Industra and its business and
property and the effect of the Arrangement thereon is
true, correct and complete in all material respects and
does not contain any untrue statement of any material
fact or omit to state any material fact required to be
stated therein or necessary in order to make the
statements therein not misleading in light of the
circumstances in which they are made.
3.2 REPRESENTATIONS AND WARRANTIES OF 519742
519742 represents and warrants to and in favour of Industra
as follows and acknowledges that Industra is relying upon such
representations and warranties in connection with the matters
contemplated by this Agreement:
(a) 519742 is duly organized and is validly existing as a
company under the laws of the Province of British
Columbia and has the corporate power and authority to
own or lease its property and assets and to carry on
its business as is now being carried on;
(b) 519742 has the corporate power and authority to enter
into this Agreement and, subject to obtaining the
requisite approvals contemplated herein, to perform its
obligations hereunder,
(c) the execution and delivery of this Agreement by 519742
and the performance by 519742 of its obligations
hereunder and under the Arrangement have been duly
authorized by the Board of Directors of 519742 and by
American Eco, the sole shareholder of 519742, and this
Agreement constitutes a valid and binding obligation of
519742 enforceable against it in accordance with its
terms, subject to the availability of equitable
remedies and the enforcement of creditors' rights
generally;
(d) the execution and delivery of this Agreement by 519742
and the completion of the transactions contemplated
herein: (i) does not and will not result in the breach
of, or violate any term or provision of, the articles
or by-laws of 519742; (ii) will not as of the Effective
Date conflict with, result in the breach of, constitute
a default under, or accelerate or permit the
acceleration of the performance required by any
agreement, instrument, licence, permit or authority to
which 519742 is a party or by which it is bound and
which is material to 519742, or to which any material
property of 519742 is subject or result in the creation
of any lien, charge or encumbrance upon any of the
material assets of 519742 under any such agreement or
instrument, or give to others any material interest or
right, including rights of purchase, termination,
cancellation or acceleration, under any such agreement,
instrument, licence, permit or authority, and (iii) do
not and will not as of the Effective Date violate any
provision of law or administrative regulation or any
judicial or administrative award, judgment or decree
applicable and known to 519742 (after due inquiry), the
breach of which would have a material adverse effect on
519742;
(e) there are no known or anticipated material liabilities
of 519742 of any kind whatsoever (including absolute,
accrued or contingent liabilities) nor any commitments
whether or not determined or determinable in respect of
which 519742 is or may become liable;
(f) the corporate records and minute books of 519742 as
required to be maintained by it under the laws of its
jurisdiction of incorporation are up to date and
contain complete and accurate minutes of all meetings
of its directors and shareholders and all resolutions
consented to in writing; and
(g) to the best of the knowledge of 519742 (after due
inquiry), there are no actions, suits, proceedings or
other investigations commenced, contemplated or
threatened against or affecting 519742, at law or in
equity, before or by any governmental department,
commission, board, bureau, court, agency, arbitrator or
instrumentality, domestic or foreign, of any kind nor,
to the best of the knowledge of 519742 (after due
inquiry), are there any existing facts or conditions
which may reasonably be expected to be a proper basis
for any actions, suits, proceedings or investigations
which in any case would prevent or hinder the
consummation of the transactions contemplated by this
Agreement, or which can reasonably be expected to have
a material adverse effect on the business, operations,
properties, assets or affairs, financial or otherwise,
of 519742, either before or after the Effective Date
and other than those contained in the 519742
Information Circular.
3.3 REPRESENTATIONS AND WARRANTIES OF AMERICAN ECO
American Eco represents and warrants to and in favour of
Industra as follows and acknowledges that Industra is relying
upon such representations and warranties in connection with the
matters contemplated by this Agreement:
(a) American Eco is duly organized and is validly existing
as a corporation under the laws of the Province of
Ontario and has the corporate power and authority to
own or lease its property and assets and to carry on
its business as is now being carried on;
(b) American Eco has the corporate power and authority to
enter into this Agreement and, subject to obtaining the
requeisite approvals contemplated herein, to perform
its obligations hereunder;
(c) the execution and delivery of this Agreement by
American Eco and the performance by American Eco of its
obligations hereunder and under the Arrangement have
been duly authorized by the Board of Directors of
American Eco and this Agreement constitutes a valid and
binding obligation of American Eco enforceable against
it in accordance with its terms, subject to the
availability of equitable remedies and the enforcement
of creditors' rights generally;
(d) as at the date hereof the authorized share capital of
American Eco consists of an unlimited number of
American Eco Common Shares and an unlimited number of
Preference Shares and such shares have the attributes
described in the Industra Information Circular;
(e) as the date hereof, the issued share capital of
American Eco consists of 13,822,092 American Eco Common
Shares which are issued and outstanding as fully paid
and non-assessable;
(f) except for 472,100 American Eco Common Shares issuable
pursuant to the exercise of stock options granted to
certain of firms, directors and full-time employees of
American Eco 858,000 American Eco Common Shares
issuable upon the exercise of share purchase warrants,
333,333 American Eco Common Shares issuable upon the
conversion of secured debentures, 500,000 American Eco
Common Shares and 500,000 warrants issuable subject to
certain performance requirements, and the 89,206
American Eco Common Shares to be issued pursuant to the
Arrangement, no person holds any securities convertible
into any shares of American Eco or has any agreement,
warrant or option or right capable of becoming an
agreement, warrant or option for the purchase of any
unissued shares of American Eco;
(g) the execution and delivery of this Agreement by
American Eco and the completion of the transactions
contemplated herein: (i) does not and will not result
in the breach of, or violate any term or provision of,
the articles or by-laws of American Eco; (ii) will not
as of the Effective Date conflict with, result in the
breach of, constitute a default under, or accelerate or
permit the acceleration of the performance required by
any agreement, instrument, licence, permit or authority
to which American Eco is a party or by which it is
bound and which is material to American Eco, or to
which any material property of American Eco is subject
or result in the creation of any lien, charge or
encumbrance upon any of the material assets of American
Eco under any such agreement or instrument, or give to
others any material interest or right, including rights
of purchase, termination, cancellation or acceleration,
under any such agreement, instrument, licence, permit
or authority; and (iii) do not and will not as of the
Effective Date violate any provision of law or
administrative regulation or any judicial or
administrative award, judgment or decree applicable and
known to American Eco (after due inquiry), the breach
of which would have a material adverse effect on
American Eco;
(h) the financial statements of American Eco contained in
the Industra Information Circular present fairly the
financial position of American Eco at the date thereof
and the results of operations and the changes in its
financial position for the period indicated and have
been prepared in accordance with accounting principles
generally accepted in Canada;
(i) except as disclosed in the Industra Information
Circular, there has been no material adverse change in
the business or condition, financial or otherwise, of
American Eco, from that shown in the financial
statements referred to in Section 3.3;
(j) there are no known or anticipated material liabilities
of American Eco of any kind whatsoever (including
absolute, accrued or contingent liabilities) nor any
commitments whether or not determined or determinable
in respect of which American Eco is or may become
liable other than the liabilities disclosed on,
reflected in or provided for in the financial
statements referred to in Section 3.3(h) or reflected
in the Industra Information Circular or incurred in the
ordinary course of business;
(k) the corporate records and minute books of American Eco
as required to be maintained by it under the laws of
its jurisdiction of incorporation are up to date and
contain complete and accurate minutes of all meetings
of its directors and shareholders and all resolutions
consented to in writing;
(l) American Eco owns good and marketable title to its
property and assets free and clear of any and all
mortgages, liens, pledges, charges, security interests,
encumbrances, actions, claims or demands of any nature
whatsoever or howsoever arising which would have a
materially adverse effect on the property or assets of
American Eco except as disclosed in the Industra
Information Circular;
(m) American Eco has duly filed on a timely basis all tax
returns required to be filed by it and has paid all
taxes which are due and payable and has paid all
assessments and reassessments and all other taxes,
governmental charges, penalties, interest and fines due
and payable on or before the date hereof; adequate
provision has been made for taxes payable for the
current period for which tax returns are not yet
required to be filed; there are no agreements, waivers
or other arrangements providing for an extension of
time with respect to the filing of any tax return by or
payment or any tax, governmental charge or deficiency
against American Eco;
(n) American Eco has withheld from each payment made to any
of its officers, directors, former directors and
employees the amount of all taxes including without
limitation, income tax and other deductions required to
be withheld therefrom and has paid the same to the
proper tax and other receiving officers within the time
required under any applicable tax legislation; and
(o) to the best of the knowledge of American Eco (after due
inquiry), there are no actions, suits, proceedings or
other investigations commenced, contemplated or
threatened against or affecting American Eco, at law or
in equity, before or by any governmental department,
commission, board, bureau, court, agency, arbitrator or
instrumentality, domestic or foreign, of any kind nor,
to the best of the knowledge of American Eco (after due
inquiry), are there any existing facts or conditions
which may reasonably be expected to be a proper basis
for any actions, suits, proceedings or investigations
which in any case would prevent or hinder the
consummation of the transactions contemplated by this
Agreement or the Arrangement, or which can reasonably
be expected to have a material adverse effect on the
business, operations, properties, assets or affairs,
financial or otherwise, of American Eco, either before
or after the Effective Date and other than those
contained in the Industra Information Circular.
ARTICLE 4
COVENANTS
4.1 COVENANTS OF INDUSTRA
Industra hereby covenants and agrees as follows:
(a) until the Effective Date, Industra shall carry on
business in the ordinary course and shall not enter
into any transaction or incur any obligation or
liability out of the ordinary course of its business,
except as othcrwise contemplated in this Agreement or
in the Industra Information Circular,
(b) until the Effective Date, Industra shall not:
(i) merge into or with, or amalgamate or consolidate
with, or enter into any other corporate
reorganization with, any other corporation or
person except as otherwise contemplated in this
Agreement or the Industra Information Circular,
(ii) declare, pay or make distributions by way of
dividend, return of capital or otherwise to or for
the benefit of its shareholders, except for the
payment of regular dividends payable in the
ordinary course to shareholders of such
corporation; or
(iii) purchase, redeem or issue any of its shares
or other securities convertible into shares
or enter into any commitment or agreement
therefor except pursuant to options or other
rights outstanding as of the date hereof and
referred to in paragraph (f) of Section 3.1
hereof.
(c) Industra shall, in a timely and expeditious manner,
file the Industra Information Circular in all
jurisdictions where the same is required and mail the
same to Industra Shareholders in accordance with the
Interim Order and applicable law;
(d) Industra shall not alter or amend its constating
documents as the same exist at the date of this
Agreement;
(e) Industra shall furnish to the other parties hereto such
information, in addition to the information contained
in this Agreement, relating to the financial condition,
business, properties and affairs of Industra as may
reasonably be requested by the other parties hereto
which information shall be true and complete in all
material respects and shall not contain an untrue
statement of any material fact or omit to state any
material fact required to be stated therein or
necessary in order to make the statements therein in
the light of the circumstances in which they are made,
not misleading;
(f) Industra shall use all reasonable efforts to apply for
and obtain, as soon as practicable:
(i) the approval of the Industra Shareholders required
for the implementation of the Arrangement;
(ii) the Interim Order and the Final Order as provided
for in Section 4.4 hereof; and
(iii) such other consents, orders and approvals as
counsel may advise are necessary or desirable
for the implementation of the Arrangement,
including those referred to in Section 5.1
hereof; and
(g) subject to the satisfaction or waiver of the conditions
contained in Sections 5.1 and 5.2 hereof, Industra
shall perform the obligations required to be performed
by it under the Arrangement and shall do any such other
acts and things as may be necessary or required in
order to give effect to the Arrangement.
4.2 COVENANTS OF 519742
519742 hereby covenants and agrees as follows:
(a) until the Effective Date, 519742 shall carry on
business in the ordinary course and shall not enter
into any transaction or incur any obligation or
liability except as otherwise contemplated in this
Agreement;
(b) until the Effective Date, 519742 shall not:
(i) merge into or with, or amalgamate or consolidate
with, or enter into any other corporate
reorganization with, any other corporation or
person except as otherwise contemplated in this
Agreement; or
(ii) declare, pay or make distributions by way of
dividend, return of capital or otherwise to or for
the benefit of its shareholders, except for the
payment of regular dividends payable in the
ordinary course to shareholders of such
corporation; or
(iii) purchase, redeem or issue any of its shares or
other securities convertible into shares or enter into
any commitment or agreement therefor.
(c) 519742 shall not alter or amend its constating
documents as the same exist at the date of this
Agreement;
(d) 519742 shall furnish to Industra such information, in
addition to the information contained in this
Agreement, relating to the financial condition,
business, properties and affairs of 519742 as may
reasonably be requested by Industra which information
shall be true and complete in all material respects and
shall not contain an untrue statement of any material
fact or omit to state any material fact required to be
stated therein or necessary in order to make the
statements therein in the light of the circumstances in
which they are made, not mislcading;
(e) 519742 shall use all reasonable efforts to apply for
and obtain, as soon as practicable:
(i) the Interim Order and the Final Order as provided
for in Section 4.4 hereof; and
(ii) such other consents, orders and approvals as
counsel may advise are necessary or desirable for
the implementation of the Arrangement, including
those referred to in Section 5.1 hereof; and
(f) subject to the satisfaction or waiver of the conditions
contained in Sections 5.1 and 5.2 hereof, 519742 shall
perform the obligations required to be performed by it
under the Arrangement and shall do any such other acts
and things as may be necessary or required in order to
give effect to the Arrangement.
4.3 COVENANTS OF AMERICAN ECO
American Eco hereby covenants and agrees as follows:
(a) until the Effective Date, American Eco shall carry on
business in the ordinary course and shall not enter
into any transaction or incur any obligation or
liability except as otherwise contemplated in this
Agreement or in the Industra Information Circular;
(b) until the Effective Date, American Eco shall not:
(i) merge into or with, or amalgamate or consolidate
with, or enter into any other corporate
reorganization with, any other corporation or
person except as otherwise contemplated in this
Agreement or the Industra Information Circular; or
(ii) declare, pay or make distributions by way of
dividend, return of capital or otherwise to or for
the benefit of its shareholders, except for the
payment of regular dividends payable in the
ordinary course to shareholders of such
corporation; or
(iii) purchase, redeem or issue any of its shares
or other securities convertible into shares
or enter into any commitment or agreement
therefor except pursuant to options or other
rights outstanding as of the date hereof and
referred to in paragraph (f) of Section 3.3
hereof.
(d) American Eco shall not alter or amend its constating
documents as the same exist at the date of this
Agreement;
(e) American Eco shall furnish to the other party hereto
such information, in addition to the information
contained in this Agreement, relating to the financial
condition, business, properties and affairs of American
Eco as may reasonably be requested by the other party
hereto which information shall be true and complete in
all material respects and shall not contain an untrue
statement of any material fact or omit to state any
material fact required to be stated therein or
necessary in order to make the statements therein in
the light of the circumstances in which they are made,
not misleading;
(f) American Eco shall provide or use all reasonable
efforts to apply for and obtain, as soon as
practicable:
(i) the approval of American Eco as the sole
shareholder of 519742 required for the
implementation of the Arrangement;
(ii) such other consents, orders and approvals as
counsel may advise are necessary or desirable for
the implementation of the Arrangement, including
those referred to in Section 5.1 hereof; and
(g) subject to the satisfaction or waiver of the conditions
contained in Sections 5.1 and 5.2 hereof, American Eco
shall perform the obligations required to be performed
by it under the Arrangement and shall do any such other
acts and things as may be necessary or required in
order to give effect to the Arrangement.
4.4 INTERIM ORDER AND FINAL ORDER
Industra and 519742 covenant and agree that they will, as
soon as reasonably practicable, apply to the Court for the
Interim Order providing for, among other things, the calling and
holding of the Industra Special Meeting for the purpose of
considering and, if deemed advisable, approving the Arrangement
and that, if the approval of the Arrangement as set forth in the
Interim Order is obtained, thereafter Industra and 519742 will
take the necessary steps to submit the Arrangement to the Court
and apply for the Final Order in such fashion as the Court may
direct and, as soon as practicable thereafter, and subject to
compliance with any other conditions provided for in Article 5
hereof, file the Final Order with the Registrar on the Effective
Date.
4.5 OTHER COVENANTS
The parties hereto agree that, subject to the limitations
imposed by the Act, all rights of indemnification in favour of
present or former directors and officers of each of Industra and
519742 with respect to actions taken in their capacities as
directors or officers of each of Industra and 519742 prior to the
Arrangement becoming effective as provided in the by-laws of each
of Industra and 519742 in effect on the date hereof and in any
indemnification agreement between any of such directors or
officers and each of Industra and 519742 in effect as at the date
hereof shall survive the Arrangement and continue in full force
and effect.
ARTICLE 5
CONDlTIONS
5.1 MUTUAL CONDITIONS PRECEDENT
The respective obligations of the parties hereto to complete the
transactions contemplated by this Agreement and to file the Final
Order with the Registrar to give effect to the Arrangement shall
be subject to the satisfaction, on or before the Effective Date,
of the following conditions, none of which may be waived by any
party hereto in whole or in part:
(a) the Arrangement, with or without amendment, shall have
been approved at the Industra Special Meeting and shall
have been approved by American Eco, the sole
shareholder of 519742 in accordance with the Interim
Order and the Arrangement shall otherwise have been
approved by the requisite majority of persons entitled
or required to vote thereon as determined by the Court;
(b) the Interim Order and Final Order shall have been
obtained in form and substance satisfactory to each
party hereto;
(c) all consents, orders and approvals, including
regulatory and judicial approvals and orders, required
or necessary for the completion of the transactions
provided for in this Agreement and the Arrangement
shall have been obtained or received from the persons,
authorities or bodies having jurisdiction in the
circumstances including without limitation, The Toronto
Stock Exchange and pursuant to the Securities Act
(British Columbia) and the comparable securities
legislation of the other provinces of Canada in which
either Industra or American Eco is a reporting issuer,
(d) there shall not be in force any order or decree
restraining or enjoining the consummation of the
transactions contemplated by this Agreement and the
Arrangement;
(e) any approval advised by counsel to American Eco to be
necessary or desirable shall have been received from
The Toronto Stock Exchange (in connection with the
listing of the American Eco Common Shares issuable
under the Arrangement);
(f) none of the consents, orders, regulations or approvals
contemplated herein shall contain terms or conditions
or require undertakings or security deemed
unsatisfactory or unacceptable by the parties hereto;
(g) the issuance of the American Eco Common Shares pursuant
to the Arrangement will have been approved by all
nccessary corporate action to permit such American Eco
Common Shares to be issued as fully paid and
non-assessable and will be exempt from the registration
and prospectus requirements of applicable securities
laws in each of the Provinces of Canada in which
Industra Shareholders are resident; and
(h) this Agreement shall not have been terminated under
Article 8 hereof.
5.2 CONDITIONS TO OBLIGATIONS OF EACH PARTY
The obligation of each party to complete the transactions
contemplated by this Agreement is further subject to the
condition, which may be waived by such party without prejudice to
its right to rely on any other condition in favour of such party,
that the covenants of each other party hereto to be performed on
or before the Effective Date pursuant to the terms of this
Agreement shall have been duly performed by such party and that,
except as affected by the transactions contemplated by this
Agreement, the representations and warranties of each other party
hereto shall be true and correct in all material respects as at
the Effective Date, with the same effect as if such
representations and warranties had been made at and as of such
time, and each such party shall have received a certificate,
dated the Effective Date, of a senior officer of the other party
confirming the same.
5.3 MERGER OF CONDITIONS
The conditions set out in Sections 5.1 and 5.2 hereof shall
be conclusively deemed to have been satisfied, waived or released
on the filing by Industra and 5l9742 of the Final Order with the
Registrar.
ARTICLE 6
AMALGAMATION
6.1 AMALGAMATION OF AMALGAMATING COMPANIES
The Amalgamating Companies do hereby agree to amalgamate as
part of the Arrangement pursuant to the provisions of the Act and
to continue as one company on the terms and conditions set forth
in this Arrangement Agreement. On the Effective Date, the
amalgamation of the Amalgamating Companies, and their
continuation as one company shall become effective; the property
of each Amalgamating Company shall continue to be the property of
the Amalgamated Company; the Amalgamated Company shall continue
to be liable for the obligations of each Amalgamating Company,
any existing cause of action, claim or liability to prosecution
shall be unaffected; any civil, criminal or administrative action
or proceeding pending by or against any Amalgamating Company may
be continued to be prosecuted by or against the Amalgamated
Company; any conviction against, or ruling under a judgment in
favour of or against an Amalgamating Company may be enforced by
or against the Amalgamated Company.
ARTICLE 7
EXCHANGE OF SHARES, OPTIONS AND EXCHANGE RIGHTS
7.1 EXCHANGE OF SHARES
On the Effective Date:
(a) subject to the provisions of Section 7.2 each Industra
shareholder, other than American Eco, shall receive,
instead of shares of the Amalgamated Company, .425
American Eco Common Shares in exchange for each
Industra Share held by such shareholder and the
Industra Shares thus exchanged shall be cancelled; and
in consideration of the issue by American Eco of the
American Eco Common Shares, the Amalgamated Company
shall issue to American Eco one (1) fully paid common
share of the Amalgamated Company for each American Eco
Common Share so issued;
(b) each shareholder of 519742 shall receive one (1) issued
and fully paid common share of the Amalgamated Company
in exchange for each issued and outstanding common
share of 519742 held by such shareholder, and such
shares of 519742 thus exchanged shall be cancelled; and
(c) the issued and outstanding Industra Shares held by
American Eco shall be converted into common shares of
the Amalgamated Company;
(d) holders of Industra Options shall have such options
cancelled and exchanged for American Eco Options on a
one for one basis, exercisable at a price equal to the
greater of 2.35 times the exercise price of the
Industra Options and the market price of the American
Eco Common Shares on The Toronto Stock Exchange on
November 13, 1996; and
(e) holders of Industra Exchange Rights shall have such
rights cancelled and exchanged for American Eco Common
Exchange Rights entitling the holders to acquire 0.425
American Eco Common Shares upon exercise for each
Industra Share such holders would have been entitled to
receive upon exercise of their Industra Exchange
Rights.
7.2 NO SHARES IN FRACTIONS
No fractional American Eco Common Shares will be issued.
ARTICLE 8
TERMINATION AND AMENDMENT
8.1 TERMINATION
(a)Subject to any agreement of Industra, 519742 and American Eco
to the contrary, this Agreement shall forthwith terminate in the
event that:
(i)the Industra Shareholders fail to approve the Arrangement at
the Industra Special Meeting;
(ii) a final determination from the Court or any court
of appeal denies the granting of the Final Order;
or
(iii) the Arrangement is not effected prior to
February 28, 1997 and any party hereto wishes
to terminate the Arrangement and gives
written notice to the other parties of
termination.
(b) This Agreement may be terminated at any time before the
Arrangement becomes effective:
(i) by Industra if there shall have been a breach by
519742 or American Eco of an obligation or
covenant contained in this Agreement or a breach
of any of the representations and warranties
contained in this Agreement on the part of 519742
or American Eco and such breach shall not have
been waived by Industra; or
(ii) by 519742 or American Eco if there shall have been
a breach by Industra of an obligation or covenant
contained in this Agreement or a breach of any of
the representations and warranties on the part of
Industra contained in this Agreement by Industra
and such breach shall not have been waived by
519742 or American Eco.
8.2 EFFECT OF TERMINATION
Upon the termination of this Agreement pursuant to Section
8.1 hereof, neither party shall have any liability or further
obligation to the other party other than liability of one party
to another for breach of the provisions of this Agreement.
8.3 AMENDMENT
This Agreement may, at any time and, from time to time
before and after the holding of the Industra Special Meeting, but
not later than the Effective Date, be amended by written
agreement of the parties hereto (or, in the case of a waiver, by
written instrument of the party giving the waiver) without,
subject to applicable law, further notice to or authorization on
the part of the security holders of Industra, or the Court.
Without limiting the generality of the foregoing, any such
amendment may:
(a) change the time for performance of any of the
obligations or acts of the parties hereto;
(b) waive any inaccuracies or modify any representation
contained herein or in any documents to be delivered
pursuant hereto; and
(c) waive compliance with or modify any of the covenants
herein contained or waive or modify performance of any
of the obligations of the parties hereto;
provided that, notwithstanding the foregoing, the terms of the
Arrangement and this Agreement shall not be amended in a manner
prejudicial to the Industra Shareholders without the approval of
such shareholders given in the same manner as required for the
approval of the Arrangement or as may be ordered by the Court.
8.4 AMENDMENT RESULTING FROM FINAL ORDER
This Agreement and the Arrangement may be amended in
accordance with the Final Order by written agreement of the
parties hereto.
ARTICLE 9
GENERAL PROVISIONS
9.1 NOTICES
All notices that may be or are required to be given pursuant
to any provision of this Agreement shall be given or made in
writing and shall be deemed to be validly given or served
personally or by telecopy, in each case to the attention of a
senior officer and in each case addressed to the particular party
at:
If to 519742 or American Eco: 11011 Jones Road,
Houston, Texas 77070
Attention: Michael McGinnis
Telecopier: (281) 774-7005
with a copy to: Cassels Brock & Blackwell
Suite 2100, Scotia Plaza
40 King Street West
Toronto, Ontario
M5H 3C2
Attention: Mark Young
Telecopier: (416) 869-5380
If to Industra: 401 Salter Street
New Westminster, British
Columbia
V3M 5Y1
Attention: Wayne Shaw
Telecopier: (604) 521-3057
with a copy to: Sangra, Moller
1900 700 West Georgia Street
P.O. Box 10354, Pacific Centre
Vancouver, British Columbia
V7Y 1G5
Attention: Kim C. Moller
Telecopier: (604) 669-8803
or such other addresses or telecopy numbers of which a party may,
from time to time, advise the other party hereto by notice in
writing given in accordance with the foregoing. The date of
receipt of any such notice shall be deemed to be the date of
delivery thereof, or in the case of notice sent by telecopy, the
date of successful transmission thereof if given during normal
business hours and on the date during which such normal business
hours next occur if not given during such hours.
9.2 APPLICABLE LAW
This Agreement shall be governed by and construed in
accordance with the laws of the Province of British Columbia and
the laws of Canada applicable therein and shall be treated in all
respects as a British Columbia contract.
9.3 ASSIGNMENT
This Agreement and all the provisions hereof shall be
binding upon and enure to the benefit of the parties hereto and
their respective successors and permitted assigns. Neither this
Agreement nor any of the rights hereunder or under the
Arrangement shall be assigned by any party hereto without the
prior written consent of the other party hereto.
9.4 COUNTERPARTS
This Agreement may be executed in two or more counterparts,
each of which shall when delivered (either in originally executed
form or by facsimile transmission) shall be deemed an original,
but all of which together shall constitute one and the same
instrument.
9.5 BINDING EFFECT
This Agreement and the Arrangement shall be binding upon and
shall enure to the benefit of the parties hereto and their
respective successors and permitted assigns.
9.6 TIME OF THE ESSENOE
Time shall of the essence of this Agreement.
9.7 ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the
parties pertaining to the subject matter hereof and supersedes
all prior agreements, understandings, negotiations, and
discussions, whether oral or written, among the parties with
respect to the subject matter hereof.
IN WITNESS WHEREOF each of the parties hereto has executed
this Agreement as of the date first written above.
INDUSTRA SERVICE CORPORATION
Per: /s/ WAYNE SHAW
----------------------
519742 B.C. LTD.
Per: /s/ WAYNE SHAW
------------------------
AMERICAN ECO CORPORATION
Per: /s/ MICHAEL McGINNlS
---------------------
Exhibit 10.9.1
--------------
=================================================================
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
AMERICAN ECO CORPORATION
SUB ACQUISITION CORP.
AND
CHEMPOWER, INC.
Dated as of September 10, 1996
=================================================================
<PAGE>
TABLE OF CONTENTS
Section Page
ARTICLE I
THE MERGER
Section 1.01. The Merger . . . . . . . . . . . . . . . 1
Section 1.02. Effective Time . . . . . . . . . . . . . 1
Section 1.03. Effect of the Merger . . . . . . . . . . 1
Section 1.04. Articles of Incorporation; Code of
Regulations . . . . . . . . . . . . . . . 2
Section 1.05. Directors and Officers . . . . . . . . . 2
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
Section 2.01. Conversion of Securities; Adjustment . . 2
Section 2.02. Conversion of Sub Common Stock . . . . . 2
Section 2.03. Exchange of Company Certificates and
Cash . . . . . . . . . . . . . . . . . . 3
Section 2.04. Stock Transfer Books . . . . . . . . . . 4
Section 2.05. Company Options . . . . . . . . . . . . . 4
Section 2.06. Dissenting Shares . . . . . . . . . . . . 4
Section 2.07. Closing . . . . . . . . . . . . . . . . . 5
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.01. Organization and Qualification . . . . . 5
Section 3.02. Capitalization . . . . . . . . . . . . . 6
Section 3.03. Subsidiaries . . . . . . . . . . . . . . 6
Section 3.04. Authorization . . . . . . . . . . . . . . 6
Section 3.05. SEC Filings . . . . . . . . . . . . . . . 7
Section 3.06. No Conflicts . . . . . . . . . . . . . . 7
Section 3.07. Consents and Approvals . . . . . . . . . 8
Section 3.08. Financial Statements . . . . . . . . . . 8
Section 3.09. Absence of Certain Changes or Events . . 8
Section 3.10. No Undisclosed Material Liabilities . . . 10
Section 3.11. Proxy Statement . . . . . . . . . . . . . 10
Section 3.12. Fairness Opinion . . . . . . . . . . . . 10
Section 3.13. Brokers and Finders . . . . . . . . . . . 11
Section 3.14. Environmental Matters . . . . . . . . . . 11
Section 3.15. Litigation . . . . . . . . . . . . . . . 11
Section 3.16. ERISA Compliance . . . . . . . . . . . . 12
Section 3.17. Tax Matters . . . . . . . . . . . . . . . 13
Section 3.18. Change in Control Payments . . . . . . . 14
Section 3.19. Properties . . . . . . . . . . . . . . . 14
Section 3.20. Intellectual Property . . . . . . . . . . 14
Section 3.21. Insurance Coverage . . . . . . . . . . . 15
Section 3.22. Inventory . . . . . . . . . . . . . . . . 15
Section 3.23. Related Party Transactions . . . . . . . 15
Section 3.24. Contracts . . . . . . . . . . . . . . . . 16
Section 3.25. Personnel . . . . . . . . . . . . . . . . 17
Section 3.26. Compliance with Laws . . . . . . . . . . 17
Section 3.27. Accounts Receivable . . . . . . . . . . . 18
Section 3.28. Books and Records . . . . . . . . . . . . 18
Section 3.29. Board Recommendation . . . . . . . . . . 18
Section 3.30. General Representation and Warranty . . . 18
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Section 4.01. Organization and Power . . . . . . . . . 19
Section 4.02. Authorization . . . . . . . . . . . . . . 19
Section 4.03. No Conflicts . . . . . . . . . . . . . . 19
Section 4.04. Consents and Approvals . . . . . . . . . 19
Section 4.05. Proxy Statement . . . . . . . . . . . . . 20
Section 4.06. Financing . . . . . . . . . . . . . . . . 20
Section 4.07. Brokers and Finders . . . . . . . . . . . 20
ARTICLE V
COVENANTS AND AGREEMENTS
Section 5.01. Conduct of Business Between Execution of
this Agreement and the Effective Time . . 20
Section 5.02. Mutual Covenants . . . . . . . . . . . . 22
Section 5.03. Access to Information; Confidentiality . 23
Section 5.04. Meeting of Shareholders . . . . . . . . . 23
Section 5.05. Proxy Statement . . . . . . . . . . . . . 23
Section 5.06. Public or Shareholder Communications . . 24
Section 5.07. Additional Agreements. . . . . . . . . . 24
Section 5.08. Closing Conditions . . . . . . . . . . . 24
Section 5.09. Parent Shareholder Approval . . . . . . . 24
Section 5.10. Director and Officer Liability . . . . . 24
Section 5.11. No Solicitation . . . . . . . . . . . . . 25
Section 5.12. Periodic Reports . . . . . . . . . . . . 26
Section 5.13. Financing . . . . . . . . . . . . . . . . 26
Section 5.14. Hart-Scott-Rodino Filing . . . . . . . . 26
ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 6.01. Conditions to Each Party's Obligation to
Effect the Merger . . . . . . . . . . . . 27
Section 6.02. Additional Conditions to the Obligations
of the Company . . . . . . . . . . . . . 28
Section 6.03. Additional Conditions to the Obligations
of Parent and Sub . . . . . . . . . . . . 28
ARTICLE VII
TERMINATION; AMENDMENT; WAIVER
Section 7.01. Termination . . . . . . . . . . . . . . . 30
Section 7.02. Effect of Termination and Abandonment . . 32
Section 7.03. Termination Payment . . . . . . . . . . . 32
Section 7.04. Amendment . . . . . . . . . . . . . . . . 32
Section 7.05. Waiver . . . . . . . . . . . . . . . . . 32
ARTICLE VIII
GENERAL PROVISIONS
Section 8.01. Fees and Expenses . . . . . . . . . . . . 33
Section 8.02. Survival of Representations and
Warranties . . . . . . . . . . . . . . . 33
Section 8.03. Notices . . . . . . . . . . . . . . . . . 33
Section 8.04. Construction . . . . . . . . . . . . . . 34
Section 8.05. Exhibits, Schedules and Annexes . . . . . 34
Section 8.06. Counterparts . . . . . . . . . . . . . . 35
Section 8.07. Governing Law . . . . . . . . . . . . . . 35
Section 8.08. Pronouns . . . . . . . . . . . . . . . . 35
Section 8.09. Time Periods . . . . . . . . . . . . . . 35
Section 8.10. No Third Party Beneficiaries . . . . . . 35
Section 8.11. Enforcement of the Agreement . . . . . . 35
Section 8.12. Waiver of the Jury Trial . . . . . . . . 35
Section 8.13. Entire Agreement . . . . . . . . . . . . 35
Section 8.14. Severability . . . . . . . . . . . . . . 36
Section 8.15. Successors and Assigns . . . . . . . . . 36
<PAGE>
LIST OF SCHEDULES AND ANNEXES
-----------------------------
SCHEDULES
---------
3.01 Jurisdictions in Which Qualified
3.02 Capitalization
3.03 Subsidiaries
3.05 SEC Filings
3.06 No Conflicts
3.07 Consents and Approvals
3.09 Certain Changes or Events
3.14 Environmental Matters
3.15 Litigation
3.16 ERISA Compliance
3.17 Tax Matters
3.18 Change in Control Payments
3.19 Properties
3.20 Intellectual Property Matters
3.21 Insurance Policies
3.23 Certain Transactions
3.24 Contracts
3.25 Personnel
3.26 Permits
3.27 Accounts Receivable
5.01 Conduct of Business between Execution of Agreement and
Effective Time
ANNEXES
-------
Annex A Form of Opinion of Counsel to Parent and Sub
Annex B Employment Agreement with Toomas J. Kukk
Annex C Employment Agreement with Ernest M. Rochester
Annex D Form of Opinion of Counsel to the Company
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of September 10,
1996 ("Agreement"), by and among AMERICAN ECO CORPORATION, an
---------
Ontario, Canada corporation ("Parent"), SUB ACQUISITION CORP., an
------
Ohio corporation and a wholly owned subsidiary of Parent ("Sub"),
___
and CHEMPOWER, INC., an Ohio corporation (the "Company").
-------
WHEREAS, the parties hereto desire to merge Sub with
and into the Company (the "Merger"), whereupon the Company will
become a wholly owned subsidiary of Parent; and
WHEREAS, the Board of Directors of each of Parent, Sub
and the Company deems the Merger to be in the best interests of
each of Parent, Sub, the Company and their respective
shareholders;
NOW, THEREFORE, in consideration of the foregoing and
the respective representations, warranties, covenants and
agreements set forth in this Agreement, the parties hereto agree
as follows:
ARTICLE I
THE MERGER
Section 1.01. The Merger. At the Effective Time (as
----------
defined in Section 1.02), upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with
the Ohio General Corporation Law (the "Ohio Act"), Sub shall be
--------
merged with and into the Company, whereupon the Company will
become a wholly owned subsidiary of Parent. As a result of the
Merger, the separate corporate existence of Sub shall cease and
the Company shall continue as the surviving corporation in the
Merger (the "Surviving Corporation"). The name of the Surviving
---------------------
Corporation shall, by virtue of the Merger, remain "Chempower,
Inc."
Section 1.02. Effective Time. As promptly as
--------------
reasonably practicable after the satisfaction or, if permissible
hereunder, waiver of all conditions set forth in Article VI, the
parties hereto shall cause the Merger to be consummated by filing
a certificate of merger (the "Certificate of Merger") with the
---------------------
Secretary of State of the State of Ohio, in such form as required
by, and executed in accordance with the relevant provisions of
the Ohio Act (the time of such filing being the "Effective
--------
Time").
----
Section 1.03. Effect of the Merger. At the Effective
--------------------
Time, the effect of the Merger shall be as provided in the
applicable provisions of the Ohio Act. Without limiting the
generality of the foregoing, and subject thereto, at the
Effective Time, except as otherwise provided herein, all of the
property, rights, privileges, powers and franchises of Sub and
the Company shall vest in the Surviving Corporation, and all of
the debts, liabilities and duties of Sub and the Company shall
become the debts, liabilities and duties of the Surviving
Corporation.
Section 1.04. Articles of Incorporation; Code of
----------------------------------
Regulations. The Articles of Incorporation and Code of
-----------
Regulations of the Company as in effect immediately prior to the
Effective Time shall be the Articles of Incorporation and Code of
Regulations of the Surviving Corporation, unless and until duly
amended, altered or repealed.
Section 1.05. Directors and Officers. The directors
----------------------
and officers of Sub immediately prior to the Effective Time shall
become the directors and officers of the Surviving Corporation at
the Effective Time, each to hold office in accordance with the
Articles of Incorporation and Code of Regulations of the
Surviving Corporation, in each case until their respective
successors are duly elected or appointed and qualified.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
Section 2.01. Conversion of Securities; Adjustment.
------------------------------------
(a) Each share of common stock, $0.10 par value, of
the Company (the "Shares") issued and outstanding immediately
------
prior to the Effective Time, other than Shares owned by Parent,
Sub or any other wholly owned subsidiary of Parent or held in the
treasury of the Company, all of which shall be canceled
(collectively, the "Canceled Shares"), and Shares held by
---------------
Dissenting Shareholders (as defined in Section 2.06 hereof)
(collectively, the "Dissenting Shares"), shall, by virtue of the
-----------------
Merger and without any action on the part of the holder thereof,
be converted into the right to receive $6.20 net to the holder in
cash (the "Merger Consideration"), payable to the holder thereof,
--------------------
without interest thereon, upon the surrender of the certificate
representing such Share.
(b) If between the date of this Agreement and the
Effective Time the outstanding Shares shall have been changed
into a different number of Shares or a different class by reason
of a stock dividend, subdivision, reclassification,
recapitalization, split-up or combination, the Merger
Consideration shall be appropriately adjusted.
Section 2.02. Conversion of Sub Common Stock. Each
------------------------------
share of common stock, par value $0.10 per share, of Sub issued
and outstanding immediately prior to the Effective Time shall, by
virtue of the Merger and without any action on the part of the
holder thereof, be converted into and exchangeable for one (1)
share of common stock of the Surviving Corporation and each
certificate evidencing ownership of any shares of capital stock
of Sub shall evidence ownership of the same number of shares of
common stock of the Surviving Corporation.
Section 2.03. Exchange of Company Certificates and
------------------------------------
Cash.
----
(a) Deposit of Merger Consideration. As of the
-------------------------------
Effective Time, Parent or Sub shall deposit, or cause to be
deposited, with or for the account of an exchange agent (the
"Exchange Agent") selected by Parent prior to the Effective Time,
--------------
for the benefit of the holders of the Shares (other than Canceled
Shares and Dissenting Shares), for exchange in accordance with
this Article II, through the Exchange Agent, cash in the
aggregate amount required to be exchanged for the Shares (other
than Canceled Shares and Dissenting Shares) pursuant to Section
2.01 (the "Exchange Fund"). The Exchange Agent shall, pursuant
-------------
to irrevocable instructions, deliver the Exchange Fund to holders
of the Shares (other than Canceled Shares and Dissenting Shares)
in accordance with Section 2.01 hereof. The Exchange Fund shall
not be used for any other purpose. Any interest, dividends or
other income earned on the investment of the Exchange Fund while
held by the Exchange Agent shall be for the account of Parent.
(b) Exchange Procedures. As soon as reasonably
-------------------
practicable after the Effective Time, Parent will instruct the
Exchange Agent to mail to each holder of record of a certificate
or certificates which immediately prior to the Effective Time
evidenced outstanding Shares (other than Dissenting Shares) (the
"Certificates"), (i) a letter of transmittal (which shall specify
------------
that delivery shall be effected, and risk of loss and title to
the Certificates shall pass, only upon proper delivery of the
Certificates to the Exchange Agent and shall be in such form and
have such other provisions as Parent may reasonably specify) and
(ii) instructions for use in effecting the surrender of the
Certificates in exchange for payment in cash therefor. Upon
surrender of a Certificate for cancellation to the Exchange Agent
together with such letter of transmittal, duly executed, and such
other customary documents as may be required pursuant to such
instructions, the holder of such Certificate shall be entitled to
receive in exchange therefor cash in an amount equal to the
product of the number of Shares represented by such Certificate
multiplied by the Merger Consideration, and the Certificate so
surrendered shall forthwith be canceled. In the event of a
transfer of ownership of Shares which is not registered in the
transfer records of the Company, cash may be paid in accordance
with this Article II to a transferee if the Certificate
evidencing such Shares is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such
transfer and by all amounts required to pay applicable stock
transfer taxes or evidence that any applicable stock transfer
taxes have been paid. Until surrendered as contemplated by this
Section 2.03, each Certificate shall represent for all purposes
after the Effective Time only the right to receive upon such
surrender the Merger Consideration in cash multiplied by the
number of Shares evidenced by such Certificate, without any
interest thereon or, in the case of Dissenting Shares, such
consideration as may be determined to be due under the Ohio Act;
and all other rights of such holder as a shareholder of the
Company shall cease at the Effective Time, except as otherwise
required by the Ohio Act.
(c) Termination of Exchange Fund. Any portion of the
----------------------------
Exchange Fund which remains undistributed to the holders of
Shares for 180 days after the Effective Time shall be delivered
to Parent, upon demand, and any holders of Shares who have not
theretofore complied with this Article II shall thereafter look
only to Parent for payment of their claim for the Merger
Consideration to which they are entitled pursuant to this
Agreement. Neither Parent nor the Company shall be liable to any
holder of the Shares for any cash from the Exchange Fund
delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
(d) Withholding Rights. Parent shall be entitled to
------------------
deduct and withhold from the Merger Consideration otherwise
payable pursuant to this Agreement to any holder of Shares such
amounts as Parent is required to deduct and withhold with respect
to the making of such payment under the Internal Revenue Code of
1986, as amended (the "Code"), or any provision of state, local
----
or foreign tax law. To the extent that amounts are so withheld
by Parent, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the holder of
the Shares in respect of which such deduction and withholding was
made by Parent.
(e) Lost Certificates. If any Certificate is lost,
-----------------
stolen, or destroyed, upon the making of an affidavit of that
fact by the person claiming such Certificate to be lost, stolen,
or destroyed and, if required by the Surviving Corporation the
posting by such person of a bond in such reasonable amount as
Parent may direct as indemnity against any claim that may be made
against it with respect to such Certificate, the Exchange Agent
will pay the cash payable in respect of such Certificate pursuant
to this Agreement.
Section 2.04. Stock Transfer Books. At the Effective
--------------------
Time, the stock transfer books of the Company shall be closed and
there shall be no further registration of transfers of Shares
thereafter on the records of the Company. On or after the
Effective Time, any Certificates presented to the Exchange Agent,
the Surviving Corporation or Parent for any reason, other than
Dissenting Shares presented for endorsement in accordance with
the Ohio Act, shall be canceled and converted into the right to
receive the Merger Consideration in cash multiplied by the number
of Shares evidenced by such Certificate.
Section 2.05. Company Options. At the Effective Time
---------------
(and subject to the effectiveness of the Merger), each option to
purchase Shares, whether or not exercisable, shall be canceled in
consideration of the payment by the Company out of funds provided
by Parent, if necessary, to each holder thereof of an amount in
cash equal to the extent (if any) by which the Merger
Consideration exceeds the exercise price per share payable under
such option, multiplied by the number of Shares subject to such
option. All incentive stock option plans and non-qualified stock
option plans maintained by the Company, and each option issued
under any of such plans, shall be amended, to the extent
necessary, to incorporate the terms of the preceding sentence and
to delete any inconsistent provisions thereof regarding the
treatment of such options as a consequence of the Merger. Parent
shall be entitled to cause the Company to withhold from amounts
otherwise payable pursuant to this Section 2.05 any amount
required to be withheld under applicable tax laws.
Section 2.06. Dissenting Shares. Notwithstanding
-----------------
anything in this Agreement to the contrary, any issued and
outstanding Shares held by a person (a "Dissenting Shareholder")
----------------------
who objects to the Merger and complies with all the provisions of
the Ohio Act concerning the right of shareholders of the Company
to dissent from the Merger and require the fair cash value of
their Shares shall not be converted as described in Section 2.01
hereof but shall become the right to receive such consideration
as may be determined to be due to such Dissenting Shareholder
pursuant to the Ohio Act. If after the Effective Time, such
Dissenting Shareholder withdraws his demand for the fair cash
value of his Shares or fails to perfect or otherwise loses his
right to the fair cash value of his Shares, in any case pursuant
to the Ohio Act, his Shares shall be deemed to be converted as of
the Effective Time into the right to receive the Merger
Consideration, without interest. The Company shall give Parent
(i) prompt notice of any demands for the fair cash value of
Shares received by the Company and (ii) the opportunity to
participate in and direct all negotiations and proceedings with
respect to any such demands. The Company shall not, without the
prior written consent of Parent, make any payment with respect
to, or settle, offer to settle or otherwise negotiate any such
demands.
Section 2.07. Closing. The closing of the Merger
-------
will take place at 10:00 a.m. not later than the second business
day after the day on which there shall have been satisfaction or
waiver of the conditions set forth in Article VI, at the offices
of Thompson Hine & Flory P.L.L., 3900 Key Center, 127 Public
Square, Cleveland, Ohio, unless another date or place is agreed
to in writing by the parties hereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub
as follows:
Section 3.01. Organization and Qualification.
------------------------------
(a) Organization and Power. The Company is a
----------------------
corporation duly organized, validly existing and in good standing
under the laws of the State of Ohio. The Company has all
requisite corporate power and authority to carry on its business
as it is now being conducted and to own, lease and operate its
assets.
(b) Qualification. The Company is duly qualified or
-------------
licensed to do business as a foreign corporation in good standing
in every jurisdiction where the character of its properties,
owned or leased, or the nature of its activities make such
qualification necessary, except where the failure to be so
qualified will not have an effect which is material and adverse
to the business, financial condition or results of operations of
the Company and its Subsidiaries (as hereinafter defined) taken
as a whole other than an effect resulting from this Agreement or
the transactions contemplated hereby (a "Company Material Adverse
------------------------
Effect"). Each of such jurisdictions is listed in Schedule 3.01
------ -------------
hereto.
(c) Articles of Incorporation and Code of Regulations.
-------------------------------------------------
The Company has heretofore delivered to Parent complete and
correct copies of the Company's Articles of Incorporation and
Code of Regulations, each as currently in effect.
Section 3.02. Capitalization. The authorized capital
--------------
stock of the Company, together with a description of treasury
securities and a description of all securities issued and
outstanding as of the date hereof is as set forth on Schedule
--------
3.02 attached hereto. All securities identified on Schedule 3.02
---- -------------
as being issued and outstanding securities are validly issued,
fully paid and nonassessable. Except as set forth on Schedule
--------
3.02, there is no outstanding option, warrant, right, call,
----
subscription or other agreement or commitment to which the
Company is a party which (a) obligates the Company to sell,
pledge or otherwise dispose of any shares of capital stock of the
Company or any securities convertible or exchangeable into, or
other rights to acquire, any shares of capital stock of the
Company, (b) obligates the Company to make any payments with
respect to appreciation in shares of its capital stock, (c)
obligates the Company to grant, offer or enter into any of the
foregoing, or (d) relates to the voting, transfer or control of
such capital stock, securities or rights. Schedule 3.02 sets
-------------
forth the exercise price of each stock option currently
outstanding.
Section 3.03. Subsidiaries. Each Subsidiary of the
------------
Company is listed on Schedule 3.03 hereto. Except as set forth
-------------
in Schedule 3.03, each such Subsidiary is a corporation duly
-------------
organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and has the corporate power
to carry on its business substantially as it is now being
conducted. Each Subsidiary is duly qualified as a foreign
corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or
leased or the nature of its activities makes such qualification
necessary, except where the failure to be so qualified will not
have a Company Material Adverse Effect. All of the outstanding
shares of capital stock of each Subsidiary are validly issued,
fully paid and nonassessable and owned directly or indirectly by
the Company free and clear of all liens, claims or encumbrances
and were not issued in violation of any preemptive right. There
are no existing options, calls or commitments of any character
relating to the issued or unissued capital stock of any
Subsidiary, or any securities convertible into, or exchangeable
or exercisable for, or otherwise evidencing the right to acquire,
any shares of capital stock of any Subsidiary. For purposes of
this Agreement, the term "Subsidiary" of the Company shall mean
----------
any corporation, limited partnership or other entity a majority
of whose outstanding voting stock or ownership interests entitled
to vote for the election of directors or other governing body is
at the time owned by the Company and/or one or more other
Subsidiaries. Except for the Subsidiaries listed on Schedule
--------
3.03 hereto, the Company does not have any direct or indirect
----
record or beneficial ownership, voting or management interest in
any corporation, limited partnership or other entity.
Section 3.04. Authorization. The Company has all
-------------
requisite corporate power to enter into this Agreement, and all
other documents and instruments to be executed and delivered by
it in connection herewith, and to carry out its obligations
hereunder and thereunder. Except with respect to the approval by
the shareholders of the Company of this Agreement and the Merger
(a) the execution and delivery of this Agreement and the due
consummation by the Company of the transactions contemplated
hereby have been duly and validly authorized by all necessary
corporate action on the part of the Company and (b) this
Agreement constitutes (and each document and instrument
contemplated by this Agreement, when executed and delivered in
accordance with the provisions hereof, will constitute) a valid
and legally binding agreement of the Company enforceable in
accordance with its terms assuming the due authorization,
execution and delivery hereof by Parent, except as such
enforcement may be limited by applicable bankruptcy, insolvency,
moratorium, or other similar laws affecting the rights of
creditors generally, general principles of equity, and public
policy. The affirmative vote of the holders of a majority of the
Shares is the only vote of any class or series of capital stock
of the Company necessary to approve the Merger.
Section 3.05. SEC Filings.
-----------
(a) Except as set forth on Schedule 3.05 attached
-------------
hereto, the Company has filed with the Securities and Exchange
Commission (the "SEC") all required reports, schedules, forms,
---
statements and other documents from January 1, 1993 through the
date hereof, including (i) the annual reports on Form 10-K for
all fiscal years ended during such period, (ii) the quarterly
reports on Form 10-Q required for all fiscal quarters during such
period, (iii) all proxy or information statements relating to
meetings of, or actions taken without a meeting by, the
shareholders of the Company held during such period, and (iv) all
other reports, statements, schedules and registration statements
required to be filed with the SEC during such period (the "SEC
---
Documents") except where the failure to file any such SEC
---------
Document referred to in Subparagraph 3.05(a)(iv) is not likely to
have, individually or in the aggregate, a Company Material
Adverse Effect.
(b) As of its filing date or, if amended, as of the
date of its amendment, as the case may be, each such report,
proxy or information statement (as amended or supplemented, if
applicable), filed pursuant to the Securities Exchange Act of
1934, as amended (the "Exchange Act"), did not contain any
------------
untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in
the light of the circumstances under which they were made, not
misleading.
(c) Each such registration statement (as amended or
supplemented, if applicable) filed pursuant to the Securities Act
of 1933, as amended (the "Securities Act"), on the date such
--------------
statement, amendment or supplement became effective did not
contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to
make the statements therein not misleading.
Section 3.06. No Conflicts. Except as set forth on
------------
Schedule 3.06 attached hereto, the execution, delivery and
-------------
performance of this Agreement by the Company and the consummation
of the transactions contemplated hereby:
(a) will not constitute a conflict with, breach or
violation of or default (or an event which with notice or lapse
of time or both would become a default) under: (i) the Company's
Articles of Incorporation or Code of Regulations, as amended to
date, (ii) any material agreement, instrument, license, franchise
or permit to which the Company or any of its Subsidiaries is
subject or by which any of them is bound, (iii) any order, writ,
injunction or decree to which the Company or any of its
Subsidiaries are subject or by which any of them is bound, or
(iv) assuming that the consents and approvals referenced in
Section 3.07 hereof are obtained, any statute, law, rule or
regulation to which the Company or any of its Subsidiaries is
subject or by which any of them is bound, the violation of which
would have a Company Material Adverse Effect; and
(b) will not result in the creation of any lien,
charge or encumbrance on the properties or assets of the Company,
except those created or imposed by or through Parent or Sub and
except for such liens, charges, or encumbrances which would not
have a Company Material Adverse Effect.
Section 3.07. Consents and Approvals. Except: (a) for
----------------------
filings and approvals required by: (i) the Secretary of State of
the State of Ohio, (ii) the Exchange Act, (iii) the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended, and the
regulations promulgated thereunder (the "Hart-Scott-Rodino Act"),
---------------------
and (iv) such other statutes, rules or regulations which may
require registrations, authorizations, consents or approvals
relating to matters that, in the aggregate, are not material to
the Company and its Subsidiaries taken as a whole; (b) for the
approval by the shareholders of the Company of this Agreement and
the transactions contemplated hereby; and (c) as set forth on
Schedule 3.07 attached hereto, neither the Company nor any of its
-------------
Subsidiaries is required to submit any notice, report or other
filing with or obtain any consent or approval from any
governmental authority or instrumentality, domestic or foreign (a
"Governmental Entity") or third party in connection with the
-------------------
execution and delivery by the Company of this Agreement or the
consummation of the transactions contemplated hereby. The
consents set forth on Schedule 3.07 that are marked with an
asterisk (*) are referred to herein as the "Material Consents."
Section 3.08. Financial Statements. The consolidated
--------------------
financial statements of the Company included in the annual
reports on Form 10-K filed by the Company with respect to the
three most recently completed fiscal years of the Company and the
quarterly reports on Form 10-Q filed by the Company with the SEC
with respect to the quarters ended March 31 and June 30, 1996,
comply in all material respects with applicable accounting
requirements and with the published rules and regulations of the
SEC with respect thereto, were prepared in accordance with
generally accepted accounting principles, consistently applied
(except as may be indicated in the notes thereto or, in the case
of the unaudited statements, as permitted by Form 10-Q of the
SEC), and fairly present (subject, in the case of the unaudited
statements, to normal, recurring adjustments, none of which are
anticipated to have a Company Material Adverse Effect) the
financial position, results of operations, shareholders' equity
and cash flow of the Company and its Subsidiaries as at the dates
and for the periods indicated.
Section 3.09. Absence of Certain Changes or Events.
------------------------------------
Except as set forth on Schedule 3.09 attached hereto, since
-------------
January 1, 1996, there has been no Company Material Adverse
Effect (whether or not covered by insurance), and there has not
been:
(a) any event, occurrence or development of a state of
circumstances or facts which has had or reasonably could be
expected to have a Company Material Adverse Effect;
(b) any declaration, setting aside or payment of any
dividend or other distribution with respect to any shares of
capital stock of the Company or any Subsidiary or any repurchase,
redemption or other acquisition by the Company or any Subsidiary
of any outstanding shares of capital stock or other securities
of, or other ownership interests in, the Company or any
Subsidiary;
(c) any amendment of any material term of any
outstanding security of the Company or any Subsidiary;
(d) any incurrence, assumption or guarantee by the
Company or any Subsidiary of any indebtedness for borrowed money
other than in the ordinary course of business and in amounts and
on terms consistent with past practices, but in no event in the
amount of more than $100,000 in the aggregate;
(e) any creation or assumption by the Company or any
Subsidiary of any lien, pledge, mortgage or other restriction on
any material asset other than in the ordinary course of business
consistent with past practices, but in no event in respect of any
obligation of more than $100,000 in the aggregate;
(f) any making of any loan, advance or capital
contributions to, or investment in any person other than
investments in cash equivalents made by the Company or any
Subsidiary except those made in the ordinary course of business
consistent with past practices;
(g) any transaction or commitment made, or any
contract or agreement entered into, by the Company or any
Subsidiary relating to its assets or business (including the
acquisition or disposition of any assets) or any relinquishment
by the Company or any Subsidiary of any contract or other right,
in either case, involving an amount in excess of $100,000 other
than transactions and commitments in the ordinary course of
business consistent with past practice and those contemplated by
this Agreement;
(h) any forgiveness or cancellation of any debt or
claim, or any waiver of any right, in either case, involving an
amount in excess of $100,000;
(i) any change in any method of accounting or
accounting practice by the Company or any Subsidiary, except for
any such change required by reason of a concurrent change in
generally accepted accounting principles;
(j) any (i) grant of any severance or termination pay
to any director, officer or employee of the Company or any
Subsidiary, (ii) entering into of any employment, deferred
compensation or other similar agreement (or any amendment to any
such existing agreement) with any director, officer or employee
of the Company or any Subsidiary, (iii) increase in benefits
payable under any existing severance or termination pay policies
or employment agreements of the Company or any Subsidiary,
(iv) adoption or implementation of an employee benefit plan or
any amendment modification or termination of any plan in effect
at December 31, 1995, or (v) increase in compensation, bonus or
other benefits payable to directors, officers or employees of the
Company or any Subsidiary, other than in the ordinary course of
business consistent with past practice; or
(k) any labor dispute, other than routine individual
grievances, or any activity or proceeding by a labor union or
representative thereof to organize any employees of the Company
or any Subsidiary, which employees were not subject to a
collective bargaining agreement at December 31, 1995, or any
lockouts, strikes, slowdowns, work stoppages or threats thereof
by or with respect to such employees.
Section 3.10. No Undisclosed Material Liabilities.
-----------------------------------
There are no liabilities of the Company or its Subsidiaries of
any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, other than:
(a) liabilities disclosed in the Company's Form 10-Q for the
fiscal quarter ended June 30, 1996 (the "June 1996 Form 10-Q")
included in the SEC Documents; and (b) liabilities incurred in
the ordinary course of business consistent with past practice
since June 30, 1996, which individually or in the aggregate,
would not have a Company Material Adverse Effect.
Section 3.11. Proxy Statement. None of the
---------------
information to be supplied by the Company or any of its
accountants, counsel or other authorized representatives for
inclusion in the Proxy Statement (as defined in Section 5.05
hereof) to be distributed in connection with the Shareholders
Meeting (as defined in Section 5.04 hereof) will, at the time of
the mailing of the Proxy Statement and any amendments or
supplements thereto, contain any untrue statement of a material
fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which
they are made, not misleading, or, at the time of the
Shareholders Meeting, omit to state any material fact necessary
to correct any statement that has become false or misleading, it
being understood and agreed that no representation or warranty is
made by the Company with respect to any information supplied by
Parent or Sub or their accountants, counsel or other authorized
representatives. If at any time prior to the Effective Time any
event with respect to the Company, its officers and directors or
any of its subsidiaries shall occur which is or should be
described in an amendment of, or a supplement to, the Proxy
Statement, such event shall be so described and the presentation
in such amendment or supplement of such information will not
contain any statement which, at the time and in light of the
circumstances under which it is made, is false or misleading in
any material respect or omits to state any material fact required
to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not false or misleading. The Proxy Statement will comply
as to form in all material respects with all applicable laws,
including the provisions of the Exchange Act and the rules and
regulations promulgated thereunder.
Section 3.12. Fairness Opinion. The Company has
----------------
received the written opinion of McDonald & Company Securities,
Inc., financial advisor to the Company, that, as of the date of
the opinion, the Merger Consideration to be received by the
holders of Shares is fair, from a financial point of view, to
such holders, and such opinion has not been withdrawn as of the
date hereof. The Company has delivered a copy of such opinion to
Parent.
Section 3.13. Brokers and Finders. No broker, finder
-------------------
or investment banker is entitled to any brokerage fees,
commissions or finders' fees in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf
of the Company.
Section 3.14. Environmental Matters. The operations
---------------------
of the Company and its Subsidiaries, including the
transportation, treatment, storage, handling, transfer,
disposition, recycling or receipt of materials are, and, to the
knowledge of the Company, at all times in the past have been, in
compliance with all applicable legal requirements, laws, rules,
orders and regulations related to environmental, natural
resource, health or safety matters ("Environmental Laws"),
including but not limited to those promulgated, adopted or
enforced by the United States Environmental Protection Agency and
by similar agencies in states in which the Company or its
Subsidiaries conduct their business. Except as set forth on
Schedule 3.14 attached hereto, neither the Company nor any of its
-------------
Subsidiaries is a party to any suit, action, claim or proceeding
now pending before any court, governmental agency or board or
other forum or, to the knowledge of the Company, threatened by
any person which (i) alleges noncompliance with any Environmental
Law, (ii) relates to the discharge or release into the
environment of any hazardous material, pollutant, or waste at or
on a site presently or formerly owned, leased or operated by the
Company or any Subsidiary, or (iii) involves the transportation,
treatment, storage, handling, transfer, disposition, recycling or
receipt of hazardous materials. There are no facts or
circumstances, to the actual knowledge of the officers of the
Company or any Subsidiary of the Company, upon which such a suit,
action, claim or proceeding reasonably could be based.
Section 3.15. Litigation. Except as set forth in the
----------
SEC Documents or as set forth on Schedule 3.15 attached hereto,
-------------
there is no suit, action, claim, arbitration, governmental
investigation or proceeding pending or, to the knowledge of the
Company, threatened against the Company or any of its
Subsidiaries, or any of their respective officers or directors in
their capacity as such, or any of their respective properties or
businesses, which, if adversely determined, individually or in
the aggregate with other such suits, actions, claims,
arbitrations, governmental investigations or proceedings, would
(i) have a Company Material Adverse Effect, (ii) materially and
adversely affect the Company's ability to perform its obligations
under this Agreement, or (iii) prevent the consummation of any of
the transactions contemplated by this Agreement. The Company has
provided to Parent all pleadings and discovery materials
possessed by the Company or its counsel regarding the facts and
circumstances that are the subject of the litigation and claims
listed on Schedule 3.15 (the "Company Litigation"). Neither the
------------- ------------------
Company nor any of its Subsidiaries is subject to any order,
judgment, decree, infraction, stipulation or consent order of any
court or Governmental Entity, other than orders of general
applicability.
Section 3.16. ERISA Compliance.
----------------
(a) The Company has delivered to Parent correct and
complete copies of all "employee benefit plans" (as defined in
Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")), and all other bonus, deferred
-----
compensation, pension, profit-sharing, retirement, medical, group
life, disability income, stock purchase, stock option, incentive
or other employee-related plans, programs, contracts, agreements
and arrangements (sometimes referred to herein collectively as
"Benefit Plans") currently maintained, or contributed to, or
-------------
required to be maintained or contributed to, by the Company or
any other person or entity that, together with the Company, is
treated as a single employer under Sections 414(b), (c), (m) or
(o) of the Code (each a "Commonly Controlled Entity") for the
--------------------------
benefit of any current or former employees, officers or directors
of the Company or any Subsidiary. Except as disclosed on
Schedule 3.16 attached hereto, the Company also has delivered to
-------------
Parent complete and correct copies of (x) the most recent annual
report on Form 5500 filed with the Internal Revenue Service with
respect to each Benefit Plan (if any such report was required)
including all schedules thereto, (y) the most recent summary plan
description for each Benefit Plan for which such summary plan
description is required and (z) each currently effective trust
agreement and group annuity contract relating to any Benefit
Plan. Except as disclosed on Schedule 3.16 attached hereto, the
-------------
Company has no obligation or liability with respect to any
employee benefit plan (as defined under Section 3(3) of ERISA) or
any other bonus, deferred compensation, pension, profit sharing,
retirement, medical, group life, disability income, stock
purchase, stock option, incentive or other employee related
plans, programs, contracts, agreements or arrangements, other
than such Benefit Plans currently maintained, contributed to or
required to be maintained or contributed to by the Company or any
Company Controlled Entity.
(b) Each Benefit Plan has been administered in
accordance with its terms in all material respects except where
the failure to do so either singly or in the aggregate would not
have a Company Material Adverse Effect. Except as disclosed on
Schedule 3.16 attached hereto, the Company and each Benefit Plan
-------------
are in compliance with applicable provisions of ERISA and the
Code, except for any noncompliance that singly or in the
aggregate would not have a Company Material Adverse Effect.
Except as provided in Section 2.05 or pursuant to the plans or
agreements disclosed on Schedule 3.18 attached hereto, the
-------------
consummation of the transactions contemplated herein will not
directly or indirectly cause the payment, or the acceleration of
any payment, under any Benefit Plan of any amount to any person.
(c) All Benefit Plans intended to be qualified under
Section 401(a) of the Code have been the subjects of
determination letters from the Internal Revenue Service to the
effect that such Benefit Plans are qualified and exempt from
Federal income taxes under Section 401(a) and 501(a),
respectively, of the Code and no such determination letter has
been revoked nor, to the knowledge of the Company, has revocation
been threatened. Except as set forth on Schedule 3.16 attached
-------------
hereto, no such Benefit Plan has been amended since the date of
its most recent determination letter or application therefor in
any respect that, to the knowledge of the Company, would have a
Company Material Adverse Effect.
(d) Except as disclosed on Schedule 3.16, neither the
-------------
Company nor any Commonly Controlled Entity maintains, contributes
to, or at any time maintained, contributed to or was obligated to
contribute to, any Benefit Plan which is subject to Title IV of
ERISA or Section 412 of the Code.
(e) None of the Company, any Subsidiary, any officer
of the Company, or any Subsidiary or any other person or persons,
has engaged in a non-exempt "prohibited transaction" (as such
term is defined in Section 406 of ERISA or Section 4975 of the
Code) or any other breach of fiduciary responsibility that could
subject the Company or any officer of the Company to direct or
indirect tax, penalty or liability under ERISA, the Code or other
applicable law which would have a Company Material Adverse
Effect.
(f) With respect to any Benefit Plan that is an
employee welfare benefit plan, (x) no such Benefit Plan is funded
through a "welfare benefit fund", as such term is defined in
Section 419(a) of the Code, and (y) each such Benefit Plan that
is a "group health plan", as such term is defined in Section
5000(b)(1) of the Code, complies in all material respects with
the applicable requirements of Section 4980B(f) of the Code and
Part 6 of Title I of ERISA except where the failure to do so
would not individually or in the aggregate have a Company
Material Adverse Effect.
Section 3.17. Tax Matters.
-----------
(a) The Company, and if applicable each Subsidiary,
has filed all Federal income tax returns and all other tax
returns and reports required to be filed by them. All such
returns are complete and correct in all material respects and
were timely filed. The Company, and if applicable each
Subsidiary, has paid or has made provisions for payment for all
taxes and all material taxes for which no return was required to
be filed, the nonpayment of which would have a Company Material
Adverse Effect, and the most recent consolidated financial
statements of the Company contained in the SEC Reports reflect an
adequate reserve for all taxes payable for all taxable periods
and portions thereof through the date of such financial
statements, except where the failure to maintain such reserve
would not, individually or in the aggregate, have a Company
Material Adverse Effect.
(b) Except as set forth on Schedule 3.17 attached
-------------
hereto, no audits concerning taxes of the Company and, if
applicable, any Subsidiary are currently being conducted and no
notice regarding commencement of such an audit has been received.
(c) Except as set forth on Schedule 3.17 attached
-------------
hereto, no proposed or assessed deficiencies for any taxes are
currently pending against the Company, or if applicable any
Subsidiary, and no requests for waivers of the time to assess any
such taxes are pending, in either case which, individually or in
the aggregate, would have a Company Material Adverse Effect.
(d) Except as set forth in Schedule 3.17, the Company
-------------
is not aware of any basis for the assertion of any deficiency
against the Company or, if applicable, any Subsidiaries for taxes
which, if adversely determined, either individually or in the
aggregate, would have a Company Material Adverse Effect with
respect to the tax return of the Company and its Subsidiaries for
the taxable years as to which the statute of limitations has not
expired.
(e) As used in this Agreement, "taxes" shall include
-----
all Federal, state, local and foreign income, property, sales,
excise, employment, payroll, custom duty and any other
governmental fee or assessment, and penalties, in addition to any
liability to a third party for such amounts, and interest of any
nature whatsoever.
Section 3.18. Change in Control Payments. Except as
--------------------------
set forth on Schedule 3.18 attached hereto, neither the Company
-------------
nor its Subsidiaries have any plans or agreements to which they
are parties, or to which they are bound, pursuant to which
payments or acceleration of benefits may be required upon a
"change of control" of the Company.
Section 3.19. Properties. Set forth on Schedule 3.19
---------- -------------
attached hereto is a correct and complete list of all real
property and all personal property of the Company and its
Subsidiaries (other than inventory) having a book value exceeding
$10,000. Except as set forth on Schedule 3.19 attached hereto,
-------------
the Company and its Subsidiaries have good and marketable title
to, and are the lawful owners of, all of the tangible and
intangible assets, properties and rights used in connection with
their respective businesses and individually or in the aggregate
material in the conduct of the business of the Company and its
Subsidiaries, taken as a whole, including such tangible assets
and properties reflected in the consolidated balance sheet
included in the June 1996 Form 10-Q (the "June 1996 Balance
Sheet") (other than leased assets and assets disposed of in the
ordinary course of business since such date). Schedule 3.19 sets
-------------
forth a correct and complete list of all material leased assets.
Except as otherwise identified in Schedule 3.19, the material
-------------
tangible assets of the Company and its Subsidiaries taken as a
whole, are in all material respects in good condition and repair,
reasonable wear and tear excepted, and have been well maintained.
Section 3.20. Intellectual Property. Set forth on
---------------------
Schedule 3.20 attached hereto is a correct and complete list of
-------------
each patent, trademark, tradename, service mark, copyright and
other trade secret or proprietary intellectual property, whether
registered or unregistered (collectively, the "Intellectual
------------
Property"), owned or used by the Company and its Subsidiaries,
--------
and to the knowledge of the Company, the Company and each
Subsidiary has exclusive ownership of or rights to use such
Intellectual Property. To the knowledge of the Company, the
current use by the Company and each Subsidiary of such
Intellectual Property does not infringe the rights of any other
person. Except set forth on Schedule 3.20 attached hereto, to
-------------
the knowledge of the Company, no other person is infringing the
rights of the Company or any Subsidiary in any such Intellectual
Property, except for any such infringements, that do not,
individually or in the aggregate, have a Company Material Adverse
Effect.
Section 3.21. Insurance Coverage.
------------------
(a) Set forth on Schedule 3.21 attached hereto is a
-------------
correct and complete list of all insurance policies currently
owned by the Company (the "Company Insurance Policies"), setting
--------------------------
forth, for each such policy, the policy number, the date of
inception of the policy and the period of coverage, the insurer,
and a general description of the risks insured against under such
policy. The Company has heretofore delivered to Parent a correct
and complete copy of each of the Company Insurance Policies,
including all endorsements, amendments or supplements thereto.
Each of the Company Insurance Policies has been validly obtained,
all premiums required to be paid with respect thereto have been
paid in full, and each of the Company Insurance Policies is in
full force and effect. The Company Insurance Policies are in
amounts and coverage sufficient for compliance by the Company
with all requirements of law and all agreements to which the
Company and any of its Subsidiaries is a party, and customary in
its industry.
(b) Set forth on Schedule 3.21 attached hereto is a
-------------
correct and complete list of each and every claim made since
January 1, 1995 with respect to the Company Insurance Policies
where the amount of damage or potential liability exceeded
$10,000. The Company has given due and timely notice of any
claim and of any occurrence known to it which may be covered by
any such policies. To the Company's knowledge, no insurance
company has disclaimed coverage as to any claim made by the
Company.
Section 3.22. Inventory.
---------
(a) The values at which all inventories are carried on
the books of the Company and its Subsidiaries (copies of which
books previously have been provided by the Company to Parent),
including without limitation the reserves with respect thereto,
have been calculated in accordance with generally accepted
accounting principles consistent with past practices.
(b) Consistent with past practices, taking into
account the reserves for inventory, the inventories reflected on
the books of the Company and its Subsidiaries are: (i) in all
material respects in good and merchantable condition; (ii)
generally usable for the purposes for which they are intended, or
salable in the ordinary course of business; and (iii) not
excessive in material respects in kind or amount in the context
of the Company's business taken as a whole. The inventories
reflected on the books of the Company and its Subsidiaries
include any and all inventory held on consignment by third
parties.
Section 3.23. Related Party Transactions. Except as
--------------------------
set forth in the SEC Documents or as set forth on Schedule 3.23
-------------
attached hereto, none of the officers, directors or principal
shareholders of the Company or any of its Subsidiaries is
presently a party to any transaction with the Company or any of
its Subsidiaries (other than for services as employees, officers
and directors), including without limitation any contract,
agreement or other arrangement (i) providing for the furnishing
of services to or by, (ii) providing for rental of real or
personal property to or from, or (iii) otherwise requiring
payments to or from, any officer or director, any member of the
family of any officer or director or any corporation,
partnership, trust or other entity in which any officer or
director has a substantial interest or is an officer, director,
trustee or partner. All related party transactions described in
the SEC Documents or on Schedule 3.23 were on terms to the
-------------
Company or its Subsidiaries no less favorable than what the
Company or its Subsidiaries would have had with third parties.
Section 3.24. Contracts.
---------
(a) Except for the contracts, agreements, commitments,
instruments, bids and proposals to which the Company or any of
its Subsidiaries is a party listed on Schedule 3.24, neither the
-------------
Company nor any of its Subsidiaries is a party to or otherwise
bound by any written or oral (i) mortgage, indenture, note,
installment obligation or other instrument relating to the
borrowing of money, (ii) guarantee of any obligation (excluding
endorsements of instruments for collection in the ordinary course
of business of the Company or any Subsidiary), (iii) letter of
credit, bond or other indemnity, (iv) joint venture, partnership
or other agreement involving the sharing of profits and losses,
(v) agreement requiring the performance of services or delivery
of goods in an amount exceeding $50,000 or which would not be
completed within six (6) months, (vi) agreement for the sale or
lease to any person of any material amount of assets other than
the retirement or other disposition of assets no longer useful to
the Company or any of its Subsidiaries or the sale of assets in
the ordinary course of business, (vii) agreement requiring the
payment of more than $50,000 in any 6-month period for the
purchase or lease of any machinery, equipment or other capital
assets, (viii) agreement providing for the lease or sublease (as
lessor, sublessor, lessees or sublessee) of any real property,
(ix) distributor, sales representative, broker or agent
agreement, (x) collective bargaining agreement, employment or
consulting agreement or agreement providing for severance
payments or other additional rights or benefits (whether or not
optional) in the event of the sale of the Company or any of its
Subsidiaries, (xi) agreement requiring the payment to any person
of more than $50,000 in any 6-month period for the purchase of
goods or services, (xii) material warranties relating to products
sold or distributed or services performed or provided by the
Company or any of its Subsidiaries in the last six (6) years,
(xiii) license or sublicense agreement (whether as licensor,
licensee, sublicensor or sublicensee) with respect to any
material item of Intellectual Property owned or licensed by the
Company or any of its Subsidiaries, or (xiv) agreement imposing
non-competition, confidentiality or exclusive dealing obligations
on the Company or any of its Subsidiaries, except for
confidentiality agreements entered into with respect to this
transaction.
(b) The Company has delivered or made available to
Parent complete and correct copies of each written agreement
listed on Schedule 3.24, each as amended to date, and a summary
-------------
of the terms of each oral agreement listed on Schedule 3.24.
-------------
Each agreement listed on Schedule 3.24 is a valid, binding and
-------------
enforceable obligation of the Company or any of its Subsidiaries
and, to the Company's knowledge, the other party or parties
thereto and is in full force and effect. Except as set forth on
Schedule 3.24 (i) neither the Company or any of its Subsidiaries
-------------
nor, to the Company's knowledge, any other party thereto is in
material breach of any material term of any such agreement or has
repudiated any material term of any such agreement, (ii) no
event, occurrence or condition exists (including the transactions
contemplated under this Agreement) which, with the lapse of time
or the giving of notice or both, would become a default under any
such agreement by the Company or any of its Subsidiaries or, to
the Company's knowledge, any other party thereto, and (iii) the
Company or any of its Subsidiaries has not released or waived any
material right under any contract. Except as disclosed on
Schedule 3.07, the Company is not required to give notice to any
-------------
other person who is a party to an agreement listed on Schedule
________
3.24 regarding this Agreement or the Merger.
----
(c) Schedule 3.24 sets forth a correct and complete
-------------
list of the ten largest customers of the Company and its
Subsidiaries in terms of net revenues during each of the 1994 and
1995 fiscal years and the first six months of fiscal 1996,
showing the total net revenue received in each such period from
each such customer. Except to the extent set forth on Schedule
--------
3.24, since June 30, 1996, there has not been any adverse change
----
in the business relationship between the Company or any of its
Subsidiaries and any customer listed on such Schedule.
Section 3.25. Personnel. Set forth on Schedule 3.25
--------- -------------
attached hereto is a correct and complete list of: (i) all full
time and part time employees including their respective
positions, dates of hire and salary; (ii) all employment,
severance, bonus, profit sharing, percentage compensation and
pension or retirement plans; stock purchase and stock option
plans; contracts or agreements with present or former directors,
officers or employees that are not terminable on 60 days' or less
notice without penalty to the Company; and all consulting
agreements, to which the Company or any of its Subsidiaries is a
party or to which they are bound as of the date of this
Agreement; (iii) all group insurance programs in effect for
employees of the Company and its Subsidiaries; and (iv) all
accrued but unused vacation, holiday and sick-time on the account
of each employee of the Company and its Subsidiaries. Neither
the Company nor any of its Subsidiaries is in default with
respect to any of its obligations listed above.
Section 3.26. Compliance with Laws. Except as
--------------------
disclosed in this Agreement or in the Schedules hereto, the
operations of the business of the Company and its Subsidiaries as
currently conducted are not, and as heretofore conducted, to the
knowledge of the Company, were not in violation of, nor is the
Company or any of its Subsidiaries in default under, or violation
of, any federal, state, local or foreign law, statute or
regulation or any order, judgment or decree of any federal,
state, local or foreign governmental authority, regulatory or
administrative agency, commission, court or tribunal to which the
Company or any of its Subsidiaries are bound, except for such
violations or defaults as have not had a Company Material Adverse
Effect. The Company and its Subsidiaries have been duly granted
all permits, licenses, variances, exemptions, orders, approvals
and authorizations ("Permits") necessary for the conduct of their
businesses as currently conducted and are in compliance with the
terms of each such Permit, except where the failure to obtain
such Permits or to comply with such Permits would not have a
Company Material Adverse Effect. Set forth on Schedule 3.26
-------------
attached hereto is a correct and complete list of all such
Permits. Except as set forth on Schedule 3.26, the entry into
-------------
this Agreement and the consummation of the Merger will not
require any modification, re-application, approval or other
consent as to any Permit.
Section 3.27. Accounts Receivable. Set forth on
-------------------
Schedule 3.27 attached hereto is a correct and complete list of
-------------
the work-in-process and accounts receivable of the Company and
its Subsidiaries as set forth on the June 1996 Balance Sheet,
including the degree of completion for each project and the
amounts expended thereon as of June 30, 1996. All accounts
receivable which have arisen subsequent to the June 1996 Balance
Sheet represent sales made or work performed in the ordinary
course of business, are current and collectable and, to the
Company's knowledge, the same will be collected in full (net of
reserve for bad debts) in the ordinary course of business and are
not subject to any claims, offsets, allowances or adjustments.
Section 3.28. Books and Records. The Company has
-----------------
maintained and preserved complete and accurate books and records
for its material transactions. The minute books of the Company
and its Subsidiaries include complete and correct minutes of all
meetings of their respective directors committees and
stockholders.
Section 3.29. Board Recommendation. The Board of
--------------------
Directors of the Company has duly adopted, at a special meeting
of such Board duly held on September 3, 1996, resolutions
approving this Agreement, the Merger and the other transactions
contemplated hereby on the terms and conditions set forth herein,
has taken all actions so that the restrictions of Chapter 1704 of
the Ohio Act applicable to a "Chapter 1704 transaction" (as
defined in said Chapter 1704) will not apply to the execution,
delivery or performance of this Agreement or the consummation of
the Merger or the other transactions contemplated by this
Agreement, and has determined to recommend that the stockholders
of the Company approve this Agreement and the Merger (subject to
the fiduciary duty of the Board of Directors under applicable
law). The Board of Directors of the Company has been advised by
Toomas J. Kukk and Mark L. Rochester, the principal shareholders
of the Company, that they intend to vote their Shares in favor of
this Agreement and the Merger.
Section 3.30. General Representation and
--------------------------
Warranty. Neither this Agreement nor any schedule attached
--------
hereto or other documents and written information furnished by or
on behalf of the Company, its attorneys, auditors or insurance
agents to Parent in connection with this Agreement contains any
untrue statement of material fact or omits to state any material
fact necessary to make the statements contained herein or
therein, in light of the circumstances in which they were made,
not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub, jointly and severally, hereby represent
and warrant to the Company as follows:
Section 4.01. Organization and Power.
----------------------
(a) Parent is a corporation duly organized, validly
existing and in good standing under the laws of Ontario, Canada.
Parent has all requisite corporate power to enter into this
Agreement, and all other documents and instruments to be executed
and delivered by it in connection herewith, and to carry out its
obligations hereunder and thereunder.
(b) Sub is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Ohio. Sub has all requisite corporate power to enter into this
Agreement, and all other documents and instruments to be executed
and delivered by it in connection herewith, and to carry out its
obligations hereunder and thereunder. Sub is a wholly-owned
subsidiary of Parent, has been organized solely for the purpose
of consummating the Merger and has conducted no business or
operations of any nature.
Section 4.02. Authorization. The execution and
-------------
delivery of this Agreement and the due consummation by Parent and
Sub of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on the part
of Parent and Sub. This Agreement constitutes (and each document
and instrument contemplated by this Agreement, when executed and
delivered in accordance with the provisions hereof, will
constitute) a valid and legally binding agreement of each of
Parent and Sub, enforceable against them in accordance with its
terms, except as such enforcement may be limited by applicable
bankruptcy, insolvency, moratorium, or other similar laws
affecting the rights of creditors generally, general principles
of equity, and public policy.
Section 4.03. No Conflicts. The execution, delivery
------------
and performance of this Agreement by Parent and Sub and the
consummation of the transactions contemplated hereby will not
constitute a conflict with, breach or violation of or default (or
an event which with notice or lapse of time or both would become
a default) under (a) Parent's Charter or By-Laws, as amended to
date; (b) Sub's Articles of Incorporation or Code of Regulations,
as amended to date; (c) any material agreement, instrument,
license, franchise or permit to which Parent or Sub is subject or
by which Parent or Sub is bound; (e) any order, writ, injunction
or decree to which Parent or Sub is subject or by which Parent or
Sub is bound; or (f) any law, rule or regulation to which Parent
or Sub is subject or to which it is bound.
Section 4.04. Consents and Approvals. Except for
----------------------
filings, approvals or consents required by (a) the Secretary of
State of the State of Ohio; (b) the Hart-Scott-Rodino Act; and
(c) such other statutes, rules or regulations which may require
registrations, authorizations, consents or approvals relating to
matters that, in the aggregate, are not material to Parent,
neither Parent nor Sub is required to submit any notice, report
or other filing with or obtain any consent or approval from any
governmental authority or third party in connection with the
execution and delivery by Parent or Sub of this Agreement or the
consummation of the transactions contemplated hereby.
Section 4.05. Proxy Statement. None of the
---------------
information to be supplied by Parent or Sub or any of their
accountants, counsel or other authorized representatives for
inclusion in the Proxy Statement will, at the time of the mailing
of the Proxy Statement and any amendments or supplements thereto,
and at the time of the Shareholders Meeting contain any untrue
statement of a material fact required to be stated therein or
necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. If
at any time prior to the Effective Time any event with respect to
Parent or Sub, or their officers and directors or any of the
subsidiaries of Parent shall occur which is or should be
described in an amendment of, or a supplement to, the Proxy
Statement, Parent will notify the Company in writing of such
event.
Section 4.06. Financing. Gordon Capital has indicated
---------
its willingness to raise such funds as will be sufficient to pay
the Merger Consideration and all related fees and expenses of
Parent. Parent will promptly provide to the Company a true and
complete copy of a commitment letter (the "Commitment Letter")
and all final documentation relating thereto and received by
Parent after the date hereof. The financing required to effect
the Merger and pay related fees and expenses as set forth in the
Commitment Letter is hereinafter referred to as the "Financing."
Section 4.07. Brokers and Finders. No broker, finder
-------------------
or investment banker is entitled to any brokerage fees,
commissions or finders' fees in connection with the transactions
contemplated hereby based upon arrangements made by Parent or
Sub.
ARTICLE V
COVENANTS AND AGREEMENTS
Section 5.01. Conduct of Business Between Execution of
----------------------------------------
this Agreement and the Effective Time. During the period
-------------------------------------
commencing on the date of this Agreement and continuing until the
Effective Time, the Company covenants and agrees that the
business of the Company and the Company's Subsidiaries shall be
conducted only in the regular and ordinary course of business,
consistent with past practice; and that it shall use all
reasonable efforts to (i) preserve intact its business, (ii) keep
available the services of its current officers and employees, and
(iii) preserve its relationships with desirable customers,
suppliers, licensors, licensees, distributors and others having
business dealings with it. Without limiting the generality of
the foregoing, except as set forth on Schedule 5.01 attached
-------------
hereto, neither the Company nor any of its Subsidiaries shall,
without the prior written consent of Parent:
(a) adjust, split, combine or reclassify any shares of
capital stock;
(b) make, declare, set aside or pay any dividend or
make any other distribution on, or directly or indirectly issue,
sell, pledge, grant, redeem, repurchase or otherwise acquire, any
shares of its or any Subsidiary's capital stock, any securities
or obligations convertible into or exchangeable for any shares of
its capital stock, or any options, warrants or other rights to
acquire any shares of its capital stock except the issuance of
stock pursuant to the exercise of employee stock options
outstanding on the date hereof;
(c) grant any stock option or appreciation rights or
other rights to share in the equity value of the Company or any
Subsidiary;
(d) make any changes in the Articles of Incorporation,
Code of Regulations or By-laws, as amended to date, of the
Company or any Subsidiary;
(e) acquire, sell, lease, encumber, transfer or
dispose of any assets, or make any capital expenditures, in
either case, in excess of $10,000 individually or $100,000 in the
aggregate, outside the ordinary course of business, except
pursuant to obligations in effect on the date hereof;
(f) incur any indebtedness for borrowed money or
guarantee any indebtedness or issue or sell securities or
warrants or rights to acquire any debt securities or guarantee
(or become liable for) any debt of others or make any loans,
advances or capital contributions or mortgage, pledge or
otherwise encumber any assets or create or suffer any material
lien thereupon, except pursuant to obligations or any guarantees
thereof which in the aggregate do not exceed $100,000;
(g) pay, discharge or satisfy any claims, liabilities
or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than any payment, discharge or
satisfaction (i) in the ordinary course of business consistent
with past practice, or (ii) in accordance with their terms, of
liabilities reflected or reserved against in, or contemplated by,
the financial statements (or the notes thereto) of the Company.
(h) notwithstanding any provision of clause (g) of
this Section 5.01, pay, discharge or satisfy any claims,
liabilities or obligations in connection with the Company
Litigation, other than attorneys' fees and other expenses of
defending such actions, it being understood and agreed that the
Company shall keep Parent fully informed of all material
developments in connection with the Company Litigation, and that
Parent shall have the right to participate in all decisions with
respect to the management, defense and settlement of the Company
Litigation;
(i) change any of the accounting principles or
practices used by it (except as required by generally accepted
accounting principles);
(j) except as required by law or contemplated by this
Agreement (i) enter into, adopt, amend or terminate any employee
benefit plan or any agreement, arrangement, plan or policy
between the Company and one or more of its directors or executive
officers, (ii) increase in any manner the compensation or fringe
benefits of any director, officer or employee or (iii) grant any
bonus to any of its executive officers or pay any termination,
severance or other benefit not required by any plan and
arrangement as in effect on the date hereof;
(k) make or enter into any agreement, commitment or
contract, except those in the ordinary course of business, for
the purchase or sale of products in amounts not exceeding $50,000
in any instance and not giving rise to obligations extending
beyond 90 days from the date hereof, or modify, amend or
terminate any material contract (other than as required by the
terms thereof), or pay any amount not required by law or by any
contract in an amount exceeding $50,000;
(l) make or enter into any lease of real property or
extend or amend any existing lease of real property;
(m) intentionally take, or enter into an agreement to
take, any action that would result in any of the conditions to
the Merger set forth in Article VI not being satisfied;
(n) make any material Tax election or settle or
compromise any material federal, state, local or foreign income
Tax liability, or waive or extend the statute of limitations in
respect of any such Taxes; or
(o) agree to, or make any commitment to take any of
the actions prohibited by this Section 5.01; or take any action,
or agree or commit to take any action that would make any
representation or warranty of the Company hereunder inaccurate in
any material respect at, or as of any time prior to the Effective
Time, or omit or agree or commit to omit to take any action
necessary to prevent any such representation or warranty from
being inaccurate in any material respect at any such time.
Section 5.02. Mutual Covenants.
----------------
(a) Compliance with Laws. Each party covenants and
--------------------
agrees to use its reasonable best efforts to comply promptly with
(and furnish information to the other parties in connection with)
any and all requirements that federal or state law may impose on
it or them, as the case may be, with respect to the Merger.
(b) Cooperation in Connection with Proceedings. Each
------------------------------------------
party covenants and agrees that if any action, suit, proceeding
or investigation of the nature specified in Section 6.01(c)
hereof is commenced, it shall cooperate with the others and shall
use its reasonable best efforts to defend against the same and
respond thereto.
(c) Notification of Certain Events. Each party
------------------------------
covenants and agrees to give prompt written notice to the others
of (i) the occurrence (or non-occurrence) of any event the
occurrence (or non-occurrence) of which would be likely to cause
(A) any representation or warranty contained in this Agreement to
be untrue or inaccurate in any material respect or (B) any
covenant, agreement or condition in this Agreement not to be
complied with or satisfied in any material respect; and (ii) any
failure by such first party to comply with or satisfy any
covenant, agreement or condition contained in this Agreement in
any material respect.
Section 5.03. Access to Information; Confidentiality.
--------------------------------------
(a) Information of the Company. The Company covenants
--------------------------
and agrees to afford Parent and Parent's accountants, counsel and
other representatives, full access, during normal business hours
during the period prior to the Effective Time or the earlier
termination of this Agreement, to all of the properties, books,
contracts, commitments and records of the Company and its
Subsidiaries, and, during such period, shall furnish promptly to
Parent a copy of each report, schedule and other document filed
or received thereby during such period pursuant to the
requirements of federal and state securities laws.
(b) Confidentiality Covenants of Parent. Parent
-----------------------------------
covenants and agrees that until the Effective Time, it shall
continue to be bound by the terms of the Confidentiality
Agreement, dated August 21, 1996.
Section 5.04. Meeting of Shareholders. The Company
-----------------------
shall, promptly after the date of this Agreement, take all action
necessary in accordance with the Ohio Act and its Articles of
Incorporation and Code of Regulations to convene a meeting of the
Company's shareholders to act on this Agreement and the Merger
(the "Shareholders Meeting"), and the Company shall consult with
--------------------
Parent in connection therewith. The Company shall use its
reasonable best efforts to solicit from shareholders of the
Company proxies in favor of the approval and adoption of the
Merger Agreement and to secure the vote or consent of
shareholders required by the Ohio Act to approve and adopt the
Merger Agreement, unless otherwise required by the applicable
fiduciary duties of the directors of Company, as determined by
such directors in good faith after consultation with independent
legal counsel (which may include the Company's regularly engaged
legal counsel).
Section 5.05. Proxy Statement. As promptly as
---------------
practicable after the execution of this Agreement, the Company
shall prepare and file with the SEC a proxy statement and a form
of proxy, in connection with the vote of the Company's
shareholders at the Shareholders Meeting with respect to the
Merger (such proxy statement, together with any amendments
thereof or supplements thereto, in each case in the form or forms
mailed to the Company's shareholders, being the "Proxy
-----
Statement"), and use all reasonable efforts to obtain SEC
---------
clearance of the Proxy Statement. Each of Parent and the Company
shall furnish all information concerning it and the holders of
its capital stock as may be required by the Exchange Act or the
regulations promulgated thereunder, or as the other may
reasonably request in connection with such actions. As promptly
as practicable after clearance of the Proxy Statement, the
Company shall mail the Proxy Statement to its shareholders. The
Proxy Statement shall include the recommendation of the Company's
Board of Directors in favor of the Merger unless otherwise
required by the applicable fiduciary duties of the Board of
Directors of the Company, as determined by such directors in good
faith after consultation with legal counsel.
Section 5.06. Public or Shareholder Communications.
------------------------------------
From and after the date of this Agreement, except as required by
law, the Company, Parent and Sub will not, with respect to the
transactions contemplated hereby, issue any press release or make
any public statements or, in the case of the Company, mail any
communications or letters to its shareholders generally, except
with the prior written approval of the other party or as required
by law. With respect to any communication required by law, the
party making such communication agrees to use its best efforts to
provide a copy of the text of such communication to the other
party prior to its release together with an explanation as to the
legal necessity for the communication.
Section 5.07. Additional Agreements. Subject to the
---------------------
terms and conditions herein provided, each of the parties hereto
agrees to use its reasonable best efforts to take, or cause to be
taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective
the transactions contemplated by the Merger and this Agreement,
including, but not limited to, using its best efforts to obtain
all necessary waivers, consents, authorizations and approvals of
or exemptions by any governmental authority or third party, and
effecting all necessary registrations and filings. In case at
any time after the Effective Time any further action is necessary
or desirable to carry out the purposes of this Agreement, the
proper officers and directors of each party shall take all such
necessary action.
Section 5.08. Closing Conditions. Each of the Company
------------------
and Parent will use its reasonable best efforts to cause the
conditions set forth in Article VI to be satisfied; provided,
--------
however, this provision shall not require any party to waive any
-------
condition.
Section 5.09. Parent Shareholder Approval. Parent
---------------------------
covenants and agrees to vote the shares of capital stock of Sub
held by Parent to approve and adopt this Agreement and the
transactions contemplated hereby, and (i) cause Sub to take any
and all actions as may be necessary or appropriate to consummate
the Merger in accordance with the terms of this Agreement.
Section 5.10. Director and Officer Liability.
------------------------------
(a) The Regulations of the Surviving Corporation with
respect to indemnification of directors and officers shall not be
amended, repealed, or otherwise modified in any manner that would
adversely affect the rights thereunder of individuals who at the
Effective Time were directors and officers of the Company for a
period of five (5) years after the Effective Time, unless such
modification is required by law.
(b) Assuming consummation of the Merger, from and
after the Effective Time, Parent shall cause the Surviving
Corporation to indemnify, defend and hold harmless the present
and former directors and officers of the Company and its
Subsidiaries against all losses, claims, damages and liability
and amounts paid in settlement (with the approval of Parent,
which approval shall not be unreasonably withheld) in connection
with any claim, action, suit, proceeding, or investigation,
whether civil, criminal, administrative, or investigative, (x) in
respect of acts or omissions occurring at or prior to the
Effective Time to the fullest extent that the Company or such
Subsidiary would have been permitted to indemnify such person
under applicable law and the Articles of Incorporation and Code
of Regulations of the Company or such Subsidiary in effect on the
date hereof or (y) except for a claim arising or based upon the
gross negligence or willful misconduct of the indemnified party,
in any event arising out of or pertaining to the transactions
contemplated by this Agreement. Any person wishing to claim
indemnification under this Section 5.10, upon learning of any
such claim, action, suit, proceeding or investigation, shall
notify the Surviving Corporation (but the failure to so notify
the Surviving Corporation shall not relieve the Surviving
Corporation from any liability which it may have under this
Section 5.10, except to the extent such failure prejudices the
Surviving Corporation), and shall, to the extent required by the
Ohio Act, deliver to the Surviving corporation any undertaking
required prior to payment of expenses in advance of final
disposition. For at least five (5) years after the Effective
Time, Parent will use its best efforts to cause the Surviving
Corporation, without any lapse in coverage, to provide officers'
and directors' liability insurance in respect of acts or
omissions occurring prior to the Effective Time covering each
such person currently covered by the Company's officers' and
directors' liability policy on terms with respect to coverage and
amount no less favorable than those of such policy in effect on
the date hereof.
Section 5.11. No Solicitation.
---------------
(a) The Company agrees that it will not, after the
date hereof and prior to the Effective Time, seek, directly or
through its agents, representatives, Subsidiaries or affiliates,
or permit any of its officers or directors to seek (whether in
their capacities as officers or directors or in their individual
capacities) or otherwise solicit or encourage the initiation of
inquiries or proposals from any person or persons (other than
Parent), to acquire or purchase all or a substantial part of its
assets or all or a substantial part of its capital stock or the
capital stock of any of its Subsidiaries, or for the Company or
its Subsidiaries to acquire or purchase in one or more related
transactions the capital stock or assets of persons (other than
Parent) whereby the Company would issue (or commit to issue)
shares of its capital stock constituting more than a majority of
its outstanding voting securities, or to effect a consolidation
or merger (other than the Merger) or other business combination
or recapitalization (an "Acquisition Proposal"). The Company
shall immediately cease and cause to be terminated all existing
discussions and negotiations, if any, with any parties conducted
heretofore with respect to any Acquisition Proposal (other than
Parent). Nothing contained in this Section 5.11 shall prevent
the Board of Directors of the Company from considering,
negotiating, approving and recommending to the shareholders of
the Company, a bona fide Acquisition Proposal not solicited,
directly or indirectly, in violation of this Agreement, provided
the Board of Directors of the Company determines in good faith
(upon advice of counsel) that it is required to do so in order to
discharge properly its fiduciary duties.
(b) The Company shall immediately notify Parent after
receipt of any Acquisition Proposal (whether written or oral), or
any modification of or amendment to any Acquisition Proposal, or
any request for nonpublic information relating to the Company or
any Subsidiary in connection with an Acquisition Proposal or for
access to the properties, books or records of the Company or any
Subsidiary by any person or entity that informs the Board of
Directors of the Company or such Subsidiary that it is
considering making, or has made, an Acquisition Proposal. Such
notice to Parent shall be made orally and in writing, and shall
indicate whether the Company is providing or intends to provide
the person making the Acquisition Proposal with access to
information concerning the Company as provided in Section
5.11(c), the identity of the party making the Acquisition
Proposal and the terms and conditions of the transaction
constituting the Acquisition Proposal.
(c) If the Board of the Company receives a request for
commercial nonpublic information by a person who makes a bona
fide Acquisition Proposal, and the Board of Directors determines
in good faith and upon the advice of counsel that it is required
to cause the Company to act as provided in this Section 5.11(c)
in order to discharge properly its fiduciary duties, then,
provided the person making the Acquisition Proposal has executed
a confidentiality agreement substantially similar to the one then
in effect between the Company and Parent, the Company may provide
such person with access to information regarding the Company.
Section 5.12. Periodic Reports. Until the Effective
----------------
Time, the Company and Parent each will, subject to the
requirements of applicable laws, furnish to the other all filings
to be made with the SEC and all materials to be mailed to their
respective stockholders and will solicit comments with respect
thereto from the other, in each case at least 48 hours (or as
soon thereafter as is practicable) prior to the time of such
filings and the time of such mailings.
Section 5.13. Financing. Parent covenants and agrees
---------
to use its best efforts to obtain the Financing pursuant to the
Commitment Letter. If the Financing pursuant to the Commitment
Letter, or any alternative Financing obtained in lieu thereof
pursuant to this Section 5.13, is not obtainable, then Parent
covenants and agrees to use its best efforts to obtain, within
thirty (30) days after being notified that the Financing pursuant
to the Commitment Letter is not obtainable, alternative Financing
on terms which in the aggregate are no less advantageous to
Parent than the terms provided for in the Commitment Letter.
Parent shall give the Company prompt notice when any Financing
becomes unobtainable and when any such alternative Financing is
obtained, including a full description of the terms thereof.
Section 5.14. Hart-Scott-Rodino Filing. To the extent
------------------------
required by law, the Company and Parent shall file Notification
and Report Forms under the Hart-Scott-Rodino Act with the Federal
Trade Commission and the Antitrust Division of the Department of
Justice. The parties shall cooperate and consult with each other
with respect to the preparation of the Notification and Report
Forms and any other submissions, including, but not limited to,
responses to written or oral comments or requests for additional
information or documenting material by the Federal Trade
Commission or the Antitrust Division of the Department of
Justice, required to be made pursuant to the Hart-Scott-Rodino
Act in connection with the transactions contemplated hereby. The
filing fee associated with such filings shall be borne equally by
Parent and the Company.
ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 6.01. Conditions to Each Party's Obligation to
----------------------------------------
Effect the Merger. The respective obligations of each party to
-----------------
effect the Merger shall be subject to the fulfillment at or prior
to the Effective Time of the following conditions:
(a) This Agreement and the transactions contemplated
hereby shall have been approved and adopted by the requisite vote
of the shareholders of the Company required by applicable law or
by the Company's Articles of Incorporation or Code of
Regulations;
(b) The waiting period, and any extensions thereof,
applicable to the consummation of the Merger under the Hart-
Scott-Rodino Act shall have expired;
(c) No preliminary or permanent injunction or other
order, decree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative
agency or commission nor any statute, rule, regulation or
executive order promulgated or enacted by any governmental
authority shall be in effect, which would prevent the
consummation of the Merger;
(d) All actions by or in respect of or filing with any
governmental regulatory or administrative agency or commission
required to consummate the Merger shall have been obtained or
made;
(e) The fairness opinion delivered in accordance with
Section 3.12 hereof shall not have been modified or withdrawn and
the Company shall have received a fairness opinion, substantially
in the form of the fairness opinion delivered in accordance with
Section 3.12 hereof, to be included in the Proxy Statement mailed
to the Company's shareholders, and such fairness opinion shall
not have been withdrawn or modified; and
(f) By not later than immediately prior to the
Effective Time, Toomas J. Kukk and Ernest M. Rochester shall each
have entered into Employment Agreements with the Company and
Parent, substantially in the forms of Annexes B and C hereto;
Section 6.02. Additional Conditions to the Obligations
----------------------------------------
of the Company. The obligation of the Company to effect the
--------------
Merger is also subject to each of the following conditions:
(a) Each of Parent and Sub shall have performed in all
material respects each obligation and covenant to be performed by
it hereunder at or prior to the Effective Time;
(b) The representations and warranties of Parent and
Sub set forth in this Agreement shall be true and correct in all
material respects at and as of the Effective Time as if made at
and as of such time, except as affected by transactions
contemplated or permitted by this Agreement and except to the
extent that any such representation or warranty is made as of a
specified date, in which case such representation or warranty
shall have been true and correct in all material respects as of
such date;
(c) Parent shall have delivered to the Company
certificates issued by appropriate governmental authorities
evidencing the good standing of Parent in the Province of Ontario
and of Sub in the State of Ohio;
(d) Parent and Sub shall have delivered to the Company
copies, certified by the Secretary or an Assistant Secretary, of
the resolutions adopted by the Boards of Directors of Parent and
Sub, authorizing the execution, delivery and performance of this
Agreement and the transactions contemplated hereby, and by Parent
as the sole shareholder of Sub, approving this Agreement and the
Merger;
(e) Parent shall have delivered to the Company a
certificate of its Chief Executive and Chief Financial Officers,
certifying as to the fulfillment of the conditions to the
obligations of the Company set forth in this Article VI; and
----------
(f) The Company shall have received the opinion of
counsel to Parent and Sub, substantially in the form of Annex A
hereto.
Section 6.03. Additional Conditions to the Obligations
----------------------------------------
of Parent and Sub. The obligations of Parent and Sub to effect
-----------------
the Merger are also subject to each of the following conditions:
(a) The Company shall have performed in all material
respects each obligation and covenant to be performed by it
hereunder at or prior to the Effective Time;
(b) The representations and warranties of the Company
set forth in this Agreement shall be true and correct in all
material respects at and as of the Effective Time as if made at
and as of such time, except as affected by transactions
contemplated or permitted by this Agreement and except to the
extent that any of such representation or warranty is made as of
a specified date, in which case such representation or warranty
shall have been true and correct in all material respects as of
such date;
(c) The Material Consents set forth on Schedule 3.07
attached hereto, required to consummate the transactions
contemplated hereby, shall have been obtained;
(d) The Company shall have delivered to Parent
certificates issued by appropriate governmental authorities (i)
evidencing the good standing of the Company in the State of Ohio
and as a foreign corporation in each jurisdiction in which it has
qualified to do business as a foreign corporation, and (ii)
evidencing the good standing of each Subsidiary of the Company in
its jurisdiction of organization or incorporation and as a
foreign corporation in which it has qualified to do business as a
foreign corporation;
(e) The Company shall have delivered to Parent copies,
certified by the Secretary or Assistant Secretary, of the
resolutions adopted by the Board of Directors of the Company
authorizing the execution, delivery and performance of this
Agreement and the transactions contemplated hereby, and by the
shareholders of the Company approving this Agreement and the
Merger;
(f) Parent shall have received sufficient funding
pursuant to the Commitment Letter to enable Sub to consummate the
Merger and to pay related fees and expenses;
(g) No Company Material Adverse Effect shall have
occurred;
(h) All incentive stock option and non-qualified stock
option plans of the Company, and each option issued under any of
such plans, shall have been amended, to the extent necessary in
accordance with Section 2.05 hereof;
(i) Appraisal rights under the Ohio Act shall have
been perfected by the holders of not more than five percent (5%)
of the outstanding shares;
(j) The Company shall have delivered to Parent and Sub
the certificate of its Chief Executive and Chief Financial
Officers, certifying as to the fulfillment of the conditions to
the obligations of Parent and Sub set forth in this Article VI;
----------
(k) Parent and Sub shall have received the opinion of
Thompson Hine & Flory P.L.L., counsel to the Company,
substantially in the form of Annex D hereto; and
(l) The officers and directors of the Company and its
Subsidiaries specified by Parent shall have resigned their
respective positions as of the Effective Time.
ARTICLE VII
TERMINATION; AMENDMENT; WAIVER
Section 7.01. Termination. This Agreement may be
-----------
terminated and the Merger may be abandoned at any time prior to
the Effective Time, whether before or after approval by the
shareholders of the Company:
(a) by mutual written consent of the Board of
Directors of the Company and the Board of Directors of Parent;
(b) by either the Company or Parent, by written notice
to the other, if (i) the Effective Time shall not have occurred
on or before January 31, 1997, (ii) the requisite vote of the
shareholders of the Company to approve this Agreement and the
transactions contemplated hereby shall not be obtained at the
Shareholders Meeting, or any adjournments thereof, called
therefor, or (iii) any court of competent jurisdiction in the
United States or any state or in Canada or any province shall
have issued an order, judgement or decree (other than a temporary
restraining order) restraining, enjoining or otherwise
prohibiting the Merger and such order, judgement or decree shall
have become final and non-appealable; provided, however, that the
right to terminate this Agreement (x) under clause (i) shall not
be available to any party whose failure to fulfill any obligation
under this Agreement has been the cause of, or resulted in, the
failure of the Effective Time to occur on or before such date or
(y) under clause (iii) shall not be available to any party unless
such party shall have used all reasonable efforts to remove such
order, judgement or decree;
(c) by Parent, by written notice to the Company, if:
(i) there shall have been any breach of any
representation, warranty, covenant or agreement of the
Company hereunder which, if not remedied prior to the
Effective Time, would have a Company Material Adverse Effect
and such breach shall not have been remedied, or the Company
shall not have provided Parent with reasonable assurance
that such breach will be remedied prior to the Effective
Time, within ten (10) days after receipt by the Company of
notice in writing from Parent specifying the nature of such
breach and requesting that it be remedied; or
(ii) the Board of Directors of the Company or any
committee thereof shall withdraw or modify in any manner
adverse to Parent its approval or recommendation of this
Agreement or the Merger contemplated hereby; or
(iii) the Board of Directors of the Company or any
committee thereof (A) at any time after the Company or any
of its Subsidiaries has become aware of any event which
would require that notice be given to Parent pursuant to
Section 5.11 hereof, shall withdraw or modify in any manner
adverse to Parent its approval or recommendation of this
Agreement or the Merger contemplated hereby, or (B) shall
approve or recommend any Acquisition Proposal (including
approving of, expressing no opinion or remaining neutral as
to a third party tender offer for Shares when expressing the
position of the Company to any such tender offer in
complying with Rule 14e-2 promulgated under the Exchange
Act) involving the Company or any of its Subsidiaries, in
each case by a party other than Parent or any of its
affiliates, or (C) shall resolve to take any of the actions
specified in clauses (A) or (B); or
(iv) The Company or any of its Subsidiaries shall
enter into a definitive agreement (or a letter of intent)
for an Acquisition Proposal (other than with Parent or any
of its affiliates) or the Board of Directors of the Company
or any committee thereof shall resolve to take such action;
or
(v) any person or group (within the meaning of Section
13(d)(3) of the Exchange Act) other than Parent or a person
or group approved by Parent shall acquire a number of shares
of capital stock of the Company entitled to cast twenty
(20%) percent of the total number of votes entitled to be
cast in an election of directors of the Company, or the
directors of the Company currently in office shall cease to
represent a majority of the directors of the Company.
(d) by the Company, by written notice to Parent, if:
(i) there shall have been any breach of any
representation, warranty, covenant or agreement of Parent
hereunder which, if not remedied prior to the Effective
Time, would have an effect which is material and adverse to
the business, financial condition or results of operations
of Parent and such breach shall not have been remedied or
Parent shall not have provided the Company with reasonable
assurance that such breach will be remedied prior to the
Effective Time, within ten (10) days after receipt by Parent
of notice in writing from the Company, specifying the nature
of such breach and requesting that it be remedied; or
(ii) the Board of Directors of the Company or any
committee thereof determines to enter into a definitive
agreement (or a letter of intent) for an Acquisition
Proposal (other than with Parent or any of its affiliates);
or
(iii) the Board of Directors of Parent or any
committee thereof shall withdraw or modify in any manner
adverse to the Company its approval or recommendation of
this Agreement or the Merger contemplated hereby; or
(iv) the Financing pursuant to the Commitment Letter,
or any alternative Financing as contemplated by Section 5.13
obtained in lieu thereof, shall have become unobtainable and
Parent shall not have given the Company reasonable evidence
within thirty (30) days thereafter that alternative
Financing as contemplated by Section 5.13 hereof has been
obtained.
Section 7.02. Effect of Termination and
-------------------------
Abandonment. In the event of termination of this Agreement and
-----------
abandonment of the Merger pursuant to this Article VII, this
Agreement shall forthwith become void and no party hereto (or any
of its directors or officers) shall have any liability or further
obligation to any other party to this Agreement, except for
termination payments provided in Section 7.03 hereof and except
that nothing herein will relieve any party from liability for any
breach of its representations, warranties or covenants in this
Agreement.
Section 7.03. Termination Payment. If Parent shall
-------------------
terminate this Agreement pursuant to Section 7.01(b)(ii) hereof
or pursuant to Section 7.01(c)(ii), (iii), (iv) or (v) hereof, or
if the Company shall terminate this Agreement pursuant to
Section 7.01(b)(ii) hereof, or pursuant to Section 7.01(d)(ii)
hereof, the Company shall pay $1,000,000 plus an amount equal to
Parent's actual expenses, including third party costs, such as
attorneys and financial advisors, incurred in connection with
this Agreement and the proposed transaction to Parent not later
than ten (10) days after notice of termination from Parent or the
Company, as the case may be. If the Company shall terminate this
Agreement pursuant to Section 7.01(d)(iv) hereof, Parent shall
pay the Company's actual expenses incurred in connection with
this Agreement and the proposed transaction to the Company,
including third party costs, such as attorneys and financial
advisors, not later than ten (10) days after termination of the
Agreement. Each party agrees that if it fails to pay timely the
termination payment due by it pursuant to this Section, the
amount not timely paid shall bear interest at the rate of 12% per
annum accruing from the termination date and continuing until the
termination payment is paid in full. In the event that it is
necessary for a party to institute proceedings to seek collection
of the termination payment due to it and it is entitled to
receive any of the amounts sought in the collection proceeding,
in addition to paying such amount the party failing to make such
termination payment shall reimburse the other party for the
attorneys' fees and other reasonable costs and expenses incurred
in connection with such collection.
Section 7.04. Amendment. This Agreement may be
---------
amended by the parties hereto by action taken by or on behalf of
their respective Boards of Directors at any time before or after
approval hereof by the shareholders of the Company, but, after
such approval, no amendment shall be made which reduces the
amount or changes the form of the Merger Consideration or in any
way adversely affects the rights of holders of the Shares without
the further approval of such holders. This Agreement may not be
amended except by an instrument in writing signed by or on behalf
of each of the parties hereto.
Section 7.05. Waiver. At any time prior to the
------
Effective Time, the parties hereto, by action taken by their
respective Boards of Directors, may (a) extend the time for the
performance of any of the obligations or other acts of the other
parties hereto, (b) waive any inaccuracies in the representations
and warranties of the other parties contained herein or in any
document delivered pursuant hereto, and (c) waive compliance with
any of the agreements or satisfaction of any of the conditions
contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in
an instrument in writing signed on behalf of such party. No
waiver in any one or more instances shall be deemed to be a
further or continuing waiver of any such condition or breach in
other instances or a waiver of any other condition or breach of
any other term, covenant, representation or warranty.
Notwithstanding anything to the contrary set forth herein, the
following conditions precedent to the consummation of the Merger
may not be waived by either party hereto: (i) the approval of the
Merger and this Agreement by the shareholders of the Company
pursuant to the Ohio Act; (ii) the expiration or earlier
termination of all applicable waiting periods under the Hart-
Scott Rodino Act, with no outstanding requests for additional
information or clarification or notices indicating that further
action will be taken by the Federal Trade Commission or the
Antitrust Division of the Department of Justice with respect to
the Merger; and (iii) the execution by all necessary parties of
the Certificate of Merger to be filed with the Ohio Secretary of
State.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.01. Fees and Expenses. Except as otherwise
-----------------
expressly provided in this Agreement, all costs and expenses
incurred in connection with this Agreement shall be paid by the
party incurring such cost or expense.
Section 8.02. Survival of Representations and
-------------------------------
Warranties. Except as set forth in the last sentence of this
----------
Section 8.02, the representations and warranties made by each
party contained in this Agreement or in any exhibit, disclosure
schedule, certificate or other instrument delivered pursuant to
this Agreement shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of
the other party, whether prior to or after the execution of this
Agreement. No representations and warranties contained in this
Agreement or in any exhibit, disclosure schedule, certificate or
other instrument delivered pursuant to this Agreement shall
survive the consummation of the Merger at the Effective Time.
Section 8.03. Notices. All notices and other
-------
communications required or permitted hereunder shall be in
writing and delivered as follows:
if to Parent or Sub:
American Eco Corporation
11011 Jones Road
Houston, Texas 77070
Attention: Michael E. McGinnis, President
Telephone: 281-774-7000
Facsimile: 281-777-7001
with a copy to:
Reid & Priest LLP
40 West 57th Street
New York, New York 10019
Attention: Bruce A. Rich, Esq.
Telephone: (212) 603-2000
Facsimile: (212) 603-2001
if to the Company:
CHEMPOWER, INC.
807 East Turkeyfoot Lake Road
Akron, Ohio 44319
Attention: T.J. Kukk, President
Telephone: 216-896-4202
Facsimile: 216-896-1866
with a copy to:
Thompson Hine & Flory P.L.L.
3900 Key Center
127 Public Square
Cleveland, Ohio 44114
Attention: Thomas A. Aldrich, Esq.
Telephone: 216-566-5500
Facsimile: 216-566-5800
or to such other address as may have been designated in a prior
notice. Notices sent by registered or certified mail, postage
prepaid and with return receipt requested, shall be deemed to
have been given two (2) business days after being mailed, and
otherwise notices shall be deemed to have been given when
received.
Section 8.04. Construction. The headings in this
------------
Agreement are intended solely for convenience of reference and
shall be given no effect in the construction or interpretation of
this Agreement. Prior drafts of this Agreement shall not be
considered in interpreting the rights and obligations of the
parties hereunder. The language used in this Agreement will be
deemed to be the language chosen by the parties hereto to express
their mutual intent, and no rule of strict construction will be
applied against any party.
Section 8.05. Exhibits, Schedules and Annexes. The
-------------------------------
Exhibits, Schedules and Annexes referred to in this Agreement
shall be deemed to be an integral part of this Agreement as if
fully rewritten herein. To the extent applicable, a disclosure
set forth on any one such document will serve as a disclosure for
purposes of all other such documents.
Section 8.06. Counterparts. This Agreement may be
------------
executed in multiple counterparts, each of which shall be deemed
an original, and all of which together shall constitute one and
the same document.
Section 8.07. Governing Law. This Agreement,
-------------
including all matters of construction, validity and performance,
shall be governed by and construed and enforced in accordance
with the laws of the State of Ohio, as applied to contracts made,
executed and to be fully performed in such state by citizens of
such state, without regard to conflict of laws principles.
Section 8.08. Pronouns. The use of a particular
--------
pronoun herein shall not be restrictive as to gender or number
but shall be interpreted in all cases as the context may require.
Section 8.09. Time Periods. Unless otherwise provided
------------
herein, any action required hereunder to be taken within a
certain number of days shall be taken within that number of
calendar days; provided, however, that if the last day for taking
-------- -------- -------
such action falls on a weekend or a holiday, the period during
which such action may be taken shall be automatically extended to
the next business day.
Section 8.10. No Third Party Beneficiaries. This
----------------------------
Agreement is solely for the benefit of the parties hereto and, to
the extent provided herein, their respective directors, officers,
employees, agents and representatives, and no provision of this
Agreement shall be deemed to confer upon other third parties any
remedy, claim, liability, reimbursement, cause of action or other
right.
Section 8.11. Enforcement of the Agreement. The
----------------------------
parties hereto agree that irreparable damage would result in the
event that any provision of this Agreement is not performed in
accordance with specific terms or is otherwise breached. It is
accordingly agreed that the parties hereto will be entitled to
equitable relief including an injunction or injunctions to
prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof.
Section 8.12. Waiver of the Jury Trial. Each party
------------------------
hereto waives the right to a trial by jury in any dispute in
connection with the transactions contemplated by this Agreement,
and agrees to take any and all action necessary or appropriate to
effect such waiver.
Section 8.13. Entire Agreement. This Agreement and
----------------
the agreements and documents referred to in this Agreement or
delivered hereunder are the exclusive statement of the agreement
between the parties concerning the subject matter hereof. All
negotiations and prior agreements between the parties are merged
into this Agreement, except that the Confidentiality Agreements,
dated August 21, 1996, shall remain in full force and effect
until the Effective Time, and there are no representations,
warranties, covenants, understandings, or agreements, oral or
otherwise, in relation thereto among the parties other than those
incorporated herein and to be delivered hereunder.
Section 8.14. Severability. Whenever possible, each
------------
provision of this Agreement will be interpreted in such manner as
to be effective and valid under applicable law, but if any
provision of this Agreement is held to be prohibited by, or
invalid or unenforceable under, applicable law, such provision
will be ineffective only to the extent of such prohibition or
invalidity or unenforceability, without invalidating the
remainder of this Agreement.
Section 8.15. Successors and Assigns. The provisions
----------------------
of this Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and
assigns, provided that no party may assign, delegate or otherwise
transfer any of its rights or obligations under this Agreement
without the consent of the other parties hereto. Except as
otherwise provided in this Agreement, nothing in this Agreement
is intended or shall be construed to confer on any person other
than the parties hereto any rights or benefits hereunder.
IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be executed on its behalf by its officers thereunto
duly authorized, all as of the day and year first above written.
AMERICAN ECO CORPORATION
By: /s/ Michael E. McGinnis
________________________
Name:
Title:
SUB ACQUISITION CORP.
By: /s/ Michael E. McGinnis
________________________
Name:
Title:
CHEMPOWER, INC.
By: /s/ Toomas J. Kukk
________________________
Name: T.J. Kukk
Title: President & CEO
Exhibit 10.9.2
--------------
THIS INSTRUMENT AND THE OBLIGATIONS REPRESENTED THEREBY IS
SUBORDINATE IN ALL RESPECTS TO CERTAIN OBLIGATIONS OF CHEMPOWER,
INC. AND ITS SUBSIDIARIES TO FIRST NATIONAL BANK OF OHIO,
INCLUDING A PROMISSORY NOTE IN THE MAXIMUM PRINCIPAL AMOUNT OF
$15,700,000 DATED AS OF FEBRUARY 28, 1997.
FINANCING AGREEMENT
-------------------
THIS FINANCING AGREEMENT is made and entered into as of this
28th day of February, 1997 by and among AMERICAN ECO CORPORATION,
an Ontario, Canada corporation ("American Eco"), CHEMPOWER, INC.,
an Ohio corporation ("Chempower"), TOOMAS J. KUKK, and MARK L.
ROCHESTER (jointly and severally, the "Principal Shareholders"),
and TOOMAS J. KUKK, AS AGENT FOR THE PRINCIPAL SHAREHOLDERS
(herein, together with his successors, referred to as the
"Agent"). Terms not otherwise defined herein shall have the
respective meanings set forth in the Merger Agreement, or, if so
stated, the Security Agreement or the Pledge Agreement (each as
defined herein).
W I T N E S S E T H:
WHEREAS, American Eco, Sub Acquisition Corp., an Ohio
corporation and a wholly-owned subsidiary of American Eco
("Merger Sub"), and Chempower entered into an Agreement and Plan
of Merger dated as of September 10, 1996 (the "Merger
Agreement"); and
WHEREAS, Chempower was the surviving corporation in the
merger contemplated by the Merger Agreement; and
WHEREAS, the Merger Agreement provides, inter alia., for
----------
conversion of certain common shares, $0.10 par value per share,
of Chempower ("Shares") into the right in the holder thereof to
receive the Merger Consideration (as defined in the Merger
Agreement), at the time and subject to the terms and conditions
of the Merger Agreement; and
WHEREAS, each of the Principal Shareholders holds Shares in
respect of which the Principal Shareholder would be entitled to
receive the Merger Consideration at the time and upon the
satisfaction of the conditions prescribed in the Merger
Agreement; and
WHEREAS, pursuant to a letter agreement dated January 15,
1997, the Principal Shareholders have agreed with American Eco
and Chempower to extend the time for payment of a portion of the
Merger Consideration on the terms hereinafter set forth, and, in
consideration of such agreements, American Eco and Chempower have
agreed to execute and deliver the promissory notes, grant the
security and undertake and agree to observe, satisfy and perform
the other conditions and covenants hereinafter set forth:
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by each
of the parties hereto, the parties hereto hereby agree as
follows:
1. AGREEMENTS OF PRINCIPAL SHAREHOLDERS. Each of the
Principal Shareholders agrees, at the Closing and promptly
following the Effective Time of the Merger, and in exchange for
(a) payment in cash of $7,444,712 of the Merger Consideration
due, in the aggregate, to such Principal Shareholders and (b) the
execution and delivery of the instruments provided for in
Sections 2 and 3 hereof in accordance with the terms hereof, to
(x) surrender the Certificates representing the Shares held by
such Principal Shareholders to Chempower with the same effect as
if surrendered pursuant to Section 2.03 of the Merger Agreement
(other than the payment in cash of the Merger Consideration in
respect thereof from the Exchange Fund as therein provided) and
(y) accept the obligations undertaken and the security provided
by Chempower and American Eco herein and in such instruments in
lieu of the right to receive payment in cash from American Eco
and Merger Sub of the balance of such Merger Consideration at the
Closing.
2. DOCUMENTS AND INSTRUMENTS TO BE DELIVERED BY CHEMPOWER.
Chempower agrees, at the Closing, immediately following the
Effective Time of the Merger, and in consideration of the
agreements of the Principal Shareholders set forth in Section 1
above, to authorize, perform, execute and deliver the following:
(a) To the Exchange Agent, the Promissory Note in the
form and substance of Exhibit A hereto (the "Principal
Shareholders' Note"), which Principal Shareholders' Note,
together with a cash payment of $7,444,712 of the Merger
Consideration due, in the aggregate, to the Principal
Shareholders, will then be delivered to the Agent upon surrender
of the Certificates representing the Shares held by the Principal
Shareholders in accordance with the provisions of Section 2.03 of
the Merger Agreement;
(b) To the Agent:
(i) the Security Agreement in the form and substance
of Exhibit B hereto (the "Security Agreement"); and
(ii) any such other financing statements, mortgages,
leasehold assignments, and other collateral documents
required to grant and perfect liens on all assets of
Chempower and its Subsidiaries, as may be requested by the
Agent.
3. DOCUMENTS AND INSTRUMENTS TO BE DELIVERED BY AMERICAN
ECO. American Eco agrees, at the Closing, immediately following
the Effective Time of the Merger, and in consideration of the
agreements of the Principal Shareholders set forth in Section 1
above, to authorize, perform, execute and deliver to the Agent
the following:
(a) A Guaranty in the form and substance of Exhibit C
hereto (the "Principal Shareholders' Guaranty");
(b) A Pledge Agreement in the form and substance of
Exhibit D hereto (the "Pledge Agreement");
(c) Any share certificates, stock powers and/or other
instruments necessary to perfect the pledge of all Chempower
shares by American Eco, if so requested by the Agent; and
(d) An opinion of counsel for American Eco in form and
substance satisfactory to the Agent and the Principal
Shareholders and their counsel relating, inter alia., to the due
----------
authorization, legality and enforceability of the foregoing and
to the perfection of the liens provided for under the Pledge
Agreement;
4. REPRESENTATIONS AND WARRANTIES OF CHEMPOWER.
Chempower represents and warrants to the Agent and the
Principal Shareholders (which representations and warranties
shall survive the execution of this Agreement until the full and
final payment, performance, and observance of all of the
indebtedness and obligations provided for under this Agreement
and the instruments identified in Sections 2 and 3 above) that:
(a) ORGANIZATION. Chempower is a duly organized and
------------
validly existing corporation under the laws of the state of Ohio
and is duly qualified and in good standing in every state where,
because of the nature of is activities or properties, such
qualification is required and where the failure to be so
qualified would have a material adverse effect upon the business
or condition, financial or otherwise, of Chempower.
(b) AUTHORIZATION; VALIDITY. The execution, delivery,
-----------------------
and performance of this Agreement and the documents and
instruments provided for in Section 2 hereof by Chempower are
within Chempower's corporate powers, have been duly authorized,
and are not in contravention of law or the terms of Chempower's
charter, by-laws, or regulations or of any agreement, indenture,
order, judgment, decree or undertaking to which Chempower is a
party or by which it is bound; this Agreement is, and each of the
documents and instruments identified in Section 2 above when
executed and delivered will be, legal, valid and binding
obligations of Chempower and enforceable against Chempower in
accordance with their respective terms, subject to bankruptcy,
insolvency, and other similar laws relating to or affecting the
enforceability of creditors rights generally and general
equitable principles (whether at a proceeding at law or in
equity): no consent, approval, or authorization of, or
registration or declaration with, any governmental authority or
other person is required in connection with the execution,
delivery and performance by Chempower of any of the documents and
instruments identified in Section 2 above.
(c) NO VIOLATION. The execution, delivery and
------------
performance by Chempower of this Agreement and the documents and
instruments identified in Section 2 above do not violate any
provision of law, statute or ordinance, or any rule or regulation
promulgated pursuant thereto.
(d) COMPLIANCE WITH LAWS. Chempower is in compliance
--------------------
with all laws, rules, regulations, court orders and decrees, and
orders of any governmental agency which are applicable to
Chempower, including environmental laws and all applicable
federal and state health and safety laws, regulations, ordinances
or rules, except to the extent that any non-compliance will not,
in the aggregate, have a materially adverse effect on Chempower
or the ability of Chempower to fulfill its obligations under this
Agreement.
(e) SOLVENCY. Chempower has received consideration
--------
which is the reasonable equivalent value of the obligations and
liabilities that Chempower has incurred hereunder and under the
Principal Shareholders' Note and the Security Agreement.
Chempower is and after the execution and delivery of this
Agreement and the Principal Shareholders' Note will be solvent.
Chempower is not engaged or about to engage in any business or
transaction for which the assets retained by it shall be an
unreasonably small capital, taking into consideration the
obligations incurred by it hereunder. Chempower does not intend
to, nor does it believe that it will, incur debts beyond its
ability to pay them as they mature.
Notwithstanding the representations and warranties of
Chempower set forth above, Chempower and American Eco shall have
no obligation or liability with respect to the breach or
inaccuracy of any representation or warranty of Chempower which
speaks as of or prior to the Closing and the Effective Time of
the Merger.
5. REPRESENTATIONS AND WARRANTIES OF AMERICAN ECO.
----------------------------------------------
American Eco represents and warrants to the Agent and the
Principal Shareholders (which representations and warranties
shall survive the execution of this Agreement until the full and
final payment, performance, and observance of all of the
indebtedness and obligations provided for under this Agreement
and the instruments identified in Sections 2 and 3 above) that:
(a) ORGANIZATION OF AMERICAN ECO. American Eco is a
----------------------------
duly organized and validly existing corporation under the laws of
the Province of Ontario, Canada and is duly qualified and in good
standing in every state where, because of the nature of its
activities or properties, such qualification is required and
where the failure to be so qualified would have a material
adverse effect upon the business or condition, financial or
otherwise, of American Eco.
(b) AUTHORIZATION; VALIDITY. American Eco has full
-----------------------
corporate power, authority, and legal right to own and operate
its respective properties and to carry on the business in which
it engages and currently intends to engage. The execution,
delivery, and performance of this Agreement, the Principal
Shareholders' Guaranty, and the Pledge Agreement are within
American Eco's corporate powers, have been duly authorized, and
are not in contravention of law or the terms of American Eco's
charter, bylaws, or regulations or of any agreement, indenture,
order, judgment, decree or undertaking to which American Eco is a
party or by which it is bound; this Agreement is, and each of the
Principal Shareholders' Guaranty and the Pledge Agreement when
executed and delivered will be, legal, valid and binding
obligations of American Eco and enforceable against American Eco
in accordance with their respective terms, subject to bankruptcy,
insolvency, and other similar laws relating to or affecting the
enforceability of creditors' rights generally and general
equitable principles (whether at a proceeding at law or in
equity); no consent, approval, or authorization of, or
registration or declaration with, any governmental authority or
other person is required in connection with the execution,
delivery and performance by American Eco of this Agreement, the
Principal Shareholders' Guaranty, and the Pledge Agreement.
(c) NO VIOLATION. The execution, delivery and
------------
performance by American Eco of this Agreement, the Principal
Shareholders' Guaranty and the Pledge Agreement do not violate
any provision of law, statute or ordinance, or any rule, order or
regulation promulgated pursuant thereto.
(d) FINANCIAL STATEMENTS. American Eco has furnished
--------------------
to the Agent financial data and reports concerning American Eco
as of and for the period ending November 30, 1996, including a
balance sheet (the "November 30 Balance Sheet"). This data is
complete and correct in all material respects (excluding the
treatment of certain costs and expenses relating to the
consummation of the Merger and the closing of the transactions
contemplated by this Agreement) and fairly presents the financial
condition of American Eco as of the date thereof.
(e) FINANCIAL CONDITION AT DATE OF AGREEMENT. As of
----------------------------------------
the date of this Agreement, American Eco has no material amount
of liabilities, contingent or otherwise, required to be reflected
in accordance with generally accepted accounting principles
("GAAP"), which are not reflected in the November 30 Balance
Sheet, other than those liabilities arising in the ordinary
course of business and such other liabilities as have been
previously disclosed to the Agent and/or the Principal
Shareholders in writing. As of the date of this Agreement,
American Eco has no outstanding or existing commitments for the
purchase of land, buildings, equipment, materials, or supplies,
or any contracts for services except for those made in the
ordinary course of business.
(f) NO ADVERSE CHANGES. Since November 30, 1996, there
------------------
has been no material adverse change in the condition, financial
or otherwise, of American Eco, and the business, operations, and
properties of American Eco have not been substantially and
adversely affected in any way as a result of any fire, explosion,
earthquake, accident, labor disturbance, requisition or taking of
property by any governmental authority, flood, riot, or act of
God.
(g) LITIGATION. There is no pending or, to the
----------
knowledge of American Eco, threatened action, suit or proceeding
before any court or other governmental authority or any
arbitrator against American Eco that may materially and adversely
impair the ability of American Eco to perform its obligations
under this Agreement, the Principal Shareholders' Guaranty, and
the Pledge Agreement.
(h) COMPLIANCE WITH LAWS. American Eco is in
--------------------
compliance with all laws, rules, regulations, court orders and
decrees, and orders of any governmental agency which are
applicable to American Eco, including environmental laws and all
applicable federal and state health and safety laws, regulations,
ordinances or rules, except to the extent that any non-compliance
will not, in the aggregate, have a materially adverse effect on
American Eco or the ability of American Eco to fulfill its
obligations under this Agreement, the Principal Shareholders'
Guaranty, and the Pledge Agreement.
(i) SOLVENCY. American Eco has received consideration
--------
which is the reasonable equivalent value of the obligations and
liabilities that American Eco has undertaken under this
Agreement, the Principal Shareholders' Guaranty, and the Pledge
Agreement. American Eco is now, and after the execution and
delivery of the this Agreement, the Principal Shareholders'
Guaranty, and the Pledge Agreement will be solvent. American Eco
is not engaged or about to engage in any business or transaction
for which the assets retained by it shall be an unreasonably
small capital, taking into consideration the obligations incurred
by it hereunder. American Eco does not intend to, nor does it
believe that it will, incur debts beyond its ability to pay them
as they mature.
(j) COMPLIANCE WITH OTHER INSTRUMENTS. American Eco is
---------------------------------
not in default in the performance, observance, or fulfillment of
any of the material obligations, covenants, or conditions
contained in (i) any evidence of indebtedness for borrowed money
or (ii) any lease or other instrument. Neither the execution and
delivery of this Agreement, the Principal Shareholders' Guaranty,
or the Pledge Agreement, nor the consummation of the transactions
contemplated thereby, nor compliance with the terms and
provisions thereof will violate in any material respect the
provisions of any material permit or license, or conflict with or
result in a breach of, in any material respect, any of the terms,
conditions or provisions of any restriction or of any agreement
or instrument to which American Eco is now a party; nor will such
compliance constitute a default thereunder or result in the
creation or imposition of any lien, charge, or encumbrance of any
nature whatsoever upon any of the properties or assets of
American Eco other than as provided in the Pledge Agreement.
(k) MATERIAL RESTRICTIONS. American Eco is not a
---------------------
party to any agreement or other instrument or subject to any
other restriction which materially adversely affects its
business, properties (as a whole), assets (as a whole),
operations, or conditions, financial or otherwise.
(l) CORRECTNESS OF DATA FURNISHED. Except as
-----------------------------
otherwise specifically qualified elsewhere in this Agreement or
the Disclosure Schedule or Exhibits attached hereto, the
Agreement, the Disclosure Schedule, and the Exhibits hereto,
taken as a whole, are true and correct in all material respects;
and to the knowledge of American Eco, the matters disclosed in
the Agreement and the Disclosure Schedule and Exhibits attached
hereto, taken as a whole, set forth all material facts which
specifically affect American Eco's business, properties or
condition (financial or otherwise).
6. AFFIRMATIVE COVENANTS OF CHEMPOWER.
----------------------------------
Chempower undertakes, covenants, and agrees that, until the
full and complete payment, performance, and observance of
Chempower's obligations under this Agreement, the Principal
Shareholders' Note, and the Security Agreement:
(a) PAYMENT OF AMOUNTS DUE. Chempower will make all
----------------------
payments of the principal of and interest on the Principal
Shareholders' Note promptly as the same become due.
(b) CONDUCT OF BUSINESS IN THE ORDINARY COURSE.
------------------------------------------
Chempower shall conduct its business and that of its Subsidiaries
only in the regular and ordinary course of business, consistent
with past practice and shall use all reasonable efforts to (i)
preserve intact its business, (ii) keep available the services of
its current officers and employees, or their duly appointed
successors, and (iii) preserve its relationships with desirable
customers, suppliers, licensors, licensees, distributors and
others having business dealings with it. Chempower will cause to
be done all things necessary to preserve and to keep in full
force and effect its existence and rights and those of its
Subsidiaries and will conduct its business in a prudent manner.
(c) BOARD OF DIRECTORS. Chempower shall take any and
------------------
all action necessary to ensure that the Board of Directors of
Chempower, following the Effective Time of the Merger and until
Chempower's obligations under this Agreement, the Principal
Shareholders' Note, and the Security Agreement have been paid,
performed and otherwise observed in full, consists of three
directors, two of whom shall be designated by the Principal
Shareholders and one of whom will be designated by American Eco.
(d) QUARTERLY FINANCIAL STATEMENTS. Chempower shall
------------------------------
deliver to the Agent within forty-five (45) days after the close
of each fiscal quarter, a balance sheet as at the end of such
quarter, an income and expense statement for such quarter, each
prepared in accordance with GAAP (except as otherwise provided
herein and except that the Agent acknowledges that such financial
statements are subject to normal year-end adjustments and are
without footnotes), and a statement that after reasonable,
diligent inquiry no Event of Default (as defined herein) exists,
or if an Event of Default does exist, specifying the nature
thereof. Notwithstanding the foregoing, as long as the loan to be
obtained by Chempower from First National Bank of Ohio pursuant
to the Loan Agreement, by and between Chempower and First
National Bank of Ohio, dated February 28, 1997, remains
outstanding, the provision to the Agent of the financial
statements required to be delivered to First National Bank of
Ohio in connection with such Loan Agreement shall be deemed to
satisfy the requirements of this Section 6(d).
(e) COMPLIANCE WITH LAWS. Chempower will comply and
--------------------
will cause its Subsidiaries to comply, in all material respects
with all federal, state, and local laws and regulations material
to its business now in effect or hereafter promulgated by any
properly constituted governmental authority having jurisdiction.
(f) MAINTENANCE OF PROPERTIES. Chempower will at all
-------------------------
times maintain, preserve, protect, and keep its properties and
those of its Subsidiaries used in the conduct of its business in
good repair, working order, and condition, ordinary wear and tear
excepted, and, from time to time, make all needful and proper
repairs, renewals, replacements, betterments, and improvements
thereto, so that the business carried on in connection therewith
may be properly conducted at all times.
(g) PAYMENT OF TAXES, ETC. Chempower will pay and
---------------------
discharge, and will cause its Subsidiaries to pay and discharge,
all lawful taxes, assessments, and governmental charges or levies
imposed upon it or them, or upon its or their income or profits,
or upon any of its or their properties, before the same shall
become in default, as well as all lawful claims for labor,
materials, and supplies which, if unpaid, might become a lien or
charge upon such properties or any part thereof; provided,
however, Chempower shall not be required to pay and discharge any
such tax, assessment, charge, levy, or claim so long as the
validity thereof shall be contested in good faith by appropriate
proceedings and there shall be set aside such reserves with
respect thereto as are required by GAAP. Chempower will in all
events pay such tax, assessment, charge, levy or claim before the
property subject thereto shall be sold to satisfy any lien which
has attached as security therefor.
(h) ACCESS TO INFORMATION. Chempower shall afford the
---------------------
Agent and the Agent's accountants, counsel and other
representatives, full access, during normal business hours at all
times prior to the full and complete payment, performance, and
observance of Chempower's obligations under this Agreement, the
Principal Shareholders' Note, and the Security Agreement, to all
of the properties, books, contracts, commitments and records of
Chempower and its Subsidiaries.
(i) NOTIFICATION OF CERTAIN EVENTS. Chempower
------------------------------
covenants and agrees to give prompt written notice to the Agent
of (i) the occurrence (or non-occurrence) of any event the
occurrence (or nonoccurrence) of which would be likely to cause
(A) any representation or warranty contained in this Agreement to
be untrue or inaccurate in any material respect or (B) any
covenant, agreement or condition in this Agreement not to be
complied with or satisfied in any material respect; (ii) any
failure by Chempower to comply with or satisfy any covenant,
agreement or condition contained in this Agreement in any
material respect; and (iii) any litigation, legal proceeding or
threat of legal proceeding involving Chempower and/or any of its
Subsidiaries that may materially and adversely impair the ability
of Chempower to perform its obligations under the Principal
Shareholders' Note.
(j) FURTHER ASSURANCES. Chempower agrees to execute
------------------
and deliver to the Agent, any agreements, documents and
instruments, including, without limitation, another Principal
Shareholders' Note as a replacement or substitution (subject to a
satisfactory affidavit of loss) as may be required by the Agent,
and to take such other actions as reasonably requested by the
Agent to effect the transactions contemplated hereby.
7. NEGATIVE COVENANTS OF CHEMPOWER.
-------------------------------
Chempower undertakes, covenants, and agrees that, until the
full and complete payment, performance, and observance of
Chempower's obligations under this Agreement, the Principal
Shareholders' Note, and the Security Agreement, unless it has
obtained the prior written consent of the Agent:
(a) CAPITAL STOCK. Chempower shall not (i) adjust,
-------------
split, combine or reclassify any shares of capital stock; (ii)
make, declare, set aside or pay any dividend or make any other
distribution on, or directly or indirectly issue, sell, pledge,
grant, redeem, repurchase or otherwise acquire, any shares of its
or any Subsidiary's capital stock, any securities or obligations
convertible into or exchangeable for any shares of its or any
Subsidiary's capital stock, or any options, warrants or other
rights to acquire any shares of its or any Subsidiary's capital
stock except the issuance of stock pursuant to the exercise of
employee stock options outstanding on the date hereof; or (iii)
grant any stock option or appreciation rights or other rights to
share in the equity value of Chempower or any Subsidiary;
(b) CONTRACTS; LEASES OF REAL PROPERTY. Chempower
----------------------------------
shall not, except in the ordinary course of business, (i) make or
enter into any agreement, commitment or contract giving rise to
obligations extending beyond 90 days from the date hereof, or
modify, amend or terminate any material contract (other than as
required by the terms thereof), or pay any amount not required by
law or by any contract; or (ii) make or enter into any lease of
real property or extend or amend any existing lease of real
property;
(c) MERGERS; CONSOLIDATIONS. Chempower shall not
-----------------------
dissolve or liquidate, or consolidate with or merge with or into
any person, firm, corporation or entity or otherwise effect any
business combination with any person, firm, corporation or
entity; nor shall Chempower approve any such dissolution,
liquidation, consolidation, or merger with respect to any of its
Subsidiaries.
(d) PURCHASES OR TRANSFERS OF ASSETS; LIMITATION ON
-----------------------------------------------
INDEBTEDNESS. Chempower shall not (i) acquire, sell, lease,
------------
encumber, transfer or dispose of any assets, including the stock
of any Subsidiary, or make any capital expenditures, except in
the ordinary course of business or pursuant to obligations in
effect on the date hereof; (ii) purchase the capital stock of any
other person; or (iii) incur any indebtedness for borrowed money
or guarantee any indebtedness or issue or sell securities or
warrants or rights to acquire any debt securities or guarantee
(or become liable for) any debt of others or make any loans,
advances or capital contributions or mortgage, pledge or
otherwise encumber any assets or create or suffer any material
lien thereupon, except for (x) the security interests granted
under the Security Agreement or (y) indebtedness which has been
approved by the Board of Directors of Chempower with the
affirmative vote of both Toomas J. Kukk and Ernest M. Rochester,
by Toomas J. Kukk in his capacity as an officer of Chempower, or
by the Agent;
(e) MAINTENANCE OF INSURANCE. Subject to the exercise
------------------------
of reasonable business judgment, Chempower shall not cancel or
otherwise take any action reasonably likely to result in the
termination of any insurance policies currently in existence
insuring the assets or properties of, or providing coverage
against liabilities of, Chempower, any of its Subsidiaries, or
the businesses conducted by them.
(f) SATISFACTION OF CLAIMS. Chempower shall not pay,
----------------------
discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unassorted, contingent or
otherwise), other than any payment, discharge or satisfaction (i)
in the ordinary course of business consistent with past practice,
or (ii) in accordance with their terms, of liabilities reflected
or reserved against in, or contemplated by, the financial
statements (or the notes thereto) of Chempower for the fiscal
year ended December 31, 1996. Notwithstanding the preceding
sentence, however, Chempower shall not pay, discharge or satisfy
any claims, liabilities or obligations in connection with the
litigation and claims listed on Schedule 3.15 to the Merger
Agreement, other than attorneys' fees and other expenses of
defending such actions, final non-appealable judgments, and
appeal bonds relating to appealable judgments, it being
understood and agreed that Chempower shall keep the Agent fully
informed of all material developments in connection with such
claims and litigation;
(g) LIMITATION ON INVESTMENTS. Chempower will not
-------------------------
purchase or otherwise acquire or make any investment, except for
(i) investments existing on the date of this Agreement but
without any increase therein (no increase in an investment shall
be deemed to have occurred solely by reason of an increase in the
fair market value of such investment or increases in the net
worth in the person that is the subject of the investment
resulting from earnings of such person), or (ii) investments in
the ordinary course of business.
(h) PARTNERSHIPS AND JOINT VENTURES. Chempower shall
-------------------------------
not, and will not permit any Subsidiary to, act or participate as
a general or limited partner in any partnership or a joint
venturer in any joint venture, except such joint ventures or
partnerships in which Chempower is participating as of the date
of this Agreement.
(i) TRANSACTIONS WITH AFFILIATES OR SHAREHOLDERS.
--------------------------------------------
Chempower shall not engage in any transaction with any affiliate
or shareholder, unless (i) such transaction is at arms length and
------
on terms that are at least as favorable to Chempower as those
prevailing at the time for comparable transactions with
nonaffiliated persons; and (ii) in any event, such transaction
does not require Chempower to make payments, advances, or loans
to any affiliate or shareholder in an amount exceeding $25,000.
(j) EMPLOYEE BENEFITS. Except as required by law or
-----------------
contemplated by this Agreement, Chempower shall not, subject to
its reasonable business judgment, (i) enter into, adopt, amend or
terminate any employee benefit plan or any agreement,
arrangement, plan or policy between Chempower and one or more of
its directors, officers, or employees; (ii) increase in any
manner the compensation or fringe benefits of any director,
officer or employee; (iii) grant any bonus to any of its
executive officers or pay any termination, severance or other
benefit not required by any plan and arrangement as in effect on
the date hereof; or (iv) with respect to any employee benefit
plans subject to the requirements of ERISA, take any actions
which do not comply with such requirements or which may result in
a tax, penalty or other liability under Section 4975 of the Code,
Section 502(i), or any other provision, of ERISA.
(k) EMPLOYMENT AGREEMENTS. Chempower shall not, by
---------------------
action of its officers, directors, or shareholder (acting either
in its capacity as the sole shareholder of Chempower or as a
party to such agreements), (i) terminate the Employment
Agreements between each of Toomas J. Kukk and Ernest M. Rochester
and Chempower and American Eco, entered into in connection with
the Merger, except for "cause" (as defined in such Employment
Agreement); (ii) take any action with the intention of (or which
it reasonably believes may have the effect of) causing either Mr.
Kukk or Mr. Rochester to terminate such agreement; or (iii)
constructively discharge either Mr. Kukk or Mr. Rochester from
the position or responsibilities of his employment as described
in his Employment Agreement, or materially hinder or impede
either of them in the performance of such responsibilities.
(l) VIOLATION OF LAWS. Chempower shall not violate, or
-----------------
use any Collateral (as defined in the Security Agreement) in
violation of, any applicable material statute, ordinance, or
regulation, including, in each case, Environmental Laws.
(m) ENVIRONMENTAL COMPLIANCE. Chempower will conduct
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its business in material compliance with all environmental laws,
regulations, and permits, except to the extent that compliance is
being contested in good faith by appropriate proceedings and
reserves are established or other appropriate provisions made
therefor in accordance with GAAP (to the extent such reserves or
provisions are required in accordance with GAAP);
(n) CHANGE IN LOCATIONS. Except for changes resulting
-------------------
from sales of Inventory (as defined in the Security Agreement) in
the ordinary course of Chempower's business, Chempower shall not
make any change in any location where Chempower's Inventory or
Equipment (as defined in the Security Agreement) is maintained or
any change in the location of the office where Chempower's
records pertaining to its accounts and contract rights are kept;
(o) CHANGES IN ORGANIZATIONAL DOCUMENTS. Chempower
-----------------------------------
shall not make any changes in the Articles of Incorporation, Code
of Regulations or By-laws, as amended to date, of Chempower or
any Subsidiary, except as contemplated hereby;
(p) CHANGES IN ACCOUNTING PRINCIPLES. Chempower shall
--------------------------------
not change any of the accounting principles or practices used by
it (except as required by GAAP or Canadian generally accepted
accounting principles, or as a result of its consolidation for
financial reporting purposes with American Eco);
(q) TAXES. Chempower shall not, subject to its
-----
reasonable business judgment, make any material tax election or
settle or compromise any material federal, state, local or
foreign income tax liability, or waive or extend the statute of
limitations in respect of any such taxes; and
(r) OTHER ACTIONS. Chempower shall not agree to, or
-------------
make any commitment to take any of the actions prohibited by this
Section 7; or take any action, or agree or commit to take any
action that would make any representation or warranty of
Chempower hereunder inaccurate in any material respect at, or as
of any time prior to the full and final payment, performance, and
observance of all of the indebtedness and obligations provided
for under this Agreement and the instruments identified in
Sections 2 and 3 above, or omit or agree or commit to omit to
take any action necessary to prevent any such representation or
warranty from being inaccurate in any material respect at any
such time.
8. COVENANTS OF AMERICAN ECO.
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American Eco undertakes, covenants, and agrees that, until
the full and complete payment, performance, and observance of all
of American Eco's obligations under this Agreement, the Principal
Shareholders' Guaranty, and the Pledge Agreement:
(a) PAYMENT OF AMOUNTS DUE. In the event that
----------------------
Chempower fails to make any payments of the principal of and/or
interest on the Principal Shareholders' Note promptly as the same
become due, American Eco will make such payments to the Agent in
accordance with the terms of the Principal Shareholders'
Guaranty. American Eco shall wire to Chempower any amount payable
with respect to interest on the Principal Shareholders' Note at
least one (1) day prior to the date upon which such interest
shall become due and payable by Chempower. If American Eco fails
to make any of the payments provided for above, the Agent may
exercise any and all of its rights under the Pledge Agreement,
and the Security Agreement. Further, the rights of American Eco
and its affiliates to payment of any amounts that may from time
to time be owed to them or any of them by Chempower or its
subsidiaries (any such amounts, the "Intercompany Debt") shall be
subordinate in right of payment to the prior payment in full of
the entire principal amount of and all accrued but unpaid
interest on the Principal Shareholders' Note, and all other
amounts due and owing under or in connection with this Agreement
or the instruments identified in Sections 2 and 3 hereof
delivered in connection herewith; provided that, so long as no
Event of Default, or an event which with notice or passage of
time or both would constitute an Event of Default hereunder, has
occurred and is continuing, any Intercompany Debt that is
otherwise permitted by the terms of this Agreement may be paid in
the ordinary course.
(b) BOARD OF DIRECTORS. One designee of the Principal
------------------
Shareholders, who shall initially be Ernest M. Rochester, will
have the right to attend all meetings of the Board of Directors
and any committees thereof as an observer until such time as the
obligations of Chempower under the Principal Shareholders' Note
are paid in full.
(c) MANAGEMENT OF CHEMPOWER. (i) American Eco shall
-----------------------
permit the Agent, through the officers and directors of
Chempower, to operate and otherwise conduct the business of
Chempower under and at the exclusive control, direction, and
discretion of the Agent; further, American Eco agrees not to take
any action to interfere with the meaningful exercise of such
control, direction, or discretion by the Agent?
(ii) The Agent, on the other hand, agrees that, in
the operation and conduct of Chempower's business, he shall
not take, or omit to take, as the case may be, any action to
(x) alter Chempower's equity structure or (y) cause
Chempower to enter into any material transactions not in the
ordinary course of business or to sell all or substantially
all of its assets, consolidate with or merge with or into
any person, firm, corporation or entity, or otherwise effect
any business combination with any person, firm, corporation
or entity, without the consent of American Eco; provided,
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however, that nothing provided for in this paragraph shall
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limit in any way the Agent's rights under this Agreement or
under the instruments identified in Sections 2 and 3 hereof
and executed in connection herewith, in the event of an
Event of Default hereunder.
(d) OTHER ACTIONS. American Eco shall not:
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(i) take any action to cause or which may result in
Chempower (A) failing to take the actions which it has
agreed to take pursuant to Section 6 of this Agreement or
(B) taking any actions which it has agreed not to take
pursuant to Section 7 of this Agreement;
(ii) charge or otherwise impose any obligation upon
Chempower to make payments for overhead, management fees or
expenses, or similar expenses of American Eco which American
Eco may deem attributable to Chempower or the conduct of its
business;
(iii) agree to, or make any commitment to take any of
the actions prohibited by this Section 8; or
(iv) take any action, or agree or commit to take any
action that would make any representation or warranty of
American Eco or Chempower hereunder inaccurate in any
material respect at, or as of any time prior to the full and
final payment, performance, and observance of all of the
indebtedness and obligations provided for under this
Agreement and the instruments identified in Sections 2 and 3
above, or omit or agree or commit to omit to take any action
necessary to prevent any such representation or warranty
from being inaccurate in any material respect at any such
time.
9. DEFAULTS AND REMEDIES.
The occurrence of any one or more of the following shall
constitute an Event of Default under this Agreement (provided
that, with respect to the events identified in paragraphs (c),
(d), (e), (f), (g), (i), and (k), such none of such events shall
constitute an Event of Default unless such event has not been
cured within ten (10) days following delivery by the Agent to
American Eco of written notice of such Event of Default):
(a) Default shall be made in the payment of any
principal on the Principal Shareholders' Note when and as the
same shall become due and payable, whether at maturity or
otherwise;
(b) Default shall be made in the payment of any
interest on the Principal Shareholders' Note when and as the same
shall become due and payable (provided that such Event of Default
has not been cured within five (5) days following delivery by the
Agent to American Eco of written notice of such Event of
Default);
(c) Failure by Chempower to observe or perform any
covenant or obligation of Chempower under this Agreement and/or
the Security Agreement or, except as provided in the last clause
of Section 4 hereof, any representation or warranty of Chempower
set forth in this Agreement or in the Security Agreement shall
have been untrue or incomplete in any material respect when made;
(d) Failure by American Eco to perform any of its
obligations under the Principal Shareholders' Guaranty in full
when due;
(e) Failure by American Eco to observe or perform any
covenant or obligation of American Eco under this Agreement
and/or the Pledge Agreement or any representation or warranty of
American Eco set forth in this Agreement or in the Pledge
Agreement shall have been untrue or incomplete in any material
respect when made;
(f) Failure by either Chempower or American Eco to
observe or comply with any agreement or obligation set forth or
provided for in any collateral security document or other
document, instrument or agreement delivered by either or both of
them in connection with the transactions herein provided or any
representation or warranty of either or both Chempower or
American Eco set forth in any such document shall have been
untrue or incomplete in any material respect when made; or
(g) Failure by either Chempower or American Eco to
observe or comply with any material agreement or obligation set
forth or provided for in either the Employment Agreement or the
Non-Competition Agreement with either Toomas J. Kukk or Ernest M.
Rochester, unless such failure follows a material breach by
either of Messrs. Kukk or Rochester of their obligations under
such agreements; or
(h) Default in an amount in excess of $300,000 in
respect of any other indebtedness of Chempower or American Eco,
which default continues beyond any applicable grace period or
cure period; or
(i) If any of the following events occur: (i) any
Benefit Plan incurs a material "accumulated funding deficiency"
(as such term is defined in ERISA) whether waived or not, (ii)
Chempower or any affiliate engages in a material "prohibited
transaction" (as such term is defined in Section 406 of ERISA or
Section 4975 of the Code), (iii) subject to Chempower's
reasonable business judgment, any Benefit Plan is terminated or
partially terminated, (iv) a trustee is appointed by an
appropriate United States district court to administer any
Benefit Plan, or (v) the Pension Benefit Guaranty Corporation
institutes proceedings to terminate any Benefit Plan or to
appoint a trustee to administer any Benefit Plan; or
(j) Any of the following events evidencing the
financial difficulties of either or both of Chempower or American
Eco shall occur: (i) any admission in writing of inability to pay
debts as they become due or the failure to pay debts generally as
such debts become due; or (ii) the entry of an order for relief
in the name of either or both of Chempower or American Eco under
Title 11 of the United States Code or similar provisions of
foreign law; or (iii) either or both of Chempower or American Eco
shall make an assignment for the benefit of creditors; or (iv)
Chempower or American Eco shall consent to the appointment of a
trustee or receiver for all or a major part of its property; or
(v) the commencement of a case by Chempower or American Eco under
Title 11 of the United States Code or similar provisions of
foreign law; or (vi) the commencement of a case under Title 11 of
the United States Code or similar provisions of foreign law
against Chempower or American Eco or any subsidiary thereof,
which case shall not be dismissed, vacated, denied, set aside, or
stayed within 30 days from the date of commencement; or (vii) the
entry of a court order appointing a receiver or a trustee for all
or a major part of Chempower or American Eco's property without
consent, which order shall not be dismissed, vacated, denied, set
aside, or stayed within 60 calendar days from the date of entry;
or (viii) the entry of a judgment or judgments for the payment of
money aggregating in excess of $300,000 against Chempower or
American Eco, and the same shall not be satisfied and discharged
within 90 calendar days from the date of entry thereof or an
appeal or other proceeding for the review thereof shall not be
taken within the period allowed to take such appeal and a stay of
execution pending such appeal shall not be obtained; or
(k) a material adverse change in the business,
operations, management, or financial condition of Chempower or
American Eco that would impair its ability to comply with and
perform its obligations under, with respect to Chempower, this
Agreement, the Principal Shareholders' Note, or the Security
Agreement, or, with respect to American Eco, this Agreement, the
Principal Shareholders' Guaranty, or the Pledge Agreement, as
determined by the Agent in good faith, shall have occurred; or
(l) any court or administrative or regulatory agency
shall have issued an injunction or order that materially
restricts or enjoins Chempower or American Eco from conducting
any material part of its business as now conducted.
Notwithstanding paragraphs (c), (f), and (g) above in so far as
they relate to Chempower, no Event of Default under any of the
aforementioned paragraphs shall be deemed to have occurred as a
result of actions by Chempower which both (i) have been
authorized or taken by the Board of Directors of Chempower with
the affirmative vote of both Toomas J. Kukk and Ernest M.
Rochester (but without the affirmative vote of the third member
of the Board of Directors), by Toomas J. Kukk in his capacity as
an officer of Chempower, or by the Agent and (ii) but for the
operation of this proviso, would constitute an Event of Default
under any of the aforementioned paragraphs at the time authorized
or taken. Nothing in this proviso shall in any way limit the
Agent's rights in the case of an Event of Default under any
paragraph of this Section other than the aforementioned
paragraphs.
If there shall occur any Event of Default set forth in
Subsections (a) through (i); (j)(i), (iii), (iv), (vii) or
(viii); (k) or (l) above, the Agent, by written notice to
American Eco and Chempower, may declare the unpaid principal of
and accrued interest on the Principal Shareholders' Note to be
immediately due and payable, whereupon the total amount of the
then unpaid principal of and interest on such Principal
Shareholders' Note shall become due and payable, without any
further notice, presentment, or demand of any kind, all of which
are hereby expressly waived by Chempower. If there shall occur
any Event of Default set forth in Subsections (j)(ii), (v) or
(vi) above, all indebtedness on the Principal Shareholders' Note
shall automatically become and be immediately due and payable.
Upon the occurrence of any Event of Default and at all times
thereafter during which such Event of Default shall continue, the
Agent shall have the rights and remedies of a secured party under
the UCC in addition to the rights and remedies expressly provided
for under this Agreement and the instruments referred to in
Sections 2 and 3 hereof. The Agent may require Chempower and/or
American Eco to assemble the Collateral (as used hereinafter,
including all such items as are included in the definitions of
Collateral under both the Security Agreement and the Pledge
Agreement) and make it available to the Agent at a reasonably
convenient place to be designated by the Agent. The Agent will
give American Eco reasonable notice under the UCC of the time and
place of any public sale of such Collateral or of the time after
which any private sale or other intended disposition thereof is
to be made. The requirement of reasonable notice shall be met if
such notice is mailed (deposited for delivery, postage prepaid,
by U.S. mail) to American Eco's address as set forth in Section
12(c) of this Agreement (as modified by any change therein which
American Eco has supplied in writing to the Agent), at least ten
(10) days before the time of the public sale or the time after
which any private sale or other intended disposition thereof is
to be made. At any such public or private sale, the Agent may
purchase such Collateral. After deduction for the expenses of the
Agent, the residue of any such sale or other disposition shall be
applied in satisfaction of the Obligations in such order of
preference as the Agent may determine. Any excess, to the extent
permitted by law, shall be paid to Chempower or American Eco, and
Chempower and American Eco shall remain liable for any
deficiency.
10. CONDITIONS PRECEDENT. The obligation of the Principal
Shareholders to perform in accordance with this Agreement and to
engage in the transactions contemplated hereby shall be subject
to the satisfaction of the following conditions prior to such
performance by the Principal Shareholders:
(a) The Effective Time of the Merger shall have
occurred;
(b) Chempower shall have executed and delivered each
of the following documents:
(i) to the Exchange Agent, the Principal Shareholder's
Note, which Principal Shareholders' Note, together with a
cash payment of $7,444,712 of the Merger Consideration due,
in the aggregate, to the Principal Shareholders, will then
be delivered to the Agent upon surrender of the Certificates
representing the Shares held by the Principal Shareholders
in accordance with the provisions of Section 2.03 of the
Merger Agreement;
(ii) to the Agent, the Security Agreement; and
(iii) to the Agent, any other financing statements,
mortgages, leasehold assignments, and other collateral
documents required to grant and perfect liens on all assets
of Chempower, as may be requested by the Agent.
(c) American Eco shall have executed and delivered to
the Agent each of the following documents:
(i) the Principal Shareholders' Guaranty;
(ii) the Pledge Agreement;
(iii) share certificates, stock powers and/or other
instruments necessary to perfect the pledge of all Chempower
shares by American Eco, if so requested by the Agent; and
(iv) An opinion of counsel for American Eco in form and
substance satisfactory to the Agent and the Principal
Shareholders and their counsel relating, inter alia., to the
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due authorization, legality and enforceability of the
foregoing and to the perfection of the liens provided for
under the Pledge Agreement.
11. THE AGENT.
(a) APPOINTMENT AND ACCEPTANCE. The Principal
--------------------------
Shareholders, by executing this Agreement, shall be deemed to
have irrevocably appointed Toomas J. Kukk, and any successor
appointed pursuant to Section 11 (d) hereof, as the Agent to be
the representative and agent of the Principal Shareholders for
all purposes under this Agreement on the terms and conditions set
forth in this Section 11. Toomas J. Kukk, by his signature below,
hereby accepts his appointment as the original Agent hereunder
and agrees to act as the representative and agent of the
Principal Shareholders for all purposes under this Agreement on
the terms and conditions set forth in this Section 11.
(b) POWERS. As the representative and agent of the
------
Principal Shareholders, the Agent shall have full power and
authority, for and on behalf of each and all of the Principal
Shareholders and in their name, to do all things necessary or
desirable (a) to determine the rights of the Principal
Shareholders under this Agreement, the Principal Shareholders'
Note, the Principal Shareholders' Guaranty, the Pledge Agreement
and the Security Agreement, or to protect the interests of the
Principal Shareholders therein, and (b) to carry out the
provisions of, and to otherwise act on behalf of the Principal
Shareholders under, this Agreement, the Principal Shareholders'
Note, the Principal Shareholders' Guaranty, the Pledge Agreement
and the Security Agreement, including, but not limited to, the
following: (i) to receive, demand, collect, deposit, hold and
disburse all payments of principal or interest on and proceeds of
the Principal Shareholders' Note, the Principal Shareholders'
Guaranty, the Security Agreement, and the Pledge Agreement; (ii)
to commence, prosecute, defend or compromise and settle any
disputes or legal proceedings relating to this Agreement, the
Principal Shareholders' Note, the Principal Shareholders'
Guaranty, the Pledge Agreement or the Security Agreement, and to
take such other actions with respect to such disputes as he deems
necessary or appropriate to resolve such disputes; (iii) to
prepare, execute, endorse and deliver any and all drafts,
certificates and any other documents and instruments in
connection with this Agreement, the Principal Shareholders' Note,
the Principal Shareholders' Guaranty, the Pledge Agreement or the
Security Agreement; (iv) to sign and deliver contracts,
directions, releases, consents, receipts and other written
instruments on behalf of the Principal Shareholders as
contemplated herein; (v) to employ and discharge attorneys and
other professional advisors and agents as he deems necessary or
desirable; (vi) to represent the interests of the Principal
Shareholders at the Closing; (vii) to receive notices on behalf
of the Principal Shareholders pursuant to Section 12(c) of this
Agreement; and (viii) to do, or refrain from doing, all things
required or permitted to be done under this Agreement, the
Principal Shareholders' Note, the Principal Shareholders'
Guaranty, the Pledge Agreement and the Security Agreement as
fully as the Principal Shareholders could do or refrain from
doing.
(c) IRREVOCABILITY. The powers and authority granted
--------------
to the Agent as provided in this Section 11 are specifically
declared to be coupled with an interest and given as security,
and the death, incapacity or any action of any of the Principal
Shareholders or the lapse of time shall not operate to revoke or
in any way to impair or affect such powers and authority.
(d) RESIGNATIONS AND OTHER VACANCIES. An original or
--------------------------------
any successor Agent may resign as such at any time, but such
resignation shall not be effective until a successor Agent has
qualified as set forth in this Section 11(d). In the event of the
resignation, death, incapacity or other inability to serve of an
original or any successor Agent, his or her successor may be
designated by the written designation of the Principal
Shareholders, or any person duly authorized to act on behalf of
either of the Principal Shareholders, who shall deliver the
original of such written designation to American Eco; provided,
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however, that the first successor Agent shall be Ernest M.
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Rochester, if he is then living and not incapacitated or
otherwise unable to serve. Any successor to an Agent must qualify
as such by executing a written instrument of acceptance of the
appointment and delivering the original thereof to American Eco
and a copy thereof to each of the Principal Shareholders.
(e) SCOPE OF DUTIES. The Agent shall have only such
---------------
duties and obligations as are imposed upon them by the provisions
of this Section 11 and otherwise by the provisions of this
Agreement, the Principal Shareholders' Note, the Principal
Shareholders' Guaranty, the Pledge Agreement and the Security
Agreement. The Agent hereby undertakes and agrees (a) to make all
reasonable efforts to maximize the amounts realized by the Agent
on the Principal Shareholders' Note, (b) to take all actions
necessary to realize all proceeds available under the Security
Agreement, the Principal Shareholders' Guaranty, and/or the
Pledge Agreement to which the Agent may become entitled from time
to time as beneficiary by the terms thereof as promptly as
practicable following the occurrence of conditions required to
entitle the Agent to collect such proceeds, (c) to take all
reasonable actions to prevent the Principal Shareholders' Note,
the Principal Shareholders' Guaranty, the Security Agreement and
the Pledge Agreement and all payments thereon and proceeds
thereof from becoming subject to any lien or adverse claim and
(d) to promptly pay over to each of the Principal Shareholders
that portion of all payments received by the Agent in respect of
the Principal Shareholders' Note, the Principal Shareholders'
Guaranty, the Security Agreement and the Pledge Agreement in the
amount corresponding to the respective percentage interest of the
Principal Shareholder in such payments as set forthon Exhibit E
hereto.
(f) NO COMPENSATION. The Agent shall not be
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compensated for its services under this Section 11, except that
he shall be reimbursed for any out-of-pocket expenses incurred in
exercising the powers delineated in this Section 11.
(g) LIABILITY; INDEMNIFICATION.
--------------------------
(i) Neither the Agent nor any of his agents shall be
personally liable for any action taken or omitted by them
under this Section 11, including without limitation the
compromise of any disputes or legal proceedings, or any
agreement, document or instrument executed in connection
therewith, except for their own respective willful
misconduct or gross negligence; provided, however, that such
-------- -------
limitation of liability shall not be effective to the extent
that it is prohibited by statute or governing law. The Agent
shall be entitled to rely upon advice of counsel concerning
legal matters and upon any schedule, statement, report,
notice or other document which he believes to be genuine or
to have been presented by a proper person.
(ii) The Principal Shareholders severally agree to
indemnify and hold the Agent harmless from and against any
claims, loss, liability, costs and expenses, including,
without limitation, reasonable attorneys' fees, incurred by
or asserted against the Agent and based on or arising out of
(A) actions taken by the Agent in the exercise of his powers
and duties herein provided or (B) claims of creditors,
receivers or the bankruptcy estate of Chempower or American
Eco with respect to payments made on the Principal
Shareholders' Note, with each of the Principal Shareholders
bearing a proportion of the costs of such indemnification
corresponding to the percentage interest of such Principal
Shareholder as set forth on Exhibit E hereto.
(h) TERMINATION OF POWERS. The powers, authority,
---------------------
rights, duties and obligations granted or imposed as provided in
this Section 11 shall terminate on the second annual anniversary
following the last date on which the Principal Shareholders' Note
has been paid in full or cancelled. Upon such termination, the
Agent shall be released and discharged from all further duties
and responsibilities under this Section 11.
(i) BINDING EFFECT. This Section 11 shall be binding
--------------
upon and inure to the benefit of the Agent and the Principal
Shareholders, and their respective executors, administrators,
successors and assigns.
12. GENERAL PROVISIONS.
(a) SEVERABILITY OF PROVISIONS. If any provision,
--------------------------
term, or portion of this Agreement, (including, without
limitation, (a) any indebtedness, obligation, liability,
contract, agreement, indenture, warranty, covenant, guaranty,
representation, or condition of this Agreement made, assumed, or
entered into, (b) any act or action taken under this Agreement,
or (c) any application of this Agreement) is for any reason held
to be illegal or invalid, such illegality or invalidity shall not
affect any other such provision, term, or portion of this
Agreement, each of which shall be construed and enforced as if
such illegal or invalid provision, term, or portion were not
contained in this Agreement. Any illegality or invalidity of any
application of this Agreement shall not affect any legal and
valid application of this Agreement, and each provision, term,
and portion of this Agreement shall be deemed to be effective,
operative, made, entered into, or taken in the manner and to the
full extent permitted by law.
(b) WAIVER; RIGHTS CUMULATIVE; TIME OF EFFECTIVENESS
------------------------------------------------
OF DEMANDS AND NOTICES. The Agent shall not be deemed to have
----------------------
waived any of its rights under this Agreement or under any other
agreement, instrument, or document executed by Chempower or
American Eco in connection with this Agreement, unless such
waiver be in writing and signed by the Agent. No delay or
omission on the part of the Agent in exercising any right shall
operate as a waiver of such right or any other right. A waiver on
any one occasion shall not be construed as a bar to or waiver of
any right or remedy on any future occasion. All rights and
remedies of the Agent, whether evidenced by this Agreement or by
any other agreement, instrument, or document shall be cumulative
and may be exercised singularly or concurrently. Any written
demands, written requests, or written notices to Chempower or
American Eco that the Agent may elect to give shall be effective
when deposited for delivery, postage prepaid, by U.S. mail, and
addressed to American Eco's address as set forth in Section 12(c)
of this Agreement (as modified by any change therein which
American Eco has supplied in writing to the Agent). If at any
time or times, by assignment or otherwise, the Agent transfers
the Principal Shareholders' Note or any part of the Collateral to
another person in accordance with this Agreement, such transfer
shall, subject to Section 12(i) of this Agreement, carry with it
the Agent's powers and rights under this Agreement with respect
to the Principal Shareholders' Note or Collateral so transferred
and the transferee shall have said powers and rights, whether or
not they are specifically referred to in the transfer. To the
extent that the Agent retains the Principal Shareholders' Note or
any part of the Collateral, the Agent will continue to have the
rights and powers with respect to the Principal Shareholders'
Note and the Collateral as set forth in this Agreement.
(c) NOTICES. All written notices, requests, or other
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communications herein provided for must be addressed:
If to American Eco:
American Eco Corporation
11011 Jones Road
Houston, Texas 77070
Attention: Michael E. McGinnis, President
Telephone: 281-774-7000
Facsimile: 281-777-7001
With a copy to:
Reid & Priest LLP
40 West 57th Street
New York, New York 10019
Attention: Bruce A. Rich, Esq.
Telephone: (212) 603-2000
Facsimile: (212) 603-2001
If to Chempower, the Principal Shareholders, or the
Agent:
CHEMPOWER, INC.
807 East Turkeyfoot Lake Road
Akron, Ohio 44319
Attention: T.J. Kukk, President
Telephone: 216-896-4202
Facsimile: 216-896-1866
With a copy to:
Thompson Hine & Flory P.L.L.
3900 Key Center
127 Public Square
Cleveland, Ohio 44114
Attention: Thomas A. Aldrich, Esq.
Telephone: 216-566-5500
Facsimile: 216-566-5800
or at such other address as either party may designate to the
other in writing. Such communication will be effective (i) if by
telex, when such telex is transmitted and the appropriate answer
back is received or (ii) if given by mail, 72 hours after such
communication is deposited in the U.S. mail certified mail return
receipt requested.
(d) GOVERNING LAW. The laws of the State of Ohio
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shall govern the construction of this Agreement (including,
without limitation, any terms not specifically defined in this
Agreement that may be so specifically defined pursuant to Ohio
Revised Code Section 1309.01-1309.50 inclusive, and including any
amendments thereof or any substitution therefor) and the rights
and duties of Chempower, American Eco, the Principal
Shareholders, and the Agent. This Agreement shall be binding upon
and inure to the benefit of Chempower, American Eco, and the
Agent and their respective successors, assigns, heirs, and
administrators. The rights and powers given in this Agreement to
the Agent are in addition to those otherwise created or existing
in the same Collateral by virtue of other agreements or writings.
(e) INTEGRATION. This Agreement and any promissory
-----------
note or other writing executed and delivered by any person to the
Agent in connection herewith integrate all the terms and
conditions mentioned herein or incidental hereto and supersede
all oral representations and negotiations and prior writings with
respect to the subject matter hereof.
(f) RIGHTS IN ADDITION AND NOT IN SUBSTITUTION. The
------------------------------------------
rights conferred upon Toomas J. Kukk and Ernest M. Rochester by
this Agreement shall be in addition to and not in substitution
for any of the rights conferred upon them pursuant to the
Employment Agreement and the Non-Competition Agreement entered
into between each of them and American Eco and Chempower;
further, the rights conferred upon Messrs. Kukk and Rochester
pursuant to such Employment Agreements and Non-Competition
Agreements shall not act as a limitation upon any of the rights
conferred upon them pursuant to this Agreement.
(g) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
------------------------------------------
representations and warranties contained herein shall survive the
execution and delivery of this Agreement, any investigation at
any time made by the Agent, and shall continue in full force and
effect so long as any Obligations are outstanding and unpaid.
(h) ENTIRE AGREEMENT; AMENDMENT. This Agreement,
---------------------------
including the Disclosure Schedule and the Exhibits attached
hereto, and the agreements and instruments referred to or
provided for herein, embodies the entire agreement and
understanding between Chempower, American Eco, and the Agent and
supersedes all other prior agreements and understandings relating
to the subject matter hereof. The parties hereto may enter into
further and additional written agreements to amend or supplement
this Agreement and the terms and provisions of such further and
additional written agreements shall be deemed a part of this
Agreement as though incorporated herein.
(i) PARTIES IN INTEREST. All the terms and provisions
-------------------
of this Agreement shall inure to the benefit of and be binding
upon and be enforceable by the respective successors and assigns
of the parties hereto, whether so expressed or not. Neither
Chempower nor American Eco shall assign its rights under this
Agreement without the prior written consent of the Agent. The
Agent, without the prior written consent of Chempower and/or
American Eco, may assign, or sell participation in, all or part
of the Principal Shareholders' Note and its rights under the
Agreement and the other documents executed in connection
herewith; provided, however, that in the event of such an
-------- -------
assignment or sale (in one or in a series of transactions) of all
of the Principal Shareholders' Note and all of the Agent's rights
under the Agreement and the other documents executed in
connection herewith, (i) the directors designated by the
Principal Shareholders for service on the Boards of Directors of
Chempower and American Eco shall resign from their positions as
directors promptly following such assignment or sale, and (ii)
the provisions of Paragraphs 8(b), 8(c), and 9(g) hereof would be
of no force and effect thereafter. The Agent agrees that it will
give American Eco prompt written notice of any assignment of all
or part of the Principal Shareholders' Note. If any such
assignment or sale is for less than the Agent's entire interest,
then Chempower and/or American Eco shall only be required to
provide the information and notices specified in this Agreement
to the Agent and not to the transferee or purchasers, as the case
may be; however, if such assignment or sale is for the Agent's
entire interest, then Chempower and/or American Eco shall be
required to provide the transferee or purchaser, as the case may
be, with all information and notices specified in this Agreement.
(j) WAIVER OF COUNTERCLAIMS; WAIVER OF JURY TRIAL.
---------------------------------------------
Each and every right granted to the Agent hereunder or under any
other document delivered hereunder or in connection herewith, or
allowed it by law or equity, shall be cumulative and may be
exercised from time to time. No failure on the part of the Agent
to exercise, and no delay in exercising, any right shall operate
as a waiver thereof, nor shall any single or partial exercise of
any right preclude any other or future exercise thereof or the
exercise of any other right. The due payment and performance of
Chempower's indebtedness, liabilities and obligations under this
Agreement shall be without regard to any counterclaim or right of
offset which Chempower and/or American Eco may have against the
Agent, or any of the Principal Shareholders, as applicable, and
without regard to any other obligation of any nature whatsoever
which such parties may have to Chempower and/or American Eco, and
no such counterclaim or offset shall be asserted by Chempower
and/or American Eco in any action, suit or proceeding instituted
by the Agent for payment or performance of Chempower and/or
American Eco's indebtedness, liabilities or obligations under
this Agreement.
CHEMPOWER, AMERICAN ECO, THE PRINCIPAL SHAREHOLDERS, AND THE
AGENT EACH HEREBY WAIVE THEIR RESPECTIVE RIGHT TO TRIAL BY JURY
IN ANY ACTION OR PROCEEDING IN CONNECTION WITH THIS AGREEMENT,
THE PRINCIPAL SHAREHOLDERS' NOTE, THE SECURITY AGREEMENT, THE
PRINCIPAL SHAREHOLDERS' GUARANTY, OR THE PLEDGE AGREEMENT, OR THE
TRANSACTIONS RELATED THERETO.
(k) HEADINGS. Article and Section headings used in
--------
this Agreement are for convenience of reference only and are not
a part of this Agreement for any other purpose.
(l) CONSENT TO JURISDICTION. Chempower and American
-----------------------
Eco agree that any action or proceeding to enforce or arising out
of this Agreement or any of the other documents entered into in
connection herewith may be commenced either in the Court of
Common Pleas for [Summit County], Ohio or in the District Court
of the United States for the Northern District of Ohio, and
Chempower and American Eco each waives personal service of
process and agrees that a summons and complaint commencing an
action or proceeding in any such court shall be properly served
and shall confer personal jurisdiction over such party if served
to it at the address of American Eco listed in Section 12(c) in
accordance with the provisions of Section 12(c) or as otherwise
provided by the laws of the State of Ohio or the United States.
(m) 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.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed
and delivered this Financing Agreement as of the date set forth
above, in the case of each of the corporate parties, by one or
more officers thereunto duly authorized.
AMERICAN ECO CORPORATION CHEMPOWER, INC.
By:/s/ Michael E. McGinnis By:/s/ Robert E. Rohr
---------------------- ------------------
Title: President Title: V.P. Finance
PRINCIPAL SHAREHOLDERS:
/s/ Toomas J. Kukk
---------------------------
Toomas J. Kukk
/s/ Mark L. Rochester
---------------------------
Mark L. Rochester
AGENT:
/s/Toomas J. Kukk
---------------------------
Toomas J. Kukk
<PAGE>
EXHIBIT A
---------
RESPECTIVE
PRINCIPAL PERCENTAGE
SHAREHOLDER INTEREST
---------- ----------
THOMAS J. KUKK 49.9999805035%
MARK L. ROCHESTER 50.000001949685%
Exhibit 10.9.3
--------------
February 28, 1997
American Eco Corporation
Sub Acquisition Corp.
11011 Jones Road
Houston, Texas 77070
Attention: Michael E. McGinnis
President and CEO
Re: Letter Agreement by and among American Eco Corporation ("American
Eco"), Sub Acquisition Corp. ("Merger Sub"), and Chempower, Inc.
("Chempower"), dated January 15, 1997 (the "Letter Agreement")
Gentlemen:
As a further inducement for Toomas J. Kukk and Mark L. Rochester
(collectively, the "Principal Shareholders") to enter into the transactions
contemplated by the Letter Agreement, American Eco hereby agrees that, upon
the occurrence of an Event of Default (as defined in the Financing
Agreement by and among American Eco, Chempower, the Principal Shareholders,
and Toomas J. Kukk, as Agent for the Principal Shareholders (the "Agent"),
dated of even date herewith (the "Financing Agreement")), the Agent, on
behalf of the Principal Shareholders, shall have the right to purchase the
Shares (as defined herein) by surrendering to American Eco, in
consideration therefor and in full payment thereof, the Promissory Note
payable to the Agent by Chempower in the original principal amount of
$15,900,005.40, dated of even date herewith. For purposes of this letter
agreement, the "Shares" shall be deemed to consist of: (a) all shares of
capital stock of Chempower issued and outstanding and owned by American Eco
on the date hereof and any shares of capital stock of Chempower issued in
respect thereof; (b) all shares of capital stock of Chempower issued and
outstanding and owned by American Eco at any time and from time to time
hereafter during the term of this letter agreement and any shares of
capital stock of Chempower issued in respect thereof; and (c) all contract
rights of American Eco, and any and all intangible rights associated
therewith, existing on the date hereof and at any time and from time to
time arising hereafter during the term of this letter agreement in respect
of the issuance or delivery to American Eco of any shares of capital stock
of Chempower (whether in the form of subscriptions, purchase agreements,
options, warrants, stock bonuses, or other rights of any type or
description for the acquisition by American Eco of any such shares).
The term of this letter agreement shall continue until such time as all of
the indebtedness and obligations of American Eco and Chempower provided for
under the Financing Agreement, and the instruments identified therein, have
been fully and finally paid, performed, and observed.
Please acknowledge your agreement with and acceptance of the terms and
conditions set forth herein by signing in the space indicated below.
Very truly yours,
AMERICAN ECO CORPORATION
/s/ Michael E. McGinnis
------------------------------------------
By: Michael E. McGinnis
Title: President and CEO
AGREED AND ACCEPTED this 28th day
of February, 1997:
/s/ Toomas J. Kukk
------------------------------------
By: Toomas J. Kukk, as Agent
for the Principal Shareholders
EXHIBIT 10.9.4
--------------
THIS INSTRUMENT AND THE OBLIGATIONS REPRESENTED THEREBY IS
SUBORDINATE IN ALL RESPECTS TO CERTAIN OBLIGATIONS OF CHEMPOWER,
INC. AND ITS SUBSIDIARIES TO FIRST NATIONAL BANK OF OHIO,
INCLUDING A PROMISSORY NOTE IN THE MAXIMUM PRINCIPAL AMOUNT OF
$15,700,000 DATED AS OF FEBRUARY 28, 1997.
GUARANTY
--------
THIS GUARANTY (this "Guaranty") is made as of this
28th day of February, 1997, by AMERICAN ECO CORPORATION, an
Ontario, Canada corporation ("Guarantor") in favor of TOOMAS J.
KUKK, his executors, administrators, successors, or assigns, as
Agent ("Agent") for TOOMAS J. KUKK and MARK L. ROCHESTER (jointly
and severally, the "Principal Shareholders").
W I T N E S S E T H:
--------------------
WHEREAS, pursuant to that certain Agreement and
Plan of Merger by and among Guarantor, Sub Acquisition Corp.
("Merger Sub"), and Chempower, Inc., an Ohio corporation
("Chempower") dated as of September 10, 1996 (the "Merger
Agreement"), Merger Sub has agreed to pay certain Merger
Consideration (as defined in the Merger Agreement) to, among
others, the Principal Shareholders; and
WHEREAS, pursuant to that certain Financing
Agreement by and among Guarantor, Chempower, the Principal
Shareholders and the Agent, of even date herewith (the "Financing
Agreement"), Merger Sub's obligation to pay to the Principal
Shareholders all or part of the Merger Consideration is evidenced
by the Principal Shareholders' Note (as defined in the Financing
Agreement); and
WHEREAS, the transactions contemplated by the
Financing Agreement, including the issuance of the Principal
Shareholders' Note, will inure to the benefit of Guarantor; and
WHEREAS, the execution and delivery of this
Guaranty by the Guarantor is required by the Financing Agreement;
NOW, THEREFORE, for good and valuable
consideration, the Guarantor agrees as follows:
1. Definitions. Capitalized terms used and not
-----------
defined herein shall have the meaning given to them in the
Financing Agreement. The term "Guaranteed Obligations shall mean
the obligation of Chempower to pay all of the principal of,
interest on and other indebtedness evidenced by the Principal
Shareholders' Note and any and all other indebtedness of
Chempower to the Agent pursuant to the terms of and transactions
and agreements provided for in the Financing Agreement.
2. Unconditional Guarantee. Guarantor hereby
-----------------------
represents and warrants to the Agent that it is the sole
shareholder of Chempower and that it will receive substantial
benefits in respect of the Financing Agreement. Guarantor hereby
absolutely and unconditionally guarantees to the Agent, its
successors and assigns:
(a) the punctual and full payment when due of all
the Guaranteed Obligations; it being the intention of
Guarantor that this Guaranty be an absolute, irrevocable,
and unconditional guarantee of payment; and
(b) the performance and observance by Chempower
of all its obligations, agreements, and covenants with the
Agent under the Financing Agreement, the Principal
Shareholders' Note, and the Security Agreement; the
guarantee of such performance and observance to be absolute,
irrevocable, and unconditional (the obligations, agreements,
and covenants referred to in this subparagraph (b) also
being included within and being a part of the Guaranteed
Obligations).
Guarantor further agrees that its guarantee
hereunder will not be discharged or affected by the fact that the
Guaranteed Obligations or any of them shall be or become invalid
or unenforceable for any reason. Guarantor represents and
warrants to the Agent that it has full power, authority, and
capacity to enter into and to fully perform all of its
obligations under this Guaranty.
3. Costs. In addition to its obligations under
-----
Section 2 above, Guarantor agrees to pay all costs and expenses
incurred by the Agent in the enforcement and/or collection of any
and all of the Guaranteed Obligations, including, without
limitation, reasonable attorneys' fees.
4. Dealing with Guaranteed Obligations.
-----------------------------------
Guarantor hereby grants to the Agent full power and authority,
and without notice to or the consent of Guarantor:
(a) to modify, supplement, or otherwise change
any terms of the Guaranteed Obligations, from and after the
occurrence of an Event of Default; to grant any extensions
or renewals of the Guaranteed Obligations; to grant any
other waiver or indulgence with respect to the Guaranteed
Obligations; and to effect any release, compromise, or
settlement with respect to the Guaranteed Obligations; and
(b) to accelerate the maturity of the Guaranteed
Obligations from and after the occurrence of a default
thereunder; to fail to set off any amounts owing by
Chempower to the Agent; to waive or enter into any agreement
of forbearance with respect to the Guaranteed Obligations;
and to change the term of any such waiver or agreement of
forbearance.
No action which the Agent may take or fail to take pursuant to
the foregoing powers shall operate to release or terminate this
Guaranty or impose any liability on the Agent.
5. The Agent Not Required to Pursue Chempower or
---------------------------------------------
Exhaust Collateral. Guarantor hereby waives any right to require
------------------
payment of the Guaranteed Obligations by Chempower, or to require
the Agent to proceed against any collateral or security for the
Guaranteed Obligations, or to require any action or proceeding
against Chempower on the Guaranteed Obligations, or otherwise to
require the Agent to exhaust any and all remedies against
Chempower or any other person before proceeding against Guarantor
on this Guaranty.
6. Waiver of Acceptance, Etc. Guarantor waives
-------------------------
acceptance and notice of acceptance hereof, presentment, demand,
protest or other notice of any kind, promptness in commencing
suit and/or giving notice to or in making any claim or demand
upon it, and agrees that no act or omission of any kind on the
part of the Agent shall in any event affect or impair this
Guaranty.
7. Notices. If the Agent desires to give notice
-------
to Guarantor, such notice shall be deemed given when mailed,
certified mail, return receipt requested, postage prepaid,
addressed to Guarantor at 11011 Jones Road, Houston, Texas 77070,
or to such other address as Guarantor may from time to time file
in writing with the Agent for notices to it.
8. Binding Effect. All of the terms, provisions,
--------------
and agreements of this Guaranty shall inure to the benefit of and
be enforceable by the Agent, its successors and assigns, and
shall be binding upon and be enforceable against Guarantor and
its successors and assigns.
9. No Right of Subrogation. Guarantor shall not
-----------------------
have any right of reimbursement, subrogation, or setoff with
respect to the Guaranteed Obligations unless and until the Agent
shall have received payment in full of all Guaranteed
Obligations.
10. Reinstatement of Guaranty. This Guaranty
-------------------------
shall continue to be effective, or be reinstated, as the case may
be, if at any time payment, or any part thereof, of any amount
paid by or on behalf of Chempower with respect to the Guaranteed
Obligations is rescinded or must otherwise be restored or
returned upon the insolvency, bankruptcy, dissolution,
liquidation or reorganization of Chempower or, upon or as a
result of the appointment of a receiver, intervenor, or
conservator of, or trustee or similar officer for, or any
substantial part of its property, or otherwise, all as though
such payments had not been made.
11. Governing Law. This Guaranty is a contract
-------------
entered into under and pursuant to the laws of the State of Ohio,
and shall be in all respects governed, construed, applied and
enforced in accordance with the laws of such state.
12. Termination of Guaranty. This Guaranty shall
-----------------------
remain in full force and effect until all Guaranteed Obligations
have been paid and performed in full.
13. Warrant of Attorney. Guarantor hereby
-------------------
irrevocably authorizes any attorney-at-law to appear for
Guarantor in an action on this Guaranty at any time after the
same becomes due, whether by acceleration or otherwise, in any
court of record in the State of Ohio or elsewhere and to waive
the issuing of service of process against Guarantor and to
confess judgment in favor of the Agent, its successors and
assigns, and against Guarantor, for all amounts that may be due,
together with costs of suit, and thereupon to waive all errors
and all rights of appeal and stays of execution in respect of the
judgment rendered. Guarantor hereby expressly (a) waives any
conflict of interest in an attorney retained by the Agent
confessing judgment against the Guarantor upon this Guaranty, and
(b) consents to any attorney retained by the Agent receiving a
legal fee or other value from the Agent for legal services
rendered for confessing judgment against the Guarantor upon this
Guaranty. The foregoing warrant of attorney shall survive any
judgment, and if any judgment is vacated for any reason, the
Agent may thereafter use the foregoing warrant of attorney to
obtain additional judgment or judgments against Guarantor. A copy
of this Guaranty, certified by the Agent, may be filed in any
proceeding in place of filing the original as a warrant of
attorney.
IN WITNESS WHEREOF, Guarantor has caused this
Guaranty to be executed and delivered to the Agent as of the date
first above written.
"WARNING--BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE
----------------------------------------------------------------
AND COURT TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY
---------------------------------------------------------------
BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS
----------------------------------------------------------------
OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY
------------------------------------------------------------
CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED
-------------------------------------------------------------
GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
-----------------------------------------------------------
AGREEMENT, OR ANY OTHER CAUSE."
------------------------------
AMERICAN ECO CORPORATION
By:/s/Michael E. McGinnis
-------------------------------
Name:Michael E. McGinnis
---------------------------
Title:President
--------------------------
EXHIBIT 10.9.5
--------------
THIS INSTRUMENT AND THE OBLIGATIONS REPRESENTED THEREBY IS
SUBORDINATE IN ALL RESPECTS TO CERTAIN OBLIGATIONS OF CHEMPOWER,
INC. AND ITS SUBSIDIARIES TO FIRST NATIONAL BANK OF OHIO,
INCLUDING A PROMISSORY NOTE IN THE MAXIMUM PRINCIPAL AMOUNT OF
$15,700,000 DATED AS OF FEBRUARY 28, 1997.
PLEDGE AGREEMENT
----------------
(American Eco Corporation)
THIS PLEDGE AGREEMENT (this "Pledge Agreement"),
is made and entered into as of this 28th day of February, 1997 by
and between AMERICAN ECO CORPORATION, an Ontario, Canada
corporation ("Pledgor") and TOOMAS J. KUKK, his executors,
administrators, successors, and assigns, as Agent (the "Agent")
for TOOMAS J. KUKK and MARK L. ROCHESTER (jointly and severally,
the "Principal Shareholders").
1. Pledge. Pledgor hereby pledges to the Agent,
------
for the benefit of the Agent and the Principal Shareholders and
its and their successors and assigns, and grants to the Agent a
security interest in, the following property:
(a) All shares of capital stock of CHEMPOWER,
INC., an Ohio corporation ("Chempower") issued and
outstanding and owned by Pledgor on the date hereof, which
Pledgor represents consist of the shares identified on the
schedule attached hereto, and any shares of capital stock of
Chempower issued in respect thereof, together with any
dividends, splits, distributions, or related rights or
proceeds of the foregoing;
(b) All shares of capital stock of Chempower
issued and outstanding and owned by Pledgor at any time and
from time to time hereafter during the term of this Pledge
Agreement and any shares of capital stock of Chempower
issued in respect thereof, together with any dividends,
splits, distributions, or related rights or proceeds of the
foregoing; and
(c) All contract rights of Pledgor, and any and
all intangible rights associated therewith, existing on the
date hereof and at any time and from time to time arising
hereafter during the term of this Pledge Agreement in
respect of the issuance or delivery to Pledgor of any shares
of capital stock of Chempower (whether in the form of
subscriptions, purchase agreements, options, warrants, stock
bonuses, or other rights of any type or description for the
acquisition by Pledgor of any such shares).
The foregoing property is collateral (the "Collateral") for the
payment in full when due of any and all obligations and
indebtedness of Chempower and Pledgor to the Agent and for the
due and punctual performance of all obligations, covenants, and
agreements of Chempower and Pledgor under that certain Financing
Agreement by and among Pledgor, Chempower, the Principal
Shareholders, and the Agent of even date herewith (the "Financing
Agreement") and under the transactions contemplated thereby,
including but not limited to the Principal Shareholders' Note and
the Principal Shareholders' Guaranty, as well as any and all
obligations and indebtedness of Pledgor to Agent or the Principal
Shareholders, created or incurred in the future as a result of
further loans, accommodations, or otherwise (all such payment,
performance, or indebtedness obligations, the "Obligations").
Pledgor warrants and represents that, except for limitations
imposed by applicable securities laws, there are no restrictions
upon the transfer of any of the Collateral and Pledgor has the
full and unrestricted right to transfer the Collateral. Pledgor
further warrants and represents that as of the date hereof
Pledgor is the sole shareholder of Chempower.
Pledgor agrees to execute and deliver to the
Agent, concurrent with execution hereof, each certificate
evidencing shares of capital stock of Chempower issued and
outstanding and owned by Pledgor on the date hereof, together
with duty executed blank stock powers relating thereto. Pledgor
agrees promptly to deposit hereunder with the Agent any
additional certificates (accompanied by duly executed blank stock
powers) evidencing additional shares of capital stock of
Chempower that are issuable or deliverable to Pledgor hereafter
during the term of this Pledge Agreement and constitute
collateral hereunder, which shall stand pledged and assigned as
Collateral for the Obligations in the same manner as the property
pledged and delivered concurrent with the execution hereof.
2. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF
---------------------------------------------
PLEDGOR.
-------
Pledgor hereby represents and warrants to, and
covenants with, the Agent as follows:
(a) Except for the security interest and pledge
hereunder, when the Collateral is delivered to the Agent,
Pledgor will be the sole owner of the Collateral free from
any lien, security interest, or encumbrance, and Pledgor
will defend the Collateral against all claims and demands of
any persons at any time claiming any interest therein;
(b) Pledgor will promptly pay any and all taxes,
assessments, and governmental charges upon the Collateral
prior to the date penalties attach thereto, except to the
extent that such taxes, assessments, or charges shall be
contested in good faith by Pledgor;
(c) Pledgor will not sell or otherwise assign,
transfer, or dispose of the Collateral, or any interest
therein;
(d) Pledgor will keep the Collateral free from
any lien, security interest, or encumbrance;
(e) The Collateral is duly and validly issued,
fully paid, and nonassessable; and
(f) Pledgor is the sole shareholder of all
outstanding shares of Chempower stock and will not permit
the issuance of any additional shares of capital stock or
debt securities of Chempower.
3. VOTING POWER, DIVIDENDS, ETC.
----------------------------
(a) Unless and until an Event of Default (as
defined in the Financing Agreement) has occurred, Pledgor shall
have the right to exercise all voting, consensual, and other
powers of ownership pertaining to the Collateral, and Pledgor
shall be entitled to receive and retain any dividends or
distributions on the Collateral permitted by the Financing
Agreement, if any, except the following:
(i) stock dividends;
(ii) dividends payable in securities or other
property (other than cash dividends);
(iii) dividends or distributions on dissolution or
on partial or total liquidation or in connection with a
reduction of capital, capital surplus, or paid-in surplus;
and
(iv) other securities issued with respect to or in
lieu of the Collateral (whether upon conversion of any
convertible securities included therein or through stock
split, spinoff, reclassification, merger, consolidation,
sale of assets, combination of shares, or otherwise).
From time to time upon receiving a written request from Pledgor
accompanied by a certificate satisfactory to the Agent and signed
by Pledgor stating that no Event of Default or event which with
notice or passage of time or both would constitute an Event of
Default (a "Possible Default") has occurred and is continuing,
the Agent shall deliver to Pledgor, with respect to any
Collateral then registered in the Agent's name, any assignments
or orders necessary to insure payment to Pledgor or upon its
order of all dividends, interest, and other payments and
distributions to which Pledgor is entitled.
(b) If any Event of Default or Possible Default
shall occur, regardless whether any holder of the Obligations
exercises any available option to declare any of the Obligations
due and payable or seeks or pursues any other remedy available
under this Pledge Agreement or any agreement evidencing or
securing any of the Obligations, then during the continuance of
such Event of Default or Possible Default:
(i) The Agent, or its nominee or nominees, shall
automatically, without further act on the part of any
person, have the sole and exclusive right to exercise all
voting, consensual, and other powers of ownership pertaining
to the Collateral and shall exercise those powers in such
manner as the Agent, in its sole discretion, shall determine
to be necessary, appropriate, or advisable, and Pledgor
shall execute and deliver to the Agent such authorizations,
proxies, and other documents as the Agent may reasonably
request to secure to the Agent the rights, powers, and
authorities conferred upon the Agent by this Subsection (b);
and
(ii) All dividends and other distributions in
respect of the Collateral shall be paid directly to the
Agent and retained by it as part of the Collateral, subject
to the terms of this Pledge Agreement.
4. DISPOSITION OF COLLATERAL AFTER AN EVENT OF
-------------------------------------------
DEFAULT.
-------
(a) If any Event of Default shall have occurred
and be continuing and the amount of the Obligations shall have
been declared due and payable, then, unless the Obligations shall
have been paid in full at or before the time designated in the
notice provided for in clauses (i) or (ii) of this Subsection (a)
or at or before the time the action or suit provided for in
clause (iii) of this Subsection (a) shall be commenced, the Agent
may, in its sole discretion, without further demand,
advertisement, or notice, except as expressly provided for in
clauses (i) or (ii) of this Subsection (a): (y) apply the cash,
if any, then held by it as Collateral for the purposes and in the
manner provided in Section 5; and (z) if there shall be no such
cash or the cash so applied shall be insufficient to make all
payments provided in Subsections (a) and (b) of Section 5:
(i) Following compliance with the requirements of
applicable law, retain the Collateral in satisfaction of the
Obligations, and hold the Collateral so retained, absolutely
free from any claim or right whatsoever (including, without
limitation, any equity or right of redemption) of Pledgor,
which Pledgor hereby specifically waives. Pledgor
specifically agrees that advance written notice of a
proposal by the Agent to retain the Collateral in
satisfaction of the Obligations of no less than five (5)
days is commercially reasonable and not objectionable; or
(ii) Sell the Collateral, or any part thereof, in
one or more sales, at public or private sale, conducted by
an officer or agent of, or auctioneer or attorney for, the
Agent, at the Agent's place of business or elsewhere, for
cash, upon credit or future delivery, and at such price or
prices as the Agent shall in good faith determine, and the
Agent or its nominee may be the purchaser of any or all of
the Collateral so sold, and if the Agent or its nominee is
the purchaser, the price therefor may be paid pursuant to a
credit bid of the Agent or its nominee. Upon any such sale,
the Agent shall have the right to deliver, assign, and
transfer to the purchaser thereof the Collateral so sold.
Each purchaser (including the Agent) at any such sale shall
hold the Collateral so sold, absolutely free from any claim
or right whatsoever (including, without limitation, any
equity or right of redemption) of Pledgor, which Pledgor
hereby specifically waives. The Agent shall give Pledgor at
least five (5) days advance written notice of any such
public or private sale, and the Pledgor specifically agrees
that notice so given is commercially reasonable. Any such
public sale shall be held at such time or times during
ordinary business hours as the Agent shall fix in the notice
of such sale. At any such public or private sale, the
Collateral may be sold in one lot as an entirety or in
separate parcels. The Agent shall not be obligated to make
any sale pursuant to any such notice. The Agent may, without
notice or publication, adjourn any public sale from time to
time by announcement at the time and place fixed for such
sale, or any adjournment thereof, and any such sale may be
made at any time or place to which the same may be so
adjourned without further notice or publication. In case of
any sale of all or any part of the Collateral for credit or
for future delivery, the Collateral so sold may be retained
by the Agent until the selling price is paid by the
purchaser thereof, but the Agent shall not incur any
liability in case of the failure of such purchaser to take
up and pay for the Collateral so sold, and in case of any
such failure, the Collateral may again be sold under and
pursuant to the provisions hereof; or
(iii) Proceed by an action at law or a suit in
equity to foreclose upon this Pledge Agreement and sell the
Collateral, or any portion thereof, under a judgment or
decree of a court or courts of competent jurisdiction.
(b) If at any time when the Agent shall determine
to exercise its right to sell all or any part of the Collateral
pursuant to Subsection (a) of this Section 4, the Collateral, or
the part thereof to be sold, shall not, for any reason
whatsoever, be freely saleable under the Securities Act of 1933,
as from time to time in effect (the "Securities Act"), the Agent,
in its sole and absolute discretion, is hereby expressly
authorized to sell the Collateral, or any part thereof, by
private sale in such manner and under such circumstances as the
Agent may deem necessary or advisable in order that the sale may
legally be effected without such registration. Without limiting
the generality of the foregoing, in any such event, the Agent, in
its sole and absolute discretion: (x) may proceed to make such
private sale notwithstanding that had registration statement for
the purpose of registering the Collateral, or any part thereof,
shall not have been filed under the Securities Act; (y) may
approach and negotiate with a restricted number of potential
purchasers to effect such sale; and (z) may restrict such sale to
purchasers as to their number, nature of business, and investment
intention, including, without limitation, to purchasers each of
whom will represent and agree to the satisfaction of the Agent
that such purchaser is purchasing for its own account, for
investment, and not with a view to the distribution or sale of
such Collateral or part thereof, it being understood that the
Agent may require Pledgor, and Pledgor hereby agrees upon the
written request of the Agent, to cause a legend or legends to be
placed on the certificates to be delivered to such purchasers to
the effect that the Collateral represented thereby has not been
registered under the Securities Act and setting forth or
referring to restrictions on the transferability thereof. In the
event of any such private sale, Pledgor does hereby consent and
agree that the Agent shall incur no responsibility or liability
for selling all or any part of the Collateral at a price that the
Agent, in its sole and absolute discretion, may deem reasonable
under the circumstances, notwithstanding the possibility that a
higher price might be realized if the sale were public and
deferred until after registration under the Securities Act.
(c) The Agent, as attorney-in-fact pursuant to
Section 6 hereof, may, in the name and stead of Pledgor, make and
execute all conveyances, assignments, and transfers of the
Collateral retained or sold pursuant to this Section 4. Pledgor
shall, if so requested by the Agent, ratify and confirm any
retention, sale, or sales by executing and delivering to the
Agent, or to such purchaser or purchasers, all such instruments
as may, in the judgment of the Agent, be advisable for that
purpose.
5. APPLICATION OF PROCEEDS. The proceeds of any
-----------------------
sale, or of collection, of all or any part of the Collateral
shall be applied by the Agent, without any marshalling of assets,
in the following order:
(a) First, to the payment of all the reasonable
costs and expenses of sale, including without limitation,
reasonable attorneys' fees and all other expenses,
liabilities, and advances made or incurred by the Agent in
connection therewith;
(b) Second, to the payment of the Obligations in
such order as the Agent shall determine, until payment in
full thereof; and
(c) Finally, to the payment to Pledgor, its
successors or assigns, or to other persons lawfully entitled
to receive the proceeds, or as a court of competent
jurisdiction may direct, of any surplus remaining after the
payments referred to in Subsections (a) and (b) of this
Section 5 shall have been made.
6. THE AGENT APPOINTED ATTORNEY-IN-FACT. The
------------------------------------
Agent is hereby appointed the attorney-in-fact, with full power
of substitution, of Pledgor for the purpose of carrying out the
provisions of this Pledge Agreement and taking any action and
executing any instruments that such attorney-in-fact may deem
necessary or advisable to accomplish the purposes hereof, which
appointment is irrevocable and coupled with an interest.
7. NO WAIVER. No failure on the part of the
---------
Agent to exercise, and no delay on the part of the Agent in
exercising, any right, power, or remedy hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise by
the Agent of any right, power, or remedy hereunder preclude any
other or further right, power, or remedy hereunder. The remedies
herein provided are cumulative and are not exclusive of any
remedies provided by law.
8. TERMINATION OF PLEDGE. This Pledge Agreement
---------------------
shall terminate only upon the complete satisfaction of all the
Obligations, whereupon the Agent shall assign, transfer, and
deliver to Pledgor, or its assignees, without representation,
warranty, or recourse, against appropriate receipts, all the
Collateral, if any, then held by the Agent hereunder.
9. SUCCESSORS AND ASSIGNS. This Pledge Agreement
----------------------
shall be binding upon and inure to the benefit of Pledgor and the
Agent and their respective successors and assigns; provided,
however, that the Agent shall not assign its rights under the
Pledge Agreement except as may be provided in the Financing
Agreement.
10. ADDITIONAL INSTRUMENTS AND ASSURANCE. Pledgor
------------------------------------
hereby agrees, at Pledgor's own expense, to execute and deliver,
from time to time, any and all instruments, and to perform any
and all acts, as the Agent may reasonably request to effect the
purposes of this Pledge Agreement and to secure to the Agent, and
to all persons who may from time to time be the holder(s) of the
Obligations, the benefits of all rights, authorities, and
remedies of the Agent under this Pledge Agreement.
11. FUTURE HOLDERS OF OBLIGATIONS. This Pledge
-----------------------------
Agreement is for the benefit of any and all future holders of the
Obligations in addition to the Agent, each of whom shall, without
further act, become a party hereto by becoming a holder of any of
the Obligations.
12. MISCELLANEOUS. The notice provisions and
-------------
other miscellaneous provisions of the Financing Agreement shall
govern this Pledge Agreement.
13. CUMULATIVE REMEDIES. The rights, powers, and
-------------------
remedies provided herein in favor of the Agent shall not be
deemed exclusive, but shall be cumulative and shall be in
addition to all other rights and remedies in favor of the Agent
existing by agreement, at law, or in equity, including, without
limitation, all of the rights, powers, and remedies available to
a secured party under any law or regulation.
14. SEVERABILITY. If any term or other provision
------------
of this Pledge Agreement is invalid, illegal, or incapable of
being enforced by any rule of law or public policy, all other
terms and provisions of this Pledge Agreement will nevertheless
remain in full force and effect to the same extent as if the
invalid, illegal or unenforceable term or provision were not a
part of this Pledge Agreement.
15. DEFINED TERMS. Capitalized terms used but not
-------------
defined herein shall have the meanings ascribed to them in the
Financing Agreement.
IN WITNESS WHEREOF, the parties hereto have each
caused this Pledge Agreement to be executed as of the day and
year first above written.
AMERICAN ECO CORPORATION
By:/s/Michael E. McGinnis
------------------------------
Name:Michael E. McGinnis
-------------------------
Title:President
------------------------
AGENT: TOOMAS J. KUKK
By:/s/Toomas J. Kukk
------------------------------
Name: Toomas J. Kukk, As
Agent for the Principal
Shareholders
<PAGE>
SCHEDULE TO
PLEDGE AGREEMENT
----------------
Name of Class of Number of Certificate
Pledge Entity Equity Securities Shares Owned No. (s)
------------ ---------------- ------------ -----------
Chempower, Inc. Common
<PAGE>
EXHIBIT A
---------
RESPECTIVE
PRINCIPAL PERCENTAGE
SHAREHOLDER INTEREST
----------- ----------
THOMAS J. KUKK 49.9999805035%
MARK L. ROCHESTER 50.000001949685%
EXHIBIT 10.9.6
--------------
THIS INSTRUMENT AND THE OBLIGATIONS REPRESENTED THEREBY IS
SUBORDINATE IN ALL RESPECTS TO CERTAIN OBLIGATIONS OF CHEMPOWER,
INC. AND ITS SUBSIDIARIES TO FIRST NATIONAL BANK OF OHIO,
INCLUDING A PROMISSORY NOTE IN THE MAXIMUM PRINCIPAL AMOUNT OF
$15,700,000 DATED AS OF FEBRUARY 28, 1997.
SECURITY AGREEMENT
------------------
(Chempower, Inc.)
THIS SECURITY AGREEMENT (this "Security Agreement"),
dated as of February 28th, 1997, is made by CHEMPOWER, INC., an
----
Ohio corporation, including any divisions thereof ("Grantor") in
favor of TOOMAS J. KUKK, his executors, administrators,
successors, and assigns, as Agent ("Agent"), for Toomas J. Kukk
and Mark L. Rochester (jointly and severally, the "Principal
Shareholders").
W I T N E S S E T H:
WHEREAS, Grantor, American Eco Corporation, an Ontario,
Canada corporation ("American Eco"), and Sub Acquisition Corp.,
an Ohio corporation, are parties to that certain Agreement and
Plan of Merger dated as of September 10, 1996 (the "Merger
Agreement"); and
WHEREAS, in order to effectuate the transactions
contemplated by the Merger Agreement, the Agent, the Principal
Shareholders, the Grantor, and American Eco have entered into
that certain Financing Agreement of even date herewith
("Financing Agreement"); and
WHEREAS, the transactions under the Merger Agreement
and under the Financing Agreement will inure to the benefit of
the Grantor; and
WHEREAS, all collateral assigned or otherwise granted
in connection with the Financing Agreement is to be granted to
and/or held by, as the case may be, the Agent for the benefit of
the Principal Shareholders; and
WHEREAS, the execution and delivery of this Security
Agreement by the Grantor is required as a condition to the
parties' obligations under the Financing Agreement;
NOW, THEREFORE, for good and valuable consideration,
the Grantor and the Agent agree as follows:
1. DEFINITIONS. As used in this Security Agreement,
-----------
the following terms, which are in addition to terms defined
elsewhere in this Security Agreement, shall have the respective
meanings indicated below:
"Accounts Receivable" shall include all accounts,
accounts receivable, contract rights for the payment of money,
instruments, other obligations and receivables and all other
rights to payment, in all cases whether now owned or hereafter
acquired by the Grantor, whether now existing or hereafter
arising.
"Collateral" shall mean and include all of the
Grantor's assets, interests, facilities, and property of every
kind and description (real, personal or mixed, tangible or
intangible), wherever located, regardless of whether such assets,
interests, facilities, and property are now owned or hereafter
acquired by the Grantor and whether now existing or hereafter
arising, including without limitation, (i) all Accounts
Receivable, (ii) all Depository Accounts, (iii) all Equipment,
(iv) all General Intangibles, (v) all Inventory, (vi) all
accessions and products, (vii) all additions to or substitutions
or replacements for any of the foregoing, (viii) all proceeds of
or from any of the foregoing, (including insurance proceeds
whether or not the Agent is the loss payee thereunder), and (ix)
in all cases, whether now owned or existing or hereafter acquired
or arising.
"Depository Accounts" shall include all funds,
balances, checks, drafts and cash held by or deposited with, and
all accounts (regardless of whether they are designated as
savings, checking, cash collateral, operating or otherwise)
maintained by the Grantor at banks or other institutions;
"Equipment" shall mean all designs, patterns,
machinery, equipment, appliances, furniture, fixtures, supplies,
and tangible personal property of every kind and description, now
owned or hereafter acquired by the Grantor.
"General Intangibles" shall mean all property
(other than Accounts Receivable and Equipment) including, but not
limited to choses in action, tax refunds, trademarks and trade
names, copyrights, patents and patent applications, judgments,
awards, warehouse receipts, and designs and patterns (to the
extent that they are not Equipment), now owned or hereafter
acquired by the Grantor and whether now existing or hereafter
arising.
"Inventory" shall mean all goods held by Grantor
for sale or lease or to be furnished under contracts of service
or so furnished, raw materials, work in process, or materials
used or consumed in business, now owned or hereafter acquired by
the Grantor.
2. DEFINITIONS INCORPORATED FROM THE FINANCING
-------------------------------------------
AGREEMENT. Capitalized terms used but not defined herein shall
---------
have the respective meanings ascribed to such terms in the
Financing Agreement. In the event that any of the documents
contemplated in the Financing Agreement are from time to time
amended or modified or any instrument is substituted in
replacement thereof, such amendment, modification, or
substitution shall, from and after the date thereof, be included
within the definition of such document contained herein.
3. SECURITY INTEREST. The Grantor, its
-----------------
successors and assigns, hereby grants to the Agent, and its
successors and assigns, a security interest in all the
Collateral, whether now owned or existing or hereafter acquired
or arising, together with all proceeds therefrom to secure the
following:
(a) the payment of all amounts heretofore or
hereafter owing to the Agent under the Principal
Shareholders' Note and the Principal Shareholders'
Guaranty and/or under or in connection with the
Financing Agreement (the "Payments");
(b) the payment by the Grantor of all costs and
expenses (including reasonable attorneys' fees)
incurred by the Agent in the collection of the Payments
and in the enforcement of its rights under the
Financing Agreement;
(c) the payment by the Grantor of all sums
expended or advanced by the Agent pursuant to the terms
of this Security Agreement;
(d) the performance by the Grantor of all of its
obligations under the Financing Agreement; and
(e) the payment of any and all other amounts
(including principal, interest, fees, expenses, or
charges) of any kind or description now or hereafter
owing by the Grantor to the Agent.
4. THE GRANTOR REMAINS LIABLE. Anything herein
--------------------------
to the contrary notwithstanding, (a) the Grantor shall remain
liable under all contracts and agreements included in the
Collateral to the extent set forth therein to perform all of its
duties and obligations thereunder to the same extent as if this
Security Agreement had not been executed, (b) the exercise by the
Agent of any of its rights hereunder shall not release the
Grantor from any of its duties or obligations under the contracts
and agreements included in the Collateral, and (c) the Agent
shall not have any obligation or liability under the contracts
and agreements included in the Collateral or be obligated to
perform any of the obligations or duties of the Grantor
thereunder or to take any action to collect or enforce any claim
for payment assigned hereunder.
5. ACCOUNTS RECEIVABLE. The Grantor agrees as
-------------------
follows:
(a) The Grantor shall, after the occurrence and
during the continuance of an Event of Default, at the request of
the Agent, execute and deliver a form of agreement satisfactory
to the Agent and its counsel, establishing a lock box and cash
collateral arrangement with the Agent.
(b) In the event a government (including the
United States Government, the government of any state or any
local government) or any department, agency, instrumentality or
subdivision thereof is an account debtor or obligor on any
Accounts Receivable, or is a party to any contract or order out
of which will arise an Account Receivable of the Grantor, the
Grantor shall promptly notify the Agent of that fact, comply with
the Assignment of Claims Act of 1940 (or any substantially
equivalent federal, state, or local law) and will execute such
further instruments and take such further steps requested by the
Agent in order that the Account Receivable and all moneys due
under such contracts and/or order, shall be assigned to the Agent
and due notice thereof given to the appropriate governmental
official.
(c) After the occurrence of an Event of Default,
the Agent shall have the right from time to time (at the
Grantor's expense) to arrange for verification of all Accounts
Receivable directly with the account debtors or by other methods
reasonably satisfactory to the Agent. Any such verification shall
be conducted in such a manner as to minimize disruption to the
Grantor.
(d) In the event any Accounts Receivable of the
Grantor is evidenced by chattel paper or other negotiable
instruments, the Grantor shall, after the occurrence and during
the continuance of an Event of Default, deliver the same to the
Agent as soon as possible and prior to such delivery shall hold
the same in trust for the benefit of the Agent. The Grantor shall
endorse any chattel paper or other negotiable instruments in
favor of the Agent. The Agent is hereby appointed as attorney-in-
fact for the Grantor for such purpose.
(e) Except as otherwise provided in this
subsection, the Grantor shall use its reasonable efforts to
collect, at its own expense, all amounts due or to become due to
the Grantor on the Accounts Receivable; provided, however, after
the occurrence of an Event of Default, upon the request of the
Agent, the Grantor shall take such action (at the Grantor's
expense) as reasonably requested by the Agent to collect any one
or more Accounts Receivable. After the occurrence of an Event of
Default and during the continuance thereof, the Agent shall have
the right at any time, upon written notice to the Grantor and at
the expense of the Grantor, to take such action to collect the
Accounts Receivable as the Agent deems proper, and to adjust,
settle and compromise payment thereof (without notice to or the
consent of the Grantor), in the same manner and to the same
extent as the Grantor might have done. At such time as the Agent
exercises its rights pursuant to the preceding sentence, the
Grantor shall not take any action to collect, adjust, settle or
compromise any Account Receivable except with the written consent
of the Agent and any collections of Accounts Receivable received
or held by the Grantor shall be property of the Agent, shall be
held in trust for the benefit of the Agent and shall be delivered
to the Agent immediately with all requisite endorsements in favor
of the Agent which the Agent may make as attorney-in-fact for the
Grantor. The Agent has no obligation to the Grantor to collect or
attempt to collect any Accounts Receivable or to preserve any
rights against any party in connection therewith.
6. EQUIPMENT AND INVENTORY--POSSESSION. The
-----------------------------------
Grantor shall be entitled to the possession of its Equipment and
Inventory and to use the same in connection with its business
until the occurrence of an Event of Default.
7. SECURITIES. Concurrent with the execution of
----------
this Security Agreement, American Eco shall execute and deliver
to the Agent the Pledge Agreement covering all shares of Grantor
then or thereafter owned by American Eco. With respect to
Collateral in the possession of the Agent and covered by the
Pledge Agreement, the provisions of both the Pledge Agreement and
this Security Agreement shall cover such property, but in the
event of a conflict, the Pledge Agreement shall govern.
8. GOODS HELD BY A THIRD PARTY. The Grantor
---------------------------
shall not, without the prior written consent of the Agent,
relinquish possession of any Collateral to any bailee or third
person other than the Agent or other than in the ordinary course
of its business or as otherwise permitted by this Security
Agreement.
9. RECORDS. The Grantor will at all times keep
-------
accurate and complete records, consistent with past practice, of
its Accounts Receivable, General Intangibles, Inventory, and
Equipment, and the Agent shall have the right at all reasonable
times to examine and inspect the same and to make copies thereof.
10. REPRESENTATIONS AND WARRANTIES OF THE
-------------------------------------
GRANTOR. The Grantor represents, warrants, and covenants to the
-------
Agent as follows, effective immediately after, but not as of or
prior to, the Closing of the Merger:
(a) The Grantor warrants that it is and will be
the sole owner of all Accounts Receivable now or hereafter
appearing on its books, and that the same are and will be,
during the term of this Security Agreement, free and clear
from any and all assignments, liens, and security interests
except as created hereby;
(b) The Grantor warrants that it is and, during
the term of this Security Agreement, will be the sole owner
of its Equipment, Inventory, and General Intangibles; that
the same will be used solely in connection with the
Grantor's business; that the Collateral will be kept only in
the County or Counties identified on Exhibit 1 hereto; that
all of the Equipment, Inventory, and General Intangibles are
free and clear of all liens and encumbrances whatsoever,
except as provided in this Security Agreement, except for
the security interest granted under a security agreement
between Grantor and First National Bank of Ohio dated as of
February 28, 1997, and except for purchase money security
interests incurred prior to the date hereof in the ordinary
course of business; and the Grantor will warrant and defend
the Equipment, Inventory, and General Intangibles unto the
Agent, its successors and assigns, against all lawful claims
and demands whatsoever of all persons claiming by, from,
through or under the Grantor;
(c) The Grantor will not permit the Collateral to
become subject to any lien or other security interest,
whether prior or subordinate to the security interest of the
Agent created hereunder except as provided in the Financing
Agreement, except for the security interest granted under a
security agreement between Grantor and First National Bank
of Ohio dated as of February 28, 1997, and except for
purchase money security interests incurred prior to the date
hereof in the ordinary course of business;
(d) The Grantor will obtain and maintain, or
cause to be obtained and maintained, policies of insurance
as required by the Financing Agreement.
(e) The Grantor will keep and maintain the
Equipment and every part thereof in good condition and
repair, ordinary wear and tear excepted, so as to serve the
purpose for which it is designed and intended;
(f) The Grantor will pay, or cause to be paid,
all taxes and assessments which may be levied, assessed, or
charged on or against the Collateral or which the Grantor
may be required to pay by reason of its ownership of the
Collateral, including franchise and similar taxes, as the
same become due and payable; provided, however, the Grantor
shall not be required to pay any such tax or assessment so
long as the validity or amount thereof shall be contested in
good faith and by appropriate proceedings, but this proviso
shall apply only if the property subject thereto shall not
then be subject to sale or foreclosure in order to satisfy
any tax lien which has attached as security therefor;
(g) The Grantor shall, from time to time as
requested by the Agent, take such action and execute and
deliver to the Agent all such financing statements,
instruments, supplements, further assurances, and security
or other agreements as may be required or requested by the
Agent in order to perfect and continue the Agent's security
interest in the Collateral;
(h) The Grantor warrants that its only places of
business are located in the County or Counties identified on
Exhibit 1 hereto, and that the Grantor will keep all records
concerning the Collateral in said Counties.
11. THE AGENT'S DUTIES. The powers conferred on
------------------
the Agent hereunder are solely to protect its interest in the
Collateral and shall not impose any duty upon it to exercise any
such powers. The Agent shall not have any duty as to the
Collateral or as to taking necessary steps to preserve rights
against prior parties.
12. DEFAULT REMEDIES. If an Event of Default
----------------
shall occur, the Agent shall have the following rights:
(a) To perform any defaulted covenant or
agreement of this Security Agreement to such extent as the
Agent shall determine and advance such moneys as it shall
deem advisable for the aforesaid purpose and all moneys so
advanced shall be secured hereby and shall be repaid
promptly upon demand; provided, however, that nothing herein
contained shall be construed to require the Agent to advance
money for any of the aforesaid purposes;
(b) To notify all account debtors to make
payments directly to the Agent or otherwise as the Agent
shall in its sole discretion direct;
(c) To take control of any and all proceeds to
which the Agent may be entitled under this Security
Agreement or under any applicable laws;
(d) To declare all of the indebtedness secured
hereby to be immediately due and payable, and this Security
Agreement in default and subject to foreclosure proceedings
and/or other rights, options, and remedies as provided under
other applicable law;
(e) To take immediate possession of the
Collateral and, with or without taking possession of the
Collateral, to sell, lease, or otherwise dispose of any or
all of the Collateral, either at public or private sale,
upon commercially reasonable terms, and the Agent or its
nominee may become the purchaser thereof at public or
private sale and if the Agent is the purchaser, the price
therefor may be paid pursuant to a credit bid of the Agent
or its nominee. Any sale may be adjourned at any time and
from time to time to a reasonably specified time and place
by announcement at the time and place of sale as previously
fixed, without further notice by publication or otherwise of
the time and place of such adjourned sale. The proceeds of
any sale shall be applied (i) first to the expenses of
taking, holding, and preparing for sale or disposition, and
sale or disposition and the like (including reasonable
attorneys' fees), (ii) next to the principal and interest
due on account of the Payments and the other amounts secured
under subsections (a) through (d) of Section 3 hereof, (iii)
next to amounts secured under subsection (e) of Section 3
hereof, (iv) next to the holder of any subordinate security
interest therein if written notification of demand therefor
is received before distribution of the proceeds, and (v)
lastly, any surplus to the Grantor, and the Grantor shall
remain liable for any deficiency. Any such sale, public or
private, may be made on credit at the option of the Agent.
The Agent shall have the right to conduct any such sale on
the Grantor's premises, and the Agent shall have such right
of possession of said premises as shall be necessary or
convenient for such purpose;
(f) Following compliance with the requirements of
applicable law, to retain the Collateral in satisfaction of
the obligations and indebtedness hereby secured and hold the
Collateral so retained, absolutely free from any claim or
right whatsoever (including, without limitation, any equity
or right of redemption of Grantor) which Grantor hereby
specifically waives. Grantor specifically agrees that
advance written notice of a proposal by the Agent to retain
the Collateral in satisfaction of the obligations and
indebtedness hereby secured of no less than five (5) days is
commercially reasonable and otherwise unobjectionable;
(g) To take immediate possession of the
Collateral and to use or operate the Collateral in order to
preserve the same or its value, and collect, receive, and
use all of the net profits from such use or operation to pay
indebtedness secured by such Collateral;
(h) To require the Grantor, to the extent
practicable and at the Grantor's expense, to assemble the
Collateral and make it available to the Agent at such
locations within the county wherein such Collateral is
located as the Agent shall designate; and
(i) To proceed to protect and enforce the Agent's
rights by a suit or suits in equity or at law, whether for
specific performance or otherwise, in aid of the execution
of any power herein granted, for any foreclosure hereunder,
or for the enforcement of any other proper legal or
equitable remedy.
The Agent shall have any and all other rights and remedies
provided by law or equity, including, without limitation, the
rights and remedies of a secured party. The Agent's rights and
remedies will be cumulative, and no waiver of any default will
affect any other subsequent default. The rights and remedies
provided in this Security Agreement are cumulative, may be
exercised concurrently or separately, may be exercised from time
to time and in such order, without any marshalling, as the Agent
shall determine. Nothing herein contained shall be construed as
preventing the Agent from taking all lawful actions to protect
its interest in the event that liquidation, insolvency,
bankruptcy, reorganization, or foreclosure proceedings of any
nature whatsoever affecting the property or assets of the Grantor
should be instituted.
13. GENERAL PROVISIONS.
------------------
(a) This Security Agreement and the security
interests of the Agent in the Collateral created hereby
shall cease and terminate only upon the complete
satisfaction of all obligations of the Grantor specified in
Section 3 hereof.
(b) Except where the application of another law
is mandatory, this Security Agreement shall be construed to
be a contract made under and pursuant to the laws of Ohio,
and all of the terms, covenants, and conditions contained
herein shall be governed by and construed in accordance with
such laws.
(c) This Security Agreement, all supplements
hereto and all amendments hereof, shall inure to the benefit
of and be binding upon the Grantor, the Agent and its
respective successors and assigns.
(d) No waiver of any term, provision, covenant,
or condition contained in this Security Agreement, or of any
breach of any such term, provision, covenant or condition,
shall constitute a waiver of any other or subsequent breach
or justify or authorize the non-observance on any other
occasion of such term, provision, covenant, or condition
contained in this Security Agreement.
(e) This Security Agreement may be executed in
any number of counterparts, each of which shall be deemed an
original and all of which together shall constitute one and
the same Security Agreement.
IN WITNESS WHEREOF, the parties have executed or
have caused this Security Agreement to be executed in Cleveland,
Ohio, on the date first above written by its officers thereunto
duly authorized.
GRANTOR:
CHEMPOWER, INC.
By:/s/Robert E. Rohr
------------------------------
Name:Robert E. Rohr
-------------------------
Title:V.P. Finance
------------------------
AGENT: TOOMAS J. KUKK
By:/s/Toomas J. Kukk
------------------------------
Toomas J. Kukk, as Agent for
the Principal Shareholders
<PAGE>
EXHIBIT 1
(Counties of Location of Collateral, Place of Business,
and Business Records)
Summit County, Ohio
Hamilton County, Ohio
Washington County, Pennsylvania
Putnam County, West Virginia
Humphreys County, Tennessee
Clark County, Nevada
EXHIBIT 10.9.7
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LOAN AGREEMENT
$15,700,000 Line of Credit Facility
By and Between
CHEMPOWER, INC.
and
FIRST NATIONAL BANK OF OHIO
Dated as of February 28, 1997
<PAGE>
TABLE OF CONTENTS
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Article Page
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1
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . . 1
2
Loan . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.1 The Loan . . . . . . . . . . . . . . . . . . . . . 13
2.2 Interest . . . . . . . . . . . . . . . . . . . . . 13
2.3 Payments and Prepayments . . . . . . . . . . . . . 14
2.4 Use of Proceeds . . . . . . . . . . . . . . . . . . 15
2.5 Facility Fee . . . . . . . . . . . . . . . . . . . 15
2.6 Authorization to Debit Accounts . . . . . . . . . . 15
2.7 Termination of Prior Line of Credit . . . . . . . . 16
3
Security . . . . . . . . . . . . . . . . . . . . . . . . 16
3.1 Security Interests . . . . . . . . . . . . . . . . 16
3.2 Mortgages . . . . . . . . . . . . . . . . . . . . . 16
3.3 Guaranties . . . . . . . . . . . . . . . . . . . . 17
3.4 Execution and Delivery of Security Documents . . . 17
3.5 Subordination of Subordinated Debt Obligations . . 17
4 Conditions Precedent and Subsequent
4.1 Conditions Precedent to Closing . . . . . . . . . . 17
4.2 Conditions Precedent to All Advances . . . . . . . 20
4.3 Conditions for the Benefit of the Lender . . . . . 21
4.4 Failure of Conditions . . . . . . . . . . . . . . . 21
4.5 Conditions Subsequent . . . . . . . . . . . . . . . 21
5
Representations and Warranties of the Borrower . . . . . 21
5.1 Due Authorization . . . . . . . . . . . . . . . . . 21
5.2 Organization, Standing and Qualification of
Subsidiaries . . . . . . . . . . . . . . . . . . . 22
5.3 No Partnerships . . . . . . . . . . . . . . . . . . 23
5.4 Requisite Power . . . . . . . . . . . . . . . . . . 23
5.5 Corporate Authorization . . . . . . . . . . . . . . 23
5.6 Officer Authorization . . . . . . . . . . . . . . . 23
5.7 Binding Nature . . . . . . . . . . . . . . . . . . 23
5.8 No Conflict . . . . . . . . . . . . . . . . . . . . 23
5.9 Financial Statements . . . . . . . . . . . . . . . 24
5.10 Litigation and Contingent Liabilities . . . . . . . 24
5.11 No Event of Default . . . . . . . . . . . . . . . . 24
5.12 Tax Returns and Tax Matters . . . . . . . . . . . . 24
5.13 Employee Benefits . . . . . . . . . . . . . . . . . 25
5.14 Real Property . . . . . . . . . . . . . . . . . . . 27
5.15 Other Property . . . . . . . . . . . . . . . . . . 27
5.16 Environmental Matters . . . . . . . . . . . . . . . 28
5.17 Contracts . . . . . . . . . . . . . . . . . . . . . 29
5.18 Intellectual Property . . . . . . . . . . . . . . . 29
5.19 Employment Agreements and Relations . . . . . . . . 30
5.20 Insurance . . . . . . . . . . . . . . . . . . . . . 30
5.21 Property Condition . . . . . . . . . . . . . . . . 30
5.22 Compliance With Laws . . . . . . . . . . . . . . . 30
5.23 Commitments . . . . . . . . . . . . . . . . . . . . 31
5.24 Financial and Other Information . . . . . . . . . . 31
5.25 Existing Defaults . . . . . . . . . . . . . . . . . 32
5.26 Statutory Regulation . . . . . . . . . . . . . . . 32
5.27 Burdensome Agreements . . . . . . . . . . . . . . . 32
5.28 Regulation U . . . . . . . . . . . . . . . . . . . 32
5.29 Liens . . . . . . . . . . . . . . . . . . . . . . . 33
5.30 Fiscal Year . . . . . . . . . . . . . . . . . . . . 33
5.32 Solvency . . . . . . . . . . . . . . . . . . . . . 33
6
Affirmative Covenants . . . . . . . . . . . . . . . . . 33
6.1 Accounting Records . . . . . . . . . . . . . . . . 33
6.2 Financial Statements and Notices . . . . . . . . . 34
6.3 Withholding Taxes . . . . . . . . . . . . . . . . . 37
6.4 Access . . . . . . . . . . . . . . . . . . . . . . 37
6.5 Corporate Existence . . . . . . . . . . . . . . . . 37
6.6 Qualifications To Do Business . . . . . . . . . . . 37
6.7 Compliance with Laws . . . . . . . . . . . . . . . 37
6.8 Material Agreements . . . . . . . . . . . . . . . . 37
6.9 Insurance . . . . . . . . . . . . . . . . . . . . . 37
6.10 Facilities . . . . . . . . . . . . . . . . . . . . 38
6.11 Taxes and Other Liabilities . . . . . . . . . . . . 38
6.12 Governmental Approvals . . . . . . . . . . . . . . 38
6.13 Compliance with Governmental Approvals and
Governmental Requirements . . . . . . . . . . . . . 39
6.14 Prevent Contamination . . . . . . . . . . . . . . . 39
6.15 Notice of Release . . . . . . . . . . . . . . . . . 39
6.16 Notice to the Lender . . . . . . . . . . . . . . . 40
6.17 Pension Increases . . . . . . . . . . . . . . . . . 40
6.18 Tax Qualification . . . . . . . . . . . . . . . . . 40
6.19 Notification by the Borrower . . . . . . . . . . . 41
6.20 ERISA Information . . . . . . . . . . . . . . . . . 42
6.21 Funding . . . . . . . . . . . . . . . . . . . . . . 42
6.22 Financial Tests . . . . . . . . . . . . . . . . . . 42
6.23 Tax Returns . . . . . . . . . . . . . . . . . . . . 43
6.24 Required Future Perfection and Performance . . . . 43
6.25 Change of Location . . . . . . . . . . . . . . . . 43
6.26 Rights Under Merger Documents . . . . . . . . . . . 43
7
Negative Covenants . . . . . . . . . . . . . . . . . . . 44
7.1 Mergers and Continuity of Operations . . . . . . . 44
7.2 Change of Name or Business . . . . . . . . . . . . 44
7.3 Stock . . . . . . . . . . . . . . . . . . . . . . . 44
7.4 Dividends . . . . . . . . . . . . . . . . . . . . . 44
7.5 Accounting Policies . . . . . . . . . . . . . . . . 45
7.6 Investments . . . . . . . . . . . . . . . . . . . . 45
7.7 Lien . . . . . . . . . . . . . . . . . . . . . . . 45
7.8 Guarantees . . . . . . . . . . . . . . . . . . . . 45
7.9 Indebtedness . . . . . . . . . . . . . . . . . . . 45
7.10 Sale of Assets . . . . . . . . . . . . . . . . . . 46
7.11 Capital Expenditures . . . . . . . . . . . . . . . 46
7.12 Operating Leases . . . . . . . . . . . . . . . . . 46
7.13 Prepayment . . . . . . . . . . . . . . . . . . . . 47
7.14 Sale-Lease backs . . . . . . . . . . . . . . . . . 47
7.15 Transactions With Affiliates . . . . . . . . . . . 47
7.16 Misrepresentations . . . . . . . . . . . . . . . . 47
7.17 Restrictive Agreements . . . . . . . . . . . . . . 47
7.18 Transactions With Officers, Directors and
Affiliates . . . . . . . . . . . . . . . . . . . . 47
7.19 Amendments of Other Instruments . . . . . . . . . . 47
8
Events of Default . . . . . . . . . . . . . . . . . . . 48
8.1 Events of Default . . . . . . . . . . . . . . . . . 48
8.2 Acceleration . . . . . . . . . . . . . . . . . . . 51
8.3 Other Remedies . . . . . . . . . . . . . . . . . . 51
8.4 Right to Cure . . . . . . . . . . . . . . . . . . . 51
9
Miscellaneous . . . . . . . . . . . . . . . . . . . . . 52
9.1 Successors and Assigns and Sale of Interests. . . . 52
9.2 No Implied Waiver . . . . . . . . . . . . . . . . . 52
9.3 Amendments; Waivers . . . . . . . . . . . . . . . . 53
9.4 Remedies Cumulative . . . . . . . . . . . . . . . . 53
9.5 Severability . . . . . . . . . . . . . . . . . . . 53
9.7 Indemnification . . . . . . . . . . . . . . . . . . 54
9.8 Notices . . . . . . . . . . . . . . . . . . . . . . 54
9.9 Interpretation . . . . . . . . . . . . . . . . . . 55
9.10 Governing Law and Consent to Jurisdiction . . . . . 55
9.11 Counterparts . . . . . . . . . . . . . . . . . . . 56
9.12 Integration . . . . . . . . . . . . . . . . . . . . 56
9.13 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . 56
9.14 Headings . . . . . . . . . . . . . . . . . . . . . 56
9.15 Schedules and Exhibits . . . . . . . . . . . . . . 56
Exhibits
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2.1.1 Form of Note
3.1.1 Form of Security Agreement
3.3.1 Form of Guaranty
3.3.2 Form of Limited Guaranty
3.5.1 Form of Subordination Agreement
6.2.1 Form of Compliance Certificate
6.2.2 Form of Financial Covenants Compliance Certificate
Schedules
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1.1.1 Permitted Encumbrances
5.2 Organization, Standing and qualification of
Subsidiaries (and Equity Interests)
5.10 Litigation and Contingent Liabilities
5.13 Employee Benefits
5.16 Environmental Disclosures
5.18 Intellectual Property
5.20 Insurance
7.12 Operating Leases
<PAGE>
LOAN AGREEMENT
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THIS LOAN AGREEMENT is dated as of February 28, 1997, by and
between CHEMPOWER, INC., an Ohio corporation (together with its
successors and permitted assigns, the "Borrower"), and FIRST
NATIONAL BANK OF OHIO, a national banking association (the
"Lender").
W I T N E S S E T H:
--------------------
In consideration of the premises and mutual agreements
herein contained, the parties hereto agree as follows:
ARTICLE 1
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DEFINITIONS
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1.1 DEFINITIONS. In addition to any terms defined
-----------
elsewhere in this Agreement, the following terms have the
meanings indicated for purposes of this Agreement (such
definitions being equally applicable to the singular and plural
forms of the defined term):
"ACCELERATION" means that the Loan shall have become due and
payable prior to its stated maturity pursuant to Section 8.2.
"ACCOUNT" means any right to payment in favor of the
Borrower, whether or not it has been earned by performance, for
goods sold or leased or for services rendered in the ordinary
course of business which is not evidenced by an instrument
(except as part of chattel paper).
"ACCOUNT DEBTOR" means the Person obligated on an Account,
obligated to pay a Receivable, or who is the buyer of goods or
services sold giving rise to a Receivable.
"ADVANCE" means a disbursement of all or part of the cash
proceeds of the Loan to the Borrower.
"AFFILIATE" means with respect to any Person (i) each Person
who, directly or indirectly, owns or controls, whether
beneficially, or as a trustee, guardian or other fiduciary, ten
percent (10%) or more of the capital stock having ordinary voting
power in the election of directors of such Person, (ii) each
Person who controls, is controlled by or is under common control
with such Person or any Affiliate of such Person, of (iii) each
of such Person's officers, directors, joint venturers and
partners. For the purpose of this definition, "control" of a
Person shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of its management or
policies, whether through the ownership of voting securities, by
contract or otherwise.
"AGREEMENT" or "LOAN AGREEMENT" means this Loan Agreement,
as amended from time to time.
"AMERICAN ECO" shall mean American Eco Corporation, a
corporation incorporated under the laws of Ontario, Canada.
"ASSIGNMENTS" shall have the meaning specified in Section
3.2.
"AUTHORIZED OFFICER" means each officer of a corporation
authorized by the board of directors of that corporation to act
on behalf of that corporation under this Agreement or any of the
other Loan Documents, or in the case of a partnership (limited or
general) a general partner authorized to act on behalf of that
partnership under this Agreement or any of the other Loan
Documents.
"BANKING DAY" means a day other than a Saturday or a Sunday
when commercial banks are open for business in Akron, Ohio.
"BENEFICIAL OWNER" shall have the meaning ascribed to it in
Rule 13d-3 promulgated by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended.
"BORROWER" means Chempower, Inc., an Ohio corporation, with
its principal headquarters and place of business at 807 E.
Turkeyfoot Lake Road, Akron, Ohio 44319 and shall include each
and every division thereof, including, without limitation,
Advanced Coil Industries, Houston Products, and Owens Precision
Fabricators.
"BROOKFIELD" means Brookfield corporation, an Ohio
corporation which is a wholly owned subsidiary of Borrower.
"CAPITAL EXPENDITURES" means, for any period, the aggregate
of all expenditures (including such portion of Capitalized Lease
Obligations as would be capitalized in accordance with GAAP) for
any Fixed Assets (including replacements thereof, substitutions
therefor and additions thereto) that have a useful life of one
(1) year or more, where such expenditures are or would be
capitalized on the balance sheet of the Borrower (consolidated
with its Subsidiaries) during that period, in conformity with
GAAP.
"CAPITALIZED LEASE OBLIGATION" means any lease obligation
that, in accordance with GAAP, is required to be evidenced in the
financial statements of a lessee.
"CHANGE OF CONTROL" means (i) the failure of the holders of
the Equity Interests identified on Schedule 5.2 at all times,
collectively, to be the Beneficial Owner of one hundred percent
(100%) of the Equity Interests of the Borrower on a fully diluted
basis; provided, however, that a Change of Control shall not
include any change of control resulting in ownership of the
Equity Interests by Rochester or Kukk, either individually, or as
agent, pursuant to the Merger Documents or the Subordinated Debt
Documents; or (ii) a material change of management of the
Borrower, and for such purposes, a material change shall include
a change in the office of President or Chief Executive Officer,
or any change in composition of the Board of Directors of the
Borrower.
"CLOSING DATE" means February 28, 1997.
"CODE" means the Internal Revenue Code of 1986, as amended
from time to time.
"COLLATERAL" shall have the meaning set forth in the Section
3.1.
"COMMITMENT" shall have the meaning set forth in Section
2.1(a).
"COMMITMENT EXPIRATION DATE" means the earlier of (i) 366
days after the Closing Date, or (ii) the date the Commitment is
terminated pursuant to Article 8.
"COMMITMENT LETTER" means the letter agreement dated
February 24, 1997, between the Lender and the Borrower.
"CONSOLIDATED ASSETS" means the aggregate amount of all
assets of the Borrower and its Subsidiaries that would, in
accordance with GAAP, be required to be included and shown as
assets on a consolidated balance sheet of the Borrower and its
Subsidiaries.
"CONSOLIDATED LIABILITIES" means the aggregate amount of all
liabilities of the Borrower and its Subsidiaries that would, in
accordance with GAAP, be required to be included and shown as
liabilities on a consolidated balance sheet of the Borrower and
its Subsidiaries.
"CONSOLIDATED NET WORTH" means Consolidated Assets less
Consolidated Liabilities, less the Note or other obligation of
$21,000,000 of American Eco to Borrower, but adding the amount of
the Subordinated Debt Obligations to Kukk and Rochester, to the
extent such obligations are subordinated to all creditors of
Borrower (but not to Equity Interests) pursuant to Section 4.5.
"CONSOLIDATED TANGIBLE NET WORTH" means (i) Consolidated Net
Worth, less (ii) the net book value of all items of the following
character which are included among Consolidated Assets:
(1) goodwill or any unamortized payment in respect of an
agreement not to compete with the Borrower, (2) organizational
expenses, (3) unamortized debt discount and expense, (4) stock
discount and expense, (5) patents, trademarks, trade names and
copyrights, (6) treasury stock, (7) cash held in a sinking or
other similar fund established for the purpose of redemption or
other retirement of capital stock, and (8) franchises, licenses
and permits.
"CONTINGENT OBLIGATION" means, as applied to any Person,
without duplication, any direct or indirect liability, contingent
or otherwise, of that Person with respect to any Indebtedness,
lease, dividend, letter of credit or other obligation of another,
including, without limitation, any such obligation directly or
indirectly guaranteed, endorsed (otherwise than for collection or
deposit in the ordinary course of business), co-made or
discounted or sold with recourse by that Person, or in respect of
which that Person is otherwise directly or indirectly liable.
The amount of any Contingent Obligation shall be equal to the
actual amount of the obligation so guaranteed or otherwise
supported.
"CONTROLLED POWER" means Controlled Power Limited
Partnership, an Illinois limited partnership in which Southwick
is the general partner and Brookfield is a limited partner.
"CONTROLLED POWER PROPERTY" shall mean the real property
owned by Controlled Power and commonly known as 1501 Raff Road,
Canton, Stark County, Ohio.
"DEFAULT INTEREST RATE" shall have the meaning set forth in
Section 2.2(b).
"DOLLARS" and "$" mean United States Dollars.
"EBITDA" means in respect of any fiscal year the net income
of the Borrower and its Subsidiaries determined on a consolidated
basis (without any deduction in respect of any dividend on any
class of stock) as reflected in its financial statements but
increased by the amount reflected in such financial statements as
expenses incurred for interest, federal and state income taxes,
depreciation on Fixed Assets and amortization of intangible
assets.
"ENVIRONMENTAL LAWS" means any Governmental Requirement
pertaining to land use, air, soil, surface water, groundwater
(including the protection, cleanup, removal, remediation or
damage thereof), public or employee health or safety or any other
environmental matter, including without limitation, the following
laws, and any regulations promulgated thereunder, as the same may
be amended from time to time, or any such statute enacted after
the Closing Date:
(1) Clean Air Act (42 U.S.C. Sections 7401 to 7642);
(2) Federal Water Pollution Control Act (33 U.S.C. Sections
1251 to 1387);
(3) Resource Conservation and Recovery Act of 1976 (42
U.S.C. Sections 6901 to 6991i);
(4) Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. Sections 9601 to 9675);
(5) Superfund Amendments and Reauthorization Act of 1986;
(6) Safe Drinking Water Act (42 U.S.C. Sections 300f to
3000j- 11);
(7) Toxic Substances Control Act (15 U.S.C. Sections
2601 to 2692);
(8) Federal Insecticide, Fungicide, and Rodenticide Act (7
U.S.C. Sections 136 to 136yy);
(9) Occupational Safety and Health Act (29 U.S.C. Sections
651 to 678);
(10) Ohio environmental, health, and safety Governmental
Requirements; and
(11) local environmental, health, and safety ordinances;
together with any other foreign or domestic laws (federal, state,
provincial or local) relating to emissions, discharges, releases
or threatened releases of any Hazardous Substance into ambient
air, land, surface water, groundwater, personal property or
structures, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport,
discharge or handling of any Hazardous Substance.
"EQUITY INTEREST" shall mean any equity ownership of any
type or nature, including, without limitation, any class of
common or preferred stock or any warrant, option or other right
ot acquire any class of common or preferred stock or any security
convertible into any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA AFFILIATE" means Borrower and all of its
Subsidiaries.
"Event of Default" shall have the meaning set forth in
Article 8.
"EXTRAORDINARY INCOME" shall have the meaning as specified
by GAAP.
"FACILITY FEE" shall have the meaning set forth in Section
2.5.
"FINANCIAL STATEMENTS" shall have the meaning set forth in
Section 5.9.
"FIXED ASSETS" means property, plant and equipment.
"GLOBAL POWER" means Global Power Company, formerly known as
Maclean insulation, Inc., an Ohio corporation with its principal
offices at 4801 West Trace Creek Road, Waverly, Tennessee,
including its division, Global Erectors, and which is a wholly
owned subsidiary of Borrower.
"GLOBAL PROPERTY" shall mean the real property owned by
Global Power commonly known as 4801 West Trace Creek Road,
Waverly, Humphreys County, Tennessee.
"GAAP" means generally accounting principles set forth in
the opinions and pronouncements of the Accounting Principles
Board and the American Institute of Certified Public Accountants
and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity
as may be approved by a significant segment of the accounting
profession, which are applicable to the circumstances as of the
date of determination.
"GOVERNMENTAL APPROVALS" means any consent, right,
exemption, concession, permit, license, authorization,
certificate, order, franchise, determination or approval of any
federal, state, provincial, municipal or governmental department,
commission, board, bureau, agency or instrumentality of the
United States of America required for the ownership of, or
activities of the Borrower or any of its Subsidiaries or any
other Person in connection with the business of the Borrower or
any of its Subsidiaries.
"GOVERNMENTAL AUTHORITY" means the United States of America,
any state, province or other political subdivision thereof or any
entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to the government
thereof.
"GOVERNMENTAL REQUIREMENTS" means all legal requirements in
effect from time to time of the United States of America and/or
the State of Ohio including all laws, statutes, codes, acts,
ordinances, orders, judgments, decrees, injunctions, rules,
regulations, permits, licenses, authorizations, certificates,
orders, franchises, determinations, approvals, notices, demand
letters, directions and requirements of all governments,
departments, commissions, boards, courts authorities, agencies,
officials and officers, foreseen or unforeseen, ordinary or
extraordinary, including but not limited to any change in any
law, regulation or the interpretation thereof by any foreign or
domestic governmental authority, relating now or at any time
heretofore or hereafter to the business or operations of the
Borrower or any of its Subsidiaries or to any of the property
owned, leased or used by the Borrower or any of its Subsidiaries,
including, without limitation, the development, design,
construction, acquisition, startup, ownership and operation and
maintenance of property.
"GUARANTORS" means, collectively, American Eco, Controlled
Power, Global Power, Brookfield and Southwick.
"GUARANTY" means the Commercial Guaranty to be executed and
delivered by each of the Guarantors in favor of the Lender as of
the Closing Date.
"HAZARDOUS SUBSTANCE" means any pollutant, contaminant,
toxic or hazardous substance, material, constituent or waste as
such terms are defined in or pursuant to any Environmental Law.
"HAZARDOUS WASTE FACILITY PERMIT" means any permit, license
or other governmental authorization relating to the storage,
treatment or disposal of any Hazardous Substance required
pursuant to any Environmental Law.
"HOLIDAY MORTGAGES" shall have the meaning set forth in
Section 3.2.
"HOLIDAY PROPERTIES" means Holiday Properties, an Ohio
general partnership between Kukk and Ernest M. Rochester.
"INCIPIENT DEFAULT" shall have the meaning set forth in
Section 4.1(e).
"INDEBTEDNESS" means (a) any obligation of the Borrower or
any of its Subsidiaries for borrowed money; (b) any obligation of
the Borrower or any of its Subsidiaries evidenced by bonds,
debentures, notes or other similar instruments; (c) any
obligation of the Borrower or any of its Subsidiaries to pay the
deferred purchase price of property or for services (other than
in the ordinary course of business); (d) any obligation or
liability of others secured by a lien on any asset of the
Borrower or any of its Subsidiaries, whether or not such
obligation or liability is assumed; (e) any Contingent Obligation
of the Borrower or any of its Subsidiaries (other than those
incurred in the ordinary course of business); and (f) any other
obligation or liability which is required by GAAP to be shown as
part of the Consolidated Liabilities on a consolidated balance
sheet of the Borrower and its Subsidiaries.
"INDEMNIFIED MATTERS" shall have the meaning set forth in
Section 9.7.
"INTEREST EXPENSE" shall mean the amount reflected in the
Borrower's Financial Statements (or subsequent financial
statements thereafter) as expenses incurred for interest
determined in accordance with GAAP.
"INVENTORY" means all goods intended for sale or lease or
furnished or to be furnished under contracts of service or used
or consumed in the business of the Borrower or any of its
Subsidiaries, including, without limitation, all raw materials,
work in progress, and finished goods or materials, together with
all supplies of any kind, nature or description which are or
might be used in connection with the manufacture, packing,
shipping, advertisement, sale or finishing of such goods, and all
documents of title or documents representing, covering or
evidencing any of the foregoing.
"INVESTMENT" as applied to any Person, means any direct or
indirect ownership or purchase or other acquisition by that
Person of stock or other securities, or of a beneficial interest
in stock or other securities, of any other Person (including any
Subsidiary), or any direct or indirect loan, advance (other than
advances to employees for moving and travel expenses, drawing
accounts and similar expenditures in the ordinary course of
business) or capital contribution by that Person to any other
Person, including all indebtedness and accounts receivable from
that other Person in the ordinary course of business.
"KUKK" means Toomas J. Kukk, an individual residing in the
State of Ohio.
"LAND CONTRACT PROPERTIES" shall mean the real properties
which are the subject of Land Installment Contracts between
Holiday Properties and Borrower involving the real property
commonly known as follows:
807 East Turkeyfoot Lake Road, Akron, Summit County, Ohio
3600 Cardiff Avenue, Cincinnati, Hamilton County, Ohio
6050 West Virginia State Route 34, Winfield, Putnam County,
West Virginia
"LENDER" means First National Bank of Ohio, a national
banking association, 106 S. Main Street, Akron, Ohio 44308, or
any assignee of any interest in all or any part of the rights of
Lender under this Agreement.
"LENDER INDEMNITIES" shall have the meaning set forth in
Section 9.7.
"LIBOR RATE" shall mean the 30-day London Interbank Offered
Rate as published, from time to time, in the Wall Street Journal,
or if such rate becomes unavailable during the term of the Loan,
the Lender may designate a substitute index upon notice to
Borrower.
"LIMITED GUARANTY" shall have the meaning set forth in
Section 3.3.
"LOAN" shall have the meaning set forth in Section 2.1(a).
"LOAN DOCUMENTS" means this Agreement, the Notes, the
Guaranty, the Collateral Agreement, and all agreements,
instruments and documents (including, without limitation,
security agreements, loan agreements, notes, fee agreements,
guaranties, mortgages, deeds of trust, subordination agreements,
pledges, powers of attorney, consents, assignments, contracts,
notices, leases, financing statements, letter of credit
applications, reimbursement agreements, certificates, statements,
reports and notices and all other writings) heretofore, now or
hereafter executed by, on behalf of or for the benefit of the
Borrower or any of its Subsidiaries and delivered to the Lender
pursuant to or in connection with this Agreement or the
transactions contemplated hereby, together with all amendments,
modifications and supplements thereto.
"MATERIAL ADVERSE CHANGE" shall mean a material adverse
change in (i) the business, assets, operations, or financial
condition of the Borrower and its Subsidiaries considered as a
whole, (ii) the collective ability of the Borrower and its
Subsidiaries to pay the Obligations in accordance with their
terms, or (iii) the security interests or liens of the Lender on
the Collateral or the priority of such security interests or
liens.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on
(i) the business, assets, operations, or financial condition of
the Borrower and its Subsidiaries considered as a whole, (ii) the
collective ability of the Borrower and its Subsidiaries to pay
the Obligations in accordance with their terms, or (iii) the
security interests or liens of the Lender on the Collateral or
the priority of such security interests or liens.
"MATURITY" means any date on which a Loan or any portion
thereof becomes due and payable whether as stated, by virtue of
any mandatory prepayment, by Acceleration or otherwise.
"MERGER AGREEMENT" means the Agreement and Plan of Merger by
and among American Eco, Sub Acquisition and Borrower dated
September 10, 1996.
"MERGER DOCUMENTS" means the Merger Agreement, together with
all schedules and exhibits thereto, and all agreements,
instruments, documents or other written undertakings executed or
to be executed under or in connection with the Merger Agreement,
all of which are incorporated herein by reference.
"MORTGAGES" shall have the meaning set forth in Section 3.2.
"NOTE" shall have the meaning set forth in Section 2.1(c).
"OBLIGATIONS" means all loans, advances, debts, liabilities,
obligations, covenants and duties owing to the Lender by the
Borrower or any of its Subsidiaries of any kind or nature,
present or future, whether or not evidenced by any note, guaranty
or other instrument, arising under this Agreement, the Notes, the
Collateral Agreement or any of the other Loan Documents, whether
or not for the payment of money, arising by reason of an
extension of credit, absolute or contingent, due or to become
due, now existing or hereafter arising, including all principal,
interest, charges, expenses, fees, attorneys' fees and
disbursements and any other sum chargeable to the Borrower or any
of its Subsidiaries under this Agreement or any other Loan
Documents.
"Other Assurances" shall have the meaning set forth in
Section 3.1.
"OWNED REAL PROPERTIES" shall mean the real property owned
by the Borrower commonly known as 185 Plumpton Avenue,
Washington, Washington County, Pennsylvania.
"PBGC" means the Pension Benefit Guaranty Corporation and
any successor to all or any part of such corporation's functions
under ERISA.
"PERMITTED ENCUMBRANCES" means: (a) the liens and security
interests created under the Security Documents, (b) carriers',
warehousemen's, mechanics', landlords', materialmen's,
suppliers', tax, assessment, governmental and other like liens
and charges arising in the ordinary course of business securing
obligations that are not incurred in connection with the
obtaining of any advance or credit and which are not overdue, or
are being contested in good faith by appropriate proceedings,
provided that, in accordance with GAAP, adequate reserves have
________
been set aside on the books of the Borrower for the eventual
payment thereof in the event it is determined that such
obligation is payable by the Borrower; (c) liens arising in
connection with worker's compensation, unemployment insurance,
appeal and release bonds and progress payments under government
contracts; (d) judgment liens in existence less than forty-five
(45) calendar days after the entry of the judgment, or with
respect to which execution has been stayed, or the payment of
which is covered in full by insurance; (e) zoning restrictions,
easements, licenses or other restrictions on the use of real
property, so long as the same do not materially impair the use of
such real property by the Borrower or the value thereof to the
Borrower; (f) any lien existing or arising by operation of law in
the ordinary course of business, such as a "banker's lien" or
similar right of offset; (g) liens arising incidental to the
conduct of the Borrower's business in the ordinary course and not
incurred in connection with the borrowing of money or the
obtaining of advances or credit (other than credit for goods or
services); (h) liens or security interests arising under the
Subordinated Debt Documents; and (i) those encumbrances
specifically set forth on the attached Schedule 1.1.1.
"PERSON" means any individual, corporation, partnership,
trust, association or other entity or organization, including any
government, political subdivision, agency or instrumentality
thereof.
"PRIOR LINE OF CREDIT" shall have the meaning set forth in
Section 2.7.
"Property" means any property owned, leased or used by the
Borrower or any of its Subsidiaries.
"REAL PROPERTY COLLATERAL" shall have the meaning set forth
in Section 3.2.
"RESPONSIBLE OFFICER" means the President, Vice President,
Secretary, or Treasurer of the Borrower.
"ROCHESTER" means Mark L. Rochester, an individual residing
in the State of Ohio.
"SECURITY DOCUMENTS" means the Collateral Agreement and the
Mortgage and Other Assurances, together with any and all
documents, instruments, undertakings or financing statements
executed or to be executed under any of them.
"SOLVENT" means, when used with respect to any Person, that
at the time of determination:
(i) the fair value of its assets (determined on a
going concern basis) is in excess of the total amount of all
of its debts and liabilities, including contingent,
unmatured and unliquidated liabilities known to Borrower;
and
(ii) it is then able to pay its debts as they become
due; and
(iii) it owns property having a value (determined
on a going concern basis) in excess of the total amount
required to pay its debts; and
(iv) it has capital sufficient to carry on its
business.
"SOUTHWICK" means Southwick Corporation, an Ohio corporation
which is a wholly owned subsidiary of Borrower.
"SUB ACQUISITION" means Sub Acquisition Corp., an Ohio
corporation wholly owned by American Eco and formed for the
purpose of consummation of the transactions contemplated by the
Merger Agreement.
"SUBORDINATED DEBT DOCUMENTS" means, collectively, (i) the
Promissory Note in the original principal amount of $15,900,000
dated as of the Closing Date issued by the Borrower to Kukk, as
Agent for himself and Rochester, (ii) the Financing Agreement
dated as of the Closing Date between and among American Eco,
Borrower, Kukk and Rochester, (iii) all other documents relating
to the Financing Agreement, including, without limitation, any
security agreements, mortgages, or deeds of trust, and (iv) the
Purchase Agreement dated as of the Closing Date between Holiday
Properties and Borrower, and all documents relating thereto,
including land installment contracts.
"SUBORDINATED DEBT OBLIGATIONS" means the indebtedness of
the Borrower under the Subordinated Debt Documents.
"SUBORDINATION AGREEMENTS" shall have the meaning set forth
in Section 3.5.
"SUBSIDIARY" or "SUBSIDIARIES" means any or all
corporations, partnerships, joint ventures, associations or other
business entities of which the Borrower now or hereafter owns,
directly or indirectly, securities or other ownership interests
having ordinary voting power to elect a majority of the board of
directors or other governing body thereof, including, without
limitation, Controlled Power, Global Power, Brookfield and
Southwick.
ARTICLE 2
---------
Loan
----
2.1 THE LOAN.
--------
(a) LINE OF CREDIT LOAN AND LOAN COMMITMENT DEFINED.
-----------------------------------------------
Subject to all the terms and conditions of this Agreement, the
Lender will make such loans to the Borrower as from time to time
the Borrower requests until the Commitment Expiration Date (the
"Loan"). In no event shall the Loan exceed the Commitment. The
"Commitment" of the Lender at any time means Fifteen Million
Seven Hundred Thousand Dollars ($15,700,000). Subject to the
provisions of this Agreement, Borrower may borrow, repay without
penalty or premium, and reborrow hereunder, until the Commitment
Expiration Date, either the full amount of the Commitment or any
lesser sum.
(b) ADVANCES. The Lender agrees, subject to the
--------
fulfillment of the terms and conditions contained in Section 4.1
through 4.4 hereof, to make Advances in respect of the Loan to
the Borrower through disbursement thereof by wire transfer or
deposit to the account specified by Borrower from time to time
from and including the Closing Date to but not including the
Commitment Expiration Date. The aggregate outstanding principal
amount of the Loan shall not exceed at any time the Commitment.
Each Advance shall be made the same day as requested provided the
--------
Lender receives a telecopied or other acceptable notice prior to
12:00 Noon (Eastern time). The requesting of an Advance in and
of itself constitutes a representation and warranty by the
Borrower to the Lender that the conditions specified in Sections
4.1 through 4.4 hereof have been satisfied. Each request for an
Advance shall be made by an Authorized Officer.
(c) NOTE. The Borrower's obligation to repay the Loan
----
shall be evidenced by a promissory note of the Borrower (the
"Note") in the form of Exhibit 2.1.1 attached hereto. On the
Closing Date, the Borrower shall deliver the Note to the Lender,
executed by a Responsible Officer of the Borrower.
2.2 INTEREST.
--------
(a) INTEREST RATE. Subject to subsections (b) and (c) of
-------------
this Section, the Loan shall bear interest from the date of an
Advance on the unpaid principal amount thereof until such
principal amount shall become due and payable (whether upon
Maturity, by Acceleration or otherwise) at a variable rate, which
is subject to change from time to time, and which shall be
calculated by adding 1.50% to the LIBOR Rate. Borrower
understands and acknowledges that the LIBOR Rate is not
necessarily the lowest rate charged by Lender on its loans to
other customers of Lender. Borrower further understands and
acknowledges that Lender may make other loans, whether to
Borrower or any other customer of Lender based on rates other
than LIBOR Rate. Lender will, upon Borrower's request, inform
the Borrower of the then applicable LIBOR Rate. Any change in
the interest rate based on a change in the LIBOR Rate will not
occur more often than each 30 days. Changes in the interest rate
will be based on the most recently published LIBOR Rate two days
prior to the scheduled rate change date. UNDER NO CIRCUMSTANCES
WILL THE INTEREST RATE ON THE NOTE BE MORE THAN THE MAXIMUM RATE
ALLOWED BY APPLICABLE LAW.
(b) DEFAULT INTEREST RATE. In the event any Loan is not
---------------------
paid when due (whether upon Maturity, by Acceleration or
otherwise), the applicable Loan (or such portion thereof as has
so become due and payable) shall to the extent permitted by
applicable law bear interest, for each day from the date payment
was due (whether or not declared due and payable by the Lender)
until paid, at a rate equal to the highest rate for any Loan
provided above, plus two percent (2%) per annum (the "Default
Interest Rate"). All other Obligations due the Lender, if not
paid when due, shall bear interest, to the extent permitted by
applicable law, from the date when due until paid, at rate equal
to the Default Interest Rate. As to any Obligation where the
date due for payment is not specified in any of the Loan
Documents, such Obligation shall be due when the Lender so
notifies the Borrower.
(c) COMPUTATION OF INTEREST. Interest on the Loan shall be
-----------------------
computed for the actual number of days elapsed on the basis of a
year consisting of three hundred sixty (360) days. The interest
can therefore be determined by applying the ratio of the annual
interest rate over a year of 360 days, multiplied by the
outstanding principal balance, multiplied by the actual number of
days the principal balance is outstanding.
2.3. PAYMENTS AND PREPAYMENTS.
------------------------
(a) SCHEDULED PAYMENTS. The Borrower shall pay accrued
------------------
interest on the Loan to the Lender in monthly installments
commencing April 1, 1997 and continuing on the first day of each
subsequent month until the Loan is due (whether by Maturity,
Acceleration, or otherwise). All of the principal of and unpaid
accrued interest on the Loan shall be paid to the Lender on the
Commitment Expiration Date.
(b) PAYMENTS. All payments of interest or principal on the
--------
Loan shall be in Dollars and in immediately available funds to
the Lender at its Akron, Ohio office and shall be made prior to
4:00 p.m., Akron, Ohio time, on the date of the scheduled
payment. All (whether or not scheduled) payments received after
4:00 p.m., Akron, Ohio time, shall be considered to have been
received the next Banking Day. The Borrower shall give the
Lender telephone notice not later than 12:00 noon, Akron, Ohio
time, on the date of any payments in respect of principal
outstanding in respect of the Loan which is not due and the
Borrower shall cause immediately available funds in the amount of
such payment to be paid to the Lender on such day. In case the
due date of any payment falls on a day which is not a Banking
Day, such payment shall instead be due the next succeeding
Banking Day, and interest shall continue to accrue. The Lender
is hereby authorized to note the date, amount and interest rate
of each payment of principal and interest with respect to the
Loan on the Lender's books and records (either manually or by
electronic entry), which notation shall be conclusive evidence of
the information noted absent manifest error.
(c) OPTIONAL PREPAYMENTS. The Borrower may at any time
--------------------
prepay any or all of the Loans in whole or in part.
(d) APPLICATION OF PREPAYMENTS. Amounts paid under
--------------------------
Sections 2.5(c) shall be applied first against scheduled
principal payments due in respect of the applicable Loan in
inverse order of their maturity.
(e) OFFSET. In addition to and not in limitation of all
------
rights of offset that the Lender may have under applicable law,
the Lender, upon the occurrence and during the continuance of an
Acceleration, shall have the right to appropriate and apply to
the payment of all Obligations any and all balances, credits,
deposits, accounts or moneys of the Borrower then or thereafter
with the Lender.
(f) LATE FEE. Any installment or other payment not made
--------
within ten (10) calendar days of the date such payment or
installment is due shall be subject to a late charge equal to the
lesser of (i) seven percent (7%) of such unpaid late payment or
installment or (ii) Five Hundred Dollars ($500.00).
2.4 USE OF PROCEEDS. The proceeds of the Loan shall be
---------------
used solely for Borrower's working capital purposes in connection
with the operation of the Borrower's business; provided, however,
that Borrower may obtain an Advance of up to Nine Million Dollars
($9,000,000) of the Commitment to fund the transactions
contemplated in the Merger Agreement.
2.5 FACILITY FEE. The Borrower shall pay to the Lender a
------------
facility fee (the "Facility Fee") on or prior to the Closing Date
in the amount of Seventy-five Thousand Dollars ($75,000).
2.6 AUTHORIZATION TO DEBIT ACCOUNTS. The Borrower hereby
-------------------------------
irrevocably authorizes the Lender from and after the occurrence
of an Event of Default, or an event which, with notice or lapse
of time, would become an Event of Default, to charge to and
deduct from any accounts of the Borrower with the Lender all
amounts, charges and liabilities which shall come due to the
Lender from the Borrower with respect to any of the Obligations
or under this Agreement or any of the other Loan Documents.
2.7 TERMINATION OF PRIOR LINE OF CREDIT. The Loan shall
-----------------------------------
replace and supersede a prior revolving loan provided by Lender
to Borrower pursuant to a Business Loan Agreement dated November
12, 1992, as amended from time to time, and evidenced by a
certain promissory note in the maximum principal amount of
$10,000,000 dated November 12, 1992, as amended from time to time
(the "Prior Line of Credit") which shall be deemed terminated on
the Closing Date. To the extent that there is a balance due on
the Prior Line of Credit on the Closing Date, Borrower shall not
be permitted an Advance under the Loan unless such an Advance is
first used to pay all amounts outstanding under the Prior Line of
Credit first.
ARTICLE 3
---------
SECURITY
--------
3.1 SECURITY INTERESTS. The Loan and any other Obligations
------------------
shall be secured by a security interest in and to all of the
assets of Borrower and each of the Subsidiaries, including but
not limited to, all Accounts, Inventory, equipment, contract
rights, and general intangibles, whether now owned or hereafter
acquired, wherever located, and including the products of such
assets or the proceeds (including insurance proceeds) of such
assets (the "Collateral"). To evidence Lender's security
interest in the Collateral, at Closing, Borrower and each of the
Subsidiaries shall execute and deliver to Lender a Commercial
Security Agreement, in form and substance substantially as set
forth on Exhibit 3.1.1 (the "Security Agreement") and any other
documents, instruments or other assurances necessary to effect
the transactions in connection with the Loan and Lender's
interest in the Collateral, including, but not limited to, UCC
Financing Statements and proof of insurance (the "Other
Assurances").
3.2 MORTGAGES. The Loan and any other Obligations further
---------
shall be secured by a mortgage interest (or deed of trust, if
applicable) in and to the Owned Real Properties, the Controlled
Power Property, the Global Power Property, and the Land Contract
Properties, including a collateral assignment of and interest in
and to land contracts, all fixtures, leases and rents (the "Real
Property Collateral"). To evidence Lender's mortgage or other
interest in and to the Real Property Collateral, at Closing,
Borrower and each Subsidiary (as necessary) shall execute and
deliver to Lender mortgages or deeds of trust (the "Mortgages")
and collateral assignments of land contracts, leases and rents
(the "Assignments") in such form and substance satisfactory to
Lender. To evidence Lender's interest in the Land Contract
Properties, Holiday Properties shall execute and deliver the
Limited Guarantee to Lender, along with such documents, including
mortgages or deed of trust, as may be required by Lender to
perfect a mortgage or similar interest in the Real Property
Collateral titled to Holiday Properties, including, without
limitation, the Land Contract Properties (the "Holiday
Mortgages").
3.3 GUARANTIES. To further secure payment of the Loan, at
----------
the Closing, each of the Guarantors shall execute and deliver to
Lender a Guaranty in substantially the form of the attached
Exhibit 3.3.1. In addition, Holiday Properties shall execute and
deliver to Lender a Limited Non-Recourse Guaranty (the "Limited
Guaranty") in substantially the form of the attached Exhibit
3.3.2.
3.4 EXECUTION AND DELIVERY OF SECURITY DOCUMENTS. The
--------------------------------------------
Security Agreements, the Mortgages, the Assignments, the
Guaranties and Other Assurances (collectively, together with any
and all documents, instruments, undertakings or financing
statements executed or to be executed thereunder, the "Security
Documents") shall be delivered to the Lender, executed by their
respective signatories, on the Closing Date and on the dates or
at the times specified in Section 6.24.
3.5 SUBORDINATION OF SUBORDINATED DEBT OBLIGATIONS. Kukk,
----------------------------------------------
Rochester and Holiday, as holders of the Subordinated Debt
Documents, shall execute and deliver to Lender such subordination
agreements, substantially in the form of the attached Exhibit
3.5.1 (the "Subordination Agreements") in order to subordinate
the Subordinated Debt Obligations to Borrower's Obligations to
Lender. Further, in the event that Borrower fails to meet the
Condition Subsequent set forth in Section 4.5, Subordination
Agreement between Lender and each of Kukk and Rochester shall
provide that up to $10.3 million of the Subordinated Debt
Obligations of Borrower to Kukk and Rochester (in the aggregate)
shall be subordinated to the obligations of all creditors of
Borrower and its Subsidiaries, but not to Equity Interests.
ARTICLE 4
---------
CONDITIONS PRECEDENT AND SUBSEQUENT
-----------------------------------
4.1 CONDITIONS PRECEDENT TO CLOSING. The obligation of the
-------------------------------
Lender to make the Loan is subject to the prior contemporaneous
satisfaction of each of the following conditions precedent on the
Closing Date:
(a) DELIVERY OF DOCUMENTS. The Notes, the Security
---------------------
Documents, the other Loan Documents and the Subordination
Agreements shall each have been duly executed and delivered
to the Lender by the respective signatories thereto.
(b) REPORTS, CERTIFICATES AND OTHER INFORMATION. The
-------------------------------------------
Lender shall have received the following, dated
and in full force and effect on the Closing Date:
(i) a certificate of the Secretary or an
Assistant Secretary of each of the Borrower, American
Eco and each Subsidiary as to (A) such entities
Articles of Incorporation and Code of Regulations (if a
corporation) or, if not a corporation then a
certificate of the general partner of each partnership
or limited partnership as to the partnership agreement;
(B) resolutions of its board of directors (or, if not a
corporation, of the partners or owners) authorizing the
execution, delivery and performance of this Agreement
and the other Loan Documents; and (C) the incumbency
and signatures of the Responsible Officers of each such
entity;
(ii) a certificate, signed by a Responsible
Officer of Borrower, stating (A) that the
representations and warranties contained in Article 5
of this Agreement, the Note and the other Security
Documents executed by the Borrower are then true and
accurate as though made on and as of such date; and (B)
that there has then occurred no Event of Default or
Incipient Default which is continuing;
(iii) a certificate, signed by a Responsible
Officer of the Borrower and each of the Subsidiaries,
in form and substance satisfactory to the Lender,
stating that each of the Borrower and the Subsidiaries
are Solvent on and as of the Closing Date and that no
Material Adverse Change in the Borrower or any of the
Subsidiaries has occurred since the date of the
Financial Statements, on which it is acknowledged the
Lender has relied;
(iv) such other instruments or documents as the
Lender may reasonably request relating to the existence
and good standing of the Borrower or the corporate
authority for execution, delivery and performance of
this Agreement or any of the other Loan Documents.
(c) OPINION OF COUNSEL. There shall have been
------------------
delivered to the Lender the written opinion, dated as of the
Closing Date, of Thompson, Hine & Flory, as counsel to the
Borrower and each of the Subsidiaries, in form and substance
reasonably satisfactory to Lender and its counsel, as to the
matters set forth in Sections 5.1 through 5.7 of this
Agreement.
(d) PAYMENT OF FEES. The Borrower shall have paid the
---------------
Lender the Facility Fee and the fees and expenses of the
Lender's counsel, Brouse & McDowell (such fees of Brouse &
McDowell not to exceed $25,000), in connection with
preparation, negotiation, execution and closing of this
Agreement, and any other fee or expense reimbursement due
the Lender under any of the Loan Documents;
(e) NO EXISTING DEFAULT. No Event of Default or event
-------------------
which, upon the lapse of time or the giving of notice or
both, would constitute an Event of Default (an "Incipient
Default") shall exist on the Closing Date, or after giving
effect to the transactions contemplated to take place
hereunder on such Date;
(f) REPRESENTATIONS AND WARRANTIES CORRECT. The
--------------------------------------
representations and warranties set forth in Article 5 and
the representations and warranties set forth in Note, or in
the other Security Documents to be executed and delivered to
the Lender on the Closing Date shall be true and correct in
all material respects on the Closing Date, and after giving
effect to the transactions contemplated to occur on such
Date;
(g) LEGALITY OF TRANSACTIONS. It shall not be
------------------------
unlawful for either the Borrower or the Lender to carry out
their respective obligations under this Agreement;
(h) PERFECTION. The Lender's lien on or security
----------
interest in each item of Collateral and the mortgage
interest in each of the Real Property Collateral shall have
been granted and perfected by the filing, recording or
registration of the Mortgage and Other Assurance and
documents, instruments or financing statements in the
appropriate governmental offices or by such other action as
is necessary to perfect any such lien or security interest,
and the Lender shall have received evidence satisfactory to
it that all such liens and security interests are of first
priority, subject only to Permitted Encumbrances;
(i) TITLE INSURANCE. The Lender shall have received
---------------
(or shall be satisfied that it shall promptly receive after
the Closing Date) a title insurance policy in form
satisfactory to the Lender issued by a title insurance
company reasonably acceptable to the Lender, insuring that
the mortgage lien of the Lender covering the Owned Real
Property covered by the Mortgages is of first priority
subject to no exceptions, conditions or reservations other
Permitted Encumbrances or as other~vise approved in writing
by the Lender;
(j) CONSENTS. The Lender shall have received evidence
--------
satisfactory to it that all consents required for the
granting and perfection of the Lender's liens on and
security interest in the items of Collateral, including the
Landlord Consents, have been obtained;
(k) HAZARD AND OTHER INSURANCE. The Lender shall have
--------------------------
received evidence reasonably satisfactory to it that the
Borrower has in effect the insurance required by Section
6.9;
(l) WRITTEN RECEIPT. If any part of the proceeds of
---------------
the Loan is to be disbursed to a Person other than the
Borrower, the Lender shall have received from the Borrower
written disbursement instructions and a written receipt for
such proceeds;
(m) FINANCIAL STATEMENTS. The Lender shall have
--------------------
received and reviewed to its reasonable satisfaction income
statements, balance sheets, and statements of cash flows for
the Borrower, each prepared in accordance with GAAP;
(n) GUARANTY. The Lender shall have received from
--------
each Guarantor the executed Guaranty, dated as of the
Closing Date; and
(o) MERGER TRANSACTION. The Lender shall have
------------------
received evidence to its satisfaction that the transactions
contemplated in the Merger Agreement have been consummated,
and American Eco has made a $10,000,000 capital contribution
to Borrower.
4.2 CONDITIONS PRECEDENT TO ALL ADVANCES. The obligation
------------------------------------
of the Lender to make each Advance requested from time to time
shall be subject to satisfaction of the following conditions in
connection with each such Advance:
(a) REPRESENTATIONS AND WARRANTIES. The
------------------------------
representations and warranties contained in Article 5 hereof
shall be true and correct in all material respects on and as
of the date of such Advance as though made on and as of such
date, except to the extent such representations and
warranties expressly relate to an earlier specified date.
(b) NO DEFAULTS. No event constituting an Event of
-----------
Default or Incipient Default has occurred and is continuing
or would result from the first Advance.
(c) PERFORMANCE. The Borrower has performed and
-----------
complied in all material respects with all its obligations
required to be performed and/or complied with under the Loan
Documents to which it is a party.
4.3 CONDITIONS FOR THE BENEFIT OF THE LENDER. The
----------------------------------------
conditions set forth in this Article 4 are for the exclusive
benefit of the Lender and may be waived, for purposes of this
Agreement, only by the Lender, and only in writing.
4.4 FAILURE OF CONDITIONS. The Borrower shall take any and
---------------------
all actions necessary or appropriate on its part, and shall use
its reasonable best efforts to cause others to take necessary or
appropriate action on their part, in order to satisfy the
conditions set forth in Sections 4.1 and 4.2 and otherwise cause
the Closing Date to occur.
4.5 CONDITIONS SUBSEQUENT. Within forty-five (45) days
---------------------
after the Closing Date, Borrower shall provide to Lender (i)
Phase I environmental reports, in form and substance satisfactory
to Lender, performed by an environmental assessment company
satisfactory to Lender, as to each of the Owned Real Properties,
and (ii) appraisals, in form and substance satisfactory to
Lender, of the Tangible Assets of Borrower supporting the write
up of assets on Borrower's Financial Statements of $10,300,000,
including the Owned Real Properties. To the extent that the
aggregate appraised value of such assets is less than
$10,300,000, then the Subordinated Debt Obligations to Kukk and
Rochester shall be additionally subordinated by such difference
to the claims and interests of all creditors of Borrower and its
Subsidiaries, but not to Equity Interests.
ARTICLE 5
---------
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
-----------------------------------------------
In order to induce the Lender to enter into or become a
party to this Agreement and to make the Loan, the Borrower makes
the following representations and warranties to the Lender.
5.1 DUE AUTHORIZATION. The Borrower, Global Power,
-----------------
Brookfield and Southwick, are each corporations, duly organized,
validly existing and in good standing under the laws of the
jurisdiction in which each is incorporated, and each are duly
licensed or qualified to conduct business and are in good
standing in each jurisdiction wherein the character of the
property owned or the nature of the business transacted by each
makes such licensing or qualification necessary, except as to
jurisdictions where the failure to be so licensed or qualified
would not have a Material Adverse Effect. Controlled Power is an
Illinois limited partnership, duly organized, validly existing
and in good standing under the laws of the jurisdiction in which
it was organized and in which it does business, and it is duly
licensed or qualified to conduct business and is in good standing
in each jurisdiction wherein the character of the property owned
or the nature of the business transacted by it makes such
licensing or qualification necessary, except as to jurisdictions
where the failure to be so licensed or qualified would not have a
Material Adverse Effect.
5.2 ORGANIZATION, STANDING AND QUALIFICATION OF
-------------------------------------------
SUBSIDIARIES.
------------
(a) Set forth in Schedule 5.2 attached hereto is a
complete and accurate list of the Borrower's Subsidiaries,
as of the date hereof, showing for each, as of the date
hereof, and for the Borrower as well, the respective
jurisdictions of their incorporation; the jurisdictions in
which they are qualified to do business as a foreign
corporation; the number of shares of each class of common
stock authorized; the number of shares of each class of
common stock outstanding; and the number of such shares
covered by all outstanding options, warrants, rights of
conversion or purchase and other similar rights.
(b) The charter or articles of incorporation and all
amendments thereto for the Borrower and its Subsidiaries
have been duly filed and are in proper order. The Equity
Interests of the Borrower, including the number of
authorized, issued and outstanding shares of stock of the
Borrower and each of its Subsidiaries, their par value, and
the names of the holders thereof and the number of shares
held by each holder, are as set forth in Schedule 5.2
attached hereto. All of the outstanding capital stock of
the Borrower and each of its Subsidiaries has been validly
issued in compliance with all federal and state securities
laws, is fully paid and nonassessable and is free and clear
of all mortgages, deeds of trust, pledges, liens, security
interests and other charges or encumbrances, other than
those created by the Loan Documents.
(c) Except as set forth on Schedule 5.2, neither the
Borrower nor any of its Subsidiaries is, or will on the
Closing Date be, be subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any
shares of its capital stock.
(d) The chief executive office of the Borrower is
located at 807 East Turkeyfoot Lake Road, Akron, Ohio 44319.
5.3 NO PARTNERSHIPS. Neither the Borrower nor any
---------------
Subsidiary is a partner in any partnership or a joint venturer in
any joint venture other than Controlled Power and Tri-Chem, Inc.
5.4 REQUISITE POWER. The Borrower has, and each Subsidiary
---------------
has, all requisite corporate power and all governmental licenses,
permits, authorizations, consents and approvals necessary to own
and operate its properties and to carry on its business as now
conducted and as proposed to be conducted. The Borrower has all
requisite corporate power to borrow the sums provided for in this
Agreement, and Borrower has, and each Subsidiary has, all
requisite corporate power to execute, deliver, issue and perform
this Agreement, the Notes, the other Loan Documents to which it
is a party, and the Acquisition Documents.
5.5 CORPORATE AUTHORIZATION. All corporate action on the
-----------------------
part of the Borrower and each Subsidiary and their respective
directors and stockholders necessary for the authorization,
execution and delivery and performance of this Agreement, the
Notes and any of the Other Loan Documents has been duly taken and
is in full force and effect.
5.6 OFFICER AUTHORIZATION. Each officer of the Borrower or
---------------------
any Subsidiary executing this Agreement, any of the other Loan
Documents, or the Acquisition Documents is (as of the date of
such execution) duly and properly in office and fully authorized
to execute and deliver the same.
5.7 BINDING NATURE. This Agreement, the Notes, each of the
--------------
other Loan Documents, and the Acquisition Documents is, or upon
the execution thereof will be, a legal, valid and binding
obligation of the Borrower, in full force and effect and
enforceable in accordance with its respective terms, except for
the effect of applicable laws regarding bankruptcy or insolvency
or general principles of equity.
5.8 NO CONFLICT. Neither the execution nor delivery of
-----------
this Agreement, the Notes, any of the other Loan Documents, or
the Acquisition Documents, nor fulfillment of nor compliance with
the terms and provisions hereof or thereof (a) conflicts with or
result in a breach of any Governmental Requirement, or of any
agreement or instrument binding upon the Borrower or any
Subsidiary (other than any agreement requiring the consent of the
other party thereto to the granting, pursuant to the Security
Documents, of a lien on or security interest in the rights of the
Borrower or such Subsidiary thereunder, where such consent has
not been obtained), or conflict with or result in a breach of any
provision of the Articles of Incorporation or Code of Regulations
of the Borrower or any Subsidiary, or (b) results in the creation
or imposition of any lien upon any property of the Borrower or
any Subsidiary pursuant to any such agreement or instrument,
except pursuant to this Agreement or any other Loan Documents.
No authorization, consent or approval or over action by, and no
notice to or filing, with, any Governmental Authority is required
to be obtained or made by the Borrower or any Subsidiary, other
than those which will be obtained or made prior to the Closing
Date, for the due execution, deliver and performance by the
Borrower or any Subsidiary of this Agreement, the Notes or any of
the other Loan Documents or for the validity or enforceability
thereof.
5.9 FINANCIAL STATEMENTS. The Borrower has heretofore
--------------------
furnished to the Lender the consolidated financial statements for
Borrower and its Subsidiaries dated September 30, 1996 and
preliminary income statements for the fiscal year ended December
31, 1996 and the consolidated financial forecasts of Borrower and
its Subsidiaries (the "Financial Statements"). Each of the
Financial Statements was prepared in accordance with GAAP and, to
the best knowledge of the Borrower, each of the Financial
Statements fairly presents the financial condition and operations
of the Borrower at such dates and the results of its operations
for the respective periods then ended except for normal year-end
audit adjustments.
5.10 LITIGATION AND CONTINGENT LIABILITIES. Except as set
-------------------------------------
forth on the attached Schedule 5.10, there is no material action,
suit, investigation, tax claim or proceeding pending or, to the
knowledge of any corporate officer of the Borrower, threatened in
writing against or affecting the Borrower or any Subsidiary or
the property of the Borrower or any Subsidiary, including without
limitation, the Acquisition Assets before any court, arbitrator
or administrative or governmental body.
5.11 NO EVENT OF DEFAULT. No Event of Default or Incipient
-------------------
Default has occurred and is continuing or would result from the
execution of this Agreement that would have a Material Adverse
Effect.
5.12 TAX RETURNS AND TAX MATTERS. The Borrower and each of
---------------------------
the Subsidiaries has filed all federal and state income,
withholding, franchise and property tax returns which are
required to be filed in the United States of America, and each
has paid all taxes as shown on said returns and on all
assessments received by it to the extent that such taxes have
become due. The Borrower has no knowledge of any proposed,
asserted or assessed tax deficiency against it or any of its
Subsidiaries, where any such deficiency or all such deficiencies,
considered in the aggregate, would reasonably be expected to have
a Material Adverse Effect.
5.13 EMPLOYEE BENEFITS.
-----------------
(a) PLANS MAINTAINED. Except as set forth in Schedule
----------------
5.13 attached hereto, neither the Borrower nor, to the best
knowledge of the Borrower, any ERISA Affiliate is a party to,
contributes to or is obligated to contribute to any plans,
programs, agreements, policies, commitments or other arrangements
(whether or not set forth in a written document) in the following
categories:
(i) Any employee pension benefit plan, as defined
in Section 3(2) of ERISA, including (without
limitation) any multiemployer plan, as defined in
Section 3(37) of ERISA;
(ii) Any employee welfare plan, as defined in
Section 3(1) of ERISA;
(iii) Any bonus, deferred-compensation,
incentive, restricted-stock, stock purchase, stock
option, stock appreciation right, phantom stock,
debenture, supplemental pension, profit-sharing,
commission, or similar plan or arrangement;
(iv) Any plan, program, agreement, policy,
commitment or other arrangement relating to severance
or termination pay, whether or not published or
generally known;
(v) Any plan, program, agreement, policy,
commitment or other arrangement relating to the
provision of any benefit described in Section 3(1) of
ERISA to former employees or their survivors;
(vi) Any plan, program, agreement, policy,
commitment or other arrangement relating to loans or
other extension of credit, loan guarantees, relocation
assistance, educational assistance, tuition payments or
similar benefits; or
(vii) Any other plan, program, agreement,
policy, commitment or other arrangement relating to
employee benefits, workers' compensation, executive
compensation or fringe benefits, including any plan
exempted from ERISA by virtue of section 4(b) thereof.
(b) REPORTING AND DISCLOSURE. With respect to each
------------------------
employee benefit plan (as defined in Section 3(3) of ERISA) which
is listed in Schedule 5.13 attached hereto and which is subject
to the reporting, disclosure and record retention requirements
set forth in Part 1 of Subtitle B of Title I of ERISA and the
regulations thereunder, each of such requirements has been fully
met on a timely basis, except where instances of failing to do so
would not, considered in the aggregate, have a Material Adverse
Effect.
(c) QUALIFICATION OF PLANS. Each employee pension
----------------------
benefit plan (as defined in Section 3(2) of ERISA) which is
listed in Schedule 5.13 attached hereto and which is neither an
excess benefit plan (as defined in Section 3(36) of ERISA) nor a
plan exempted under Section 4(b) or 201(2) of ERISA, meets all
requirements for qualification under Section 401(a) of the Code
and the regulations thereunder, except to the extent that such
requirements may be satisfied by adopting retroactive amendments
under Section 401 (b) of the Code and the regulations thereunder,
under Section 1140 of the Tax Reform Act of 1986, or any other
statute, regulation, administrative notice, procedure or other
authority. Each plan described in the preceding sentence is the
subject of a determination letter which was issued by the
Internal Revenue Service and which states that such plan meets
such requirements. Each such plan has in all material respects
been administered in accordance with its terms and the applicable
provisions of ERISA and the Code and the regulations thereunder.
(d) FUNDING OF PENSION PLANS. Except as listed in
------------------------
Schedule 5.13 attached hereto, there are no plans to which
Section 412(a) of the Code applies.
(e) TERMINATION OR WITHDRAWAL LIABILITY. Except as
-----------------------------------
set forth on Schedule 5.13 attached hereto, neither the Borrower
nor, to the best knowledge of the Borrower, any ERISA Affiliate
has any liability under Subtitle D or E of Title IV or ERISA (i)
to the PBGC, (ii) to any multiemployer plan (as defined in
Section 4001(a)(3) of ERISA), or (iii) to any trustee. No event
has occurred which, with the giving of notice under Sections 4063
or 4219 of ERISA, would result in such liability. Neither the
Borrower nor, to the best knowledge of the Borrower, any such
ERISA Affiliate has engaged in any transaction described in
Section 4069 of ERISA.
(f) CONTRIBUTIONS AND PREMIUMS. All contributions,
--------------------------
premiums or other payments due from the Borrower or, to the best
knowledge of the Borrower, any ERISA Affiliate to (or under) any
plan listed in Schedule 5.13 attached hereto have been fully paid
or adequately provided for on the books and financial statements
of the Borrower or such ERISA Affiliate.
(g) PROHIBITED TRANSACTIONS. With respect to each
-----------------------
employee benefit plan (as defined in Section 3(3) of ERISA) which
is listed in Schedule 5.13 attached hereto and which is subject
to Part 4 of Subtitle B of Title I or ERISA, there does not now
exist, nor has there existed within the four-year period ending
on the date hereof, any act or omission which constitutes a
violation of Sections 406 or 407 of ERISA and is not exempted by
Section 408 of ERISA or which constitutes a violation of Section
4975(c) of the Code and is not exempted by Section 4975(d) of the
Code, except for violations which, considered in the aggregate,
would not have a Material Adverse Effect.
(h) COBRA. The Borrower and all of its Subsidiaries
-----
are in compliance with the requirements of the Title X of the
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"),
as amended from time to time, except for violations which,
considered in the aggregate, would not have a Material Adverse
Effect.
5.14 REAL PROPERTY. The Borrower or a Subsidiary has good
-------------
and marketable title in fee simple to all of the Owned Real
Property, and as to leased properties has good leasehold title,
in each case free from all liens, charges, mortgages, deeds of
trust, security interests and encumbrances of any nature
whatsoever, except for Permitted Encumbrances. A true, correct
and complete copy of each lease of real property to which the
Borrower or any Subsidiary is a party and all modifications,
amendments, supplements, and extensions thereof have been
delivered by the Borrower to the Lender. The Borrower and each
Subsidiary enjoys peaceful and undisturbed possession under all
such leases. All of such leases are valid and subsisting and in
full force and effect against Borrower and/or its
Subsidiary(ies). To the best of the Borrower's knowledge, no
default exists under any lease of real property by it or any of
its Subsidiaries which would give either party thereto the right
to terminate such lease nor any circumstances which, if continued
or on notice, could result in any such default, where all of such
defaults in the aggregate would have a Material Adverse Effect.
Borrower has delivered, or will at Closing deliver, appropriate
landlord consents and waivers, in such form as may be acceptable
to Lender, in connection with any real property leased by
Borrower or any of its Subsidiaries.
5.15 OTHER PROPERTY. The Borrower has good and marketable
--------------
title to all of its properties and assets referred to in the
Financial Statements, subject only to Permitted Encumbrances.
Such items of equipment, together with all items of equipment
covered by leases (plus any items of equipment of which the
Borrower or any of its Subsidiaries acquires ownership or in
which the Borrower or any of its Subsidiaries acquires a
leasehold interest after the Closing Date), constitute all such
of the items of equipment necessary to conduct the business of
the Borrower and its Subsidiaries. Exclusive of items of
equipment disposed of in the ordinary course of business, the
Borrower has good and marketable title to all items of equipment,
in each case free from all liens, charges, security interests and
encumbrances of any nature whatsoever, except for Permitted
Encumbrances.
5.16 ENVIRONMENTAL MATTERS. Except as disclosed on the
---------------------
attached Schedule 5.16, and except to the extent that no
reasonable possibility exists that the failure of the following
to be true and correct would result in a liability of the
Borrower or its Subsidiaries that is material in amount: (i) to
the best knowledge of the Borrower, the properties and operations
of the Borrower and each of its Subsidiaries comply in all
material respects with all applicable Environmental Laws; (ii)
none of the properties or operations of the Borrower or any of
its Subsidiaries is subject to any judicial or administrative
proceeding alleging the violation of the Environmental Law; (iii)
none of the properties or operations of the Borrower or any of
its Subsidiaries is the subject of any federal or state
investigation concerning any sue or release of any Hazardous
Substance, except for any such investigation conducted entirely
without notice to the Borrower or any of its Subsidiaries,
without entry to any facility of the Borrower or any of its
Subsidiaries, and of which neither the Borrower nor any of its
Subsidiaries has any knowledge; (iv) neither the Borrower nor any
of its Subsidiaries has filed any notice under any federal or
state law indicating past or present treatment, storage or
disposal of a hazardous waste or reporting a spill or release or
a Hazardous Substance in to the environment; (v) to the best
knowledge of the Borrower, neither the Borrower nor any of its
Subsidiaries has any contingent liability in connection with any
release of any Hazardous Substance into the environment and no
release which could require remediation has occurred; (vi) none
of the Borrower's or any of its Subsidiaries' operations involve
the generation, transportation, treatment, storage or disposal of
Hazardous Substances; (vii) neither the Borrower nor any of its
Subsidiaries has disposed of any Hazardous Substances in, on or
about any premises owned, leased or used by the Borrower or any
of its Subsidiaries and, to the best of the Borrower's knowledge,
neither has any lessee, prior owner, or other Person; (viii) no
surface impoundments or, to the best of the Borrower's knowledge,
underground storage tanks are located in, on or about any of the
premises owned, leased or used by the Borrower or any of its
Subsidiaries; and (ix) no lien in favor of any Governmental
Authority for (A) any liability under Environment Laws, or (B)
damages arising from or costs incurred by such Governmental
Authority in response to a release of any Hazardous Substance
into the environment has been filed or attached to any of the
premises owned, leased or used by the Borrower or any of its
Subsidiaries.
5.17 CONTRACTS. Borrower has delivered to Lender a true,
---------
correct and complete copy of each material contract or other
commitment of the Borrower or any of its Subsidiaries which does
not contemplate completion of performance by either party within
one (1) year, or which was not entered into in the ordinary
course of business. Each such contract or other commitment of
the Borrower or any of its Subsidiaries was in effect as of the
Closing Date. Performance by the parties to all contracts and
other commitments of the Borrower and its Subsidiaries would not
in the aggregate have a Material Adverse Effect. Neither the
Borrower nor any of its Subsidiaries is in default in any
material respect under any such contract, and there are no
presently existing facts or circumstances which, if continued or
on notice, could reasonably be expected to result in such a
default under such agreements. Neither the Borrower nor any of
its Subsidiaries is in default in any material respect under the
provisions of any contract or commitment with a part which
contemplates completion of performance by either party within one
(1) year, and there are no presently existing facts or conditions
which, with the giving of notice or passage of time (or both),
could result in such a default under any provision of any such
contract or commitment, where all of such defaults in the
aggregate could reasonably be expected to result in a Material
Adverse Effect.
5.18 INTELLECTUAL PROPERTY. To the best knowledge of the
---------------------
Borrower, the Borrower and each of its Subsidiaries has all
patents, licenses, trademarks, trademark rights, trade names,
trade name rights, copyrights, permits and franchises which are
required in order for it to conduct its business and to operate
its properties as they have historically been conducted or
operated without known conflict with the rights of others.
Schedule 5.18 attached hereto contains a complete and correct
list of all material patents, copyrights, trademarks, licenses,
service marks, trade names and other similar rights (the
"Intellectual Property Rights") owned or used by the Borrower or
any of its Subsidiaries, showing for each item the owner thereof
and, for patents and trademarks, if registered, each registration
in the United States Patent and Trademark Office and each foreign
registration. Except as disclosed in such Schedule, no
proceedings have been instituted or are pending or have been
threatened in writing which challenge the validity, ownership or
use of any such Intellectual Property Rights. Except as
disclosed in such Schedule, to the best knowledge of the
Borrower, no infringement of any Intellectual Property Right of
any third party has occurred or will result in any way from the
operations or business of the Borrower or any of its
Subsidiaries, and no claim has been made by any such third party
based on allegation of any such infringement.
5.19 EMPLOYMENT AGREEMENTS AND RELATIONS. Other than
-----------------------------------
collective bargaining agreements entered into by Borrower in the
ordinary course of its business, neither the Borrower nor any of
its Subsidiaries was a party to any employment agreement or
collective bargaining agreement as of the Closing Date. Except
as contemplated by the Merger Agreement (which contemplates and
provides for employment agreements with Kukk and Ernest
Rochester), Borrower is not obligated to assume or become liable
for any employment agreement. Neither the Borrower nor any of
its Subsidiaries has made, obligated itself to make, renewed,
extended, or otherwise modified or amended any previous agreement
to make any excess parachute payment as defined in Section 280G
of the Code. To the best knowledge of the Borrower, during the
four (4) years preceding the Closing Date there was or were no
(a) attempt by any union or other labor organization to organize
any employees of the Borrower or any of its Subsidiaries, or (b)
strikes or shutdowns resulting from labor activity or (c)
concerted work stoppages or concerted slowdowns of any nature or
length of time, at any plant or other facility owned or operated
by the Borrower.
5.20 INSURANCE. Schedule 5.20 attached hereto contains a
---------
complete and accurate list, as of the Closing Date, of all
insurance maintained by the Borrower or any of its Subsidiaries,
including, but not limited to fire, public liability, property
damage, products liability and workmen's compensation. The
Borrower and each of its Subsidiaries maintain such insurance
with insurers duly licensed in the applicable jurisdictions, in
such amounts and against such risks and losses as are deemed
reasonable by Borrower for their businesses and properties. All
such insurance is in full force and effect and all premiums with
respect thereto have been paid to the date hereof or paid in
accordance with payment schedules previously applicable thereto.
5.21 PROPERTY CONDITION. All of the Property of the
------------------
Borrower and its Subsidiaries used in connection with their
respective businesses is in good operating condition, usable in
the ordinary course of their respective businesses, in a state of
reasonable maintenance and repair, ordinary wear and tear
excluded, and adequate for the operation of their respective
businesses.
5.22 COMPLIANCE WITH LAWS. The Borrower and each of its
--------------------
Subsidiaries are in compliance with all Governmental Requirements
applicable to their properties, assets and business with only
such exceptions as in the aggregate have no reasonable likelihood
to cause a Material Adverse Effect. There are no proceedings
pending or, to the best of their knowledge, threatened, to
terminate or modify any Governmental Approvals.
5.23 COMMITMENTS. To the best knowledge of the Borrower, no
-----------
outstanding purchase commitment by the Borrower or any of its
Subsidiaries is materially in excess of the normal, ordinary and
usual requirements of their respective businesses, nor is any
such purchase commitment at a price or prices materially in
excess of market prices existing at the time such commitment was
made or upon terms materially different from past practices.
5.24 FINANCIAL AND OTHER INFORMATION. The Borrower has
-------------------------------
furnished to the Lender certain information including, but not
limited to, the Financial Statements. There are no statements or
conclusions therein which, when taken as a whole, in light of the
circumstances then existing, to the best knowledge and belief of
the Borrower, are based upon or include misleading information or
fail to take into account material information regarding the
matters covered therein. The projections provided to Lender in
the Financial Statements were prepared with reasonable care on
the basis of the assumptions stated therein and said assumptions
are reasonable in light of the current business conditions. It
is understood that no representation or warranty is made by the
Borrower concerning any predictions, forecasts, estimates, or any
other analyses prepared by or on behalf of the Borrower or one of
its Subsidiaries, which are dependent on future events, except
that such predictions, forecasts, estimates and analyses were
prepared with reasonable care. There is no fact known to the
Borrower (other than matters of a general economic nature) which
the Borrower reasonably believes would materially adversely
affect the business, operation, assets, prospects or conditions
of the Borrower and its Subsidiaries, taken as whole, which has
not been disclosed in the Loan Documents or in other documents
furnished to the Lender in connection with this Agreement.
Neither the business nor the assets nor the operations of the
Borrower or any of its Subsidiaries are presently affected by any
fire, explosion, accident, strike, lockout or other labor
dispute, drought, storm, hail, earthquake, embargo, act of God or
of the public enemy, or other casualty (irrespective of whether
covered by insurance), which materially and adversely affects the
business, operations, assets, prospects or condition (financial
or otherwise) of the Borrower and its Subsidiaries, taken as a
whole. To the best knowledge of the Borrower after reasonable
investigation, the representations, warranties and agreements
contained in the Merger Documents are true, accurate and complete
in all respects and no statement in any document, certificate or
other instrument furnished or to be furnished to the Borrower in
connection with the Merger Transaction contemplated by the
Acquisition Agreement, taken together, contains or will contain
any untrue statement of a material fact or omits or will omit to
state any material fact which is necessary to make the statements
contained therein not misleading.
5.25 EXISTING DEFAULTS. Neither the Borrower nor any of its
-----------------
Subsidiaries is in default under any mortgage, lease, indenture,
deed of trust or any other agreement or instrument to which it is
a party or by which it or any of its properties may be bound,
except where all such defaults, considered in the aggregate,
could not reasonably be expected to have a Material Adverse
Effect. Neither the Borrower nor any of its Subsidiaries is in
violation of any law, ordinances, rule, regulation, order, writ,
judgment, injunction or decree to which it or any of its
properties is subject, except where all such violations,
considered in the aggregate, could not reasonably be expected to
have a Material Adverse Effect.
5.26 STATUTORY REGULATION. Neither the Borrower nor any of
--------------------
its Subsidiaries is an investment company within the meaning of
the Investment Company Act of 1940, as amended, and is not,
directly or indirectly, controlled by or acting on behalf of any
person which is an investment company, within the meaning of said
Act. Neither the Borrower nor any of its Subsidiaries is subject
to any state law or regulation regulating public utilities or
similar entities, and is not, within the meaning of the Public
Utility Holding Company Act of 1935, as amended, (a) a holding
company; (b) a subsidiary or affiliate of a holding company; or
(c) a public utility. Neither the Borrower nor any of its
Subsidiaries is subject to regulation under the Interstate
Commerce Act or the Federal Power Act or any other federal or
state statute or regulation limiting or placing conditions upon
their respective power or right to borrow money.
5.27 BURDENSOME AGREEMENTS. To the best of Borrower's
---------------------
knowledge, neither the Borrower nor any of its Subsidiaries is a
party to an unduly burdensome agreement or undertaking, or is
subject to any unduly burdensome court order, writ, injunction or
decree of any court or any governmental instrumentality, domestic
or foreign.
5.28 REGULATION U. Neither the Borrower nor any of its
------------
Subsidiaries is engaged principally, nor as one of its important
activities, in the business of extending credit for the purpose
of purchasing or carrying any margin stock (within the meaning of
Regulation U of the Board of Governors of the Federal Reserve
System of the United States). No part of the proceeds of the
Loans will be used to purchase or carry any such margin stock or
to extend credit to others for the purpose of purchasing or
carrying any such margin stock. No part of the proceeds of the
Loans will be used for any purpose which violates, or which is
inconsistent with, the provisions of Regulation G, T, U or X of
said Board of Governors.
5.29 LIENS. Except for Permitted Encumbrances, all liens
-----
granted in favor of the Lender by the Borrower as described in
this Agreement and the other Loan Documents shall constitute
first liens on the relevant property.
5.30 FISCAL YEAR. The fiscal year of the Borrower and each
-----------
of its Subsidiaries consists of a calendar year. The Borrower's
most recently-completed fiscal year ended on December 31, 1996.
Borrower has informed Lender that Borrower and its Subsidiaries
will change the fiscal year to a year end of November 30, 1997,
and Lender hereby consents to the change of fiscal year.
5.31 SUBORDINATED DEBT DOCUMENTS. The Subordinated Debt
---------------------------
Documents set forth the entire agreement between the Borrower and
the holders of the Subordinated Debt Obligations relating to the
Subordinated Debt Obligations.
5.32 SOLVENCY. As of the Closing Date and after giving
--------
effect to the transactions contemplated by this Agreement and the
other Loan Documents, including all of the Loans made hereunder,
the Borrower and each of the Subsidiaries were Solvent.
ARTICLE 6
---------
AFFIRMATIVE COVENANTS
---------------------
The Borrower covenants and agrees that so long as any
principal of and/or interest accrued on any Loan is unpaid it
will comply with and, if applicable, cause each of its
Subsidiaries to comply with the following provisions:
6.1 ACCOUNTING RECORDS. The Borrower and each Subsidiary
------------------
shall maintain adequate books and accounts in accordance with
sound business practice and GAAP consistently applied. As soon
as possible, and in any event within ten (10) calendar days after
receipt of a written request from Lender, the Borrower and each
Subsidiary shall furnish to the Lender any information regarding
their business or finances as the Lender may reasonably request.
Upon reasonable request of the Lender and for good cause, the
Borrower will extend its cooperation and assistance and comply
with the requests of the Lender or its representative in
connection with any number of audits during any fiscal year
regarding the Collateral and will furnish any information
reasonably requested in respect thereof, including, without
limitation, appraisals of the Collateral, lien search reports and
physical counts. The Borrower will pay all reasonable
out-of-pocket expenses of the Lender in connection with a maximum
of one (1) such audit per fiscal year.
6.2 FINANCIAL STATEMENTS AND NOTICES. The Borrower shall
--------------------------------
furnish to the Lender the following financial statements and
notices:
(a) As soon as available but in any case within
forty-five (45) days after the close of each quarter in
Borrower's fiscal year, commencing with the quarter ending
May 31, 1997, a copy of the unaudited balance sheet and
income statement for such period.
(b) Within ninety (90) calendar days after the close
of each fiscal year, a copy of the annual audit report for
such year for the Borrower, including therein (i) a
consolidated statement of stockholders' equity for such
fiscal year; (ii) a consolidated statement of changes in
financial position or statement of cash flows for such
fiscal year, (iii) a consolidated income statement of the
Borrower and its Subsidiaries for such fiscal year, and (iv)
a consolidated balance sheet of the Borrower and its
Subsidiaries as of the end of such fiscal year. The
consolidated income statements, consolidated statement of
changes in financial position or statement of cash flows,
and balance sheets shall be audited by independent certified
public accountants reasonably acceptable to the Lender, and
shall be certified by such accountants as having been
prepared in accordance with GAAP consistently applied and
such accountants report shall be unqualified. Such
accountants shall also certify to the Lender that in the
course of the regular annual examination of the business of
the Borrower and its Subsidiaries, which examination was
conducted by such accountants in accordance with generally
accepted auditing standards, such accountants have obtained
no knowledge that an Event of Default, or an Incipient
Default, has occurred in connection with any of the
Financial Tests set forth in Section 6.22 and is continuing
as of the date of certification, or if, in the opinion of
such accountants, an Event of Default or an Incipient
Default has occurred in connection with any of the Financial
Tests set forth in Section 6.22 and is continuing, a
statement as to the nature thereof.
(c) Contemporaneously with each of the financial
reports required by the foregoing subsections (a) and (b),
certificates in the form of each of Exhibits 6.2.1 and 6.2.2
attached hereto;
(d) Promptly after they are sent, made available or
filed, copies of all material reports, proxy statements and
financial statements that the Borrower sends or makes
available to its stockholders and all registration
statements and reports that the Borrower files with the
Securities and Exchange Commission, or any other
governmental official, agency or authority;
(e) Promptly but in no event later than ten (10)
Banking Days after a Responsible Officer obtains actual
knowledge of (i) the occurrence of an Event of Default or an
Incipient Default, or (ii) any default or Event of Default
as defined in any evidence of Indebtedness or under any
material agreement, indenture or other instrument under
which such evidence of Indebtedness has been issued, whether
or not such indebtedness is accelerated or such default
waived, the Borrower shall notify the Lender thereof, and
within ten (10) Banking Days after obtaining such knowledge,
a statement of a Responsible Officer setting forth details
of such Event of Default or Incipient Default and the action
which the Borrower proposes to take with respect thereto;
(f) As soon as available, any written report involving
the Borrower's internal controls submitted to the Borrower
by its independent certified public accountants with its
annual or interim special audit of the financial condition
of the Borrower;
(g) Promptly but in no event later than five (5)
Banking Days after a Responsible Officer learns thereof,
written notice of any actual or threatened claims,
litigation, suits, investigations, proceedings or disputes
against or affecting the Borrower or any of its Subsidiaries
which may have a Material Adverse Effect, including, without
limitation: (i) any claim, litigation, suit, investigation,
proceeding or dispute involving a monetary amount in excess
of Two Hundred Fifty Thousand Dollars ($250,000.00), whether
or not covered by insurance; (ii) any labor controversy
which is reasonably expected to result in a strike against
the Borrower or any of its Subsidiaries; (iii) any proposal
by any public authority to acquire any of the assets or
business of the Borrower or any of its Subsidiaries, other
than in the ordinary course of Borrower's business; (iv) any
investigation or proceeding before or by any administrative
or governmental agency, the effect of which could reasonably
be expected to limit, prohibit or restrict in any material
respect the manner in which the Borrower or any of its
Subsidiaries currently conducts its business or to declare
any substance contained in the products manufactured or
distributed by the Borrower or any of its Subsidiaries to be
dangerous; (v) any summons, citation, directive, notice,
complaint, letter or other communication, whether oral or
written, from any person concerning any alleged material
violation by the Borrower, or any predecessor of the
Borrower, or any of its Subsidiaries, of any applicable
federal, state or local environmental, health or safety
statutes or regulations which has a reasonable possibility
to materially affect any of the properties or the operations
of the Borrower or such Subsidiary or any alleged material
noncompliance of any of the properties or the operations of
the Borrower or such Subsidiary therewith; or (vi) any
investigation of or request for information from the
Borrower or any of its Subsidiaries relating to the
handling, storage or disposal of any Hazardous Substance, or
the release thereof into the environment, by the Borrower or
such Subsidiary or any of their predecessors or any other
Person, which investigation or request is other than routine
or in response to Borrower's application for renewal of a
permit;
(h) Not later than ten (10) calendar days after
request by the Lender therefor, a copy of the working papers
for any of the Borrower's Subsidiaries used by the Borrower
in its preparation of consolidated financial statements for
itself and its Subsidiaries;
(i) Within ninety (90) calendar days after the close
of each fiscal year and, if prepared, within ten (10) days
following such preparation if prepared for a fiscal quarter,
an operating and capital budget for the Borrower and each
Subsidiary showing cash flow projections and projected
capital expenditures for the following fiscal year or
quarter, as the case may be;
(j) Within five (5) Banking Days after the management
of the Borrower obtains knowledge that a Material Adverse
Change has occurred in its business, properties or its
condition, financial or otherwise, a statement of an
Authorized Officer of the Borrower setting forth details of
such Material Adverse Change and the action which the
Borrower proposes to take with respect thereto;
(k) Immediately after a Responsible Officer obtains
actual knowledge thereof, report to the Lender all matters
materially affecting the value, enforceability or
collectibility of any material portion of the Receivables or
Inventory including, without limitation, the Borrower's
reclamation or repossession of, or the return to the
Borrower of, a material amount of goods or claims or
disputes asserted by any Account Debtor or other obligor;
and
(l) Within five (5) Banking Days after the management
of the Borrower acquires knowledge of the entry of a
judgment against the Borrower in excess of Fifty Thousand
Dollars ($50,000), a statement of an Authorized Officer of
the Borrower setting forth the amount of such judgment, the
parties to such action and whether an appeal is to be taken;
and
6.3 WITHHOLDING TAXES. Within ten (10) calendar days of
-----------------
the Lender's request therefor, the Borrower and its Subsidiaries
shall furnish to the Lender proof satisfactory to the Lender that
the Borrower and its Subsidiaries have complied with their
obligations to make deposits for FICA and withholding taxes.
6.4 ACCESS. The Borrower and each of its Subsidiaries
------
shall permit the Lender, at such reasonable times and intervals
as the Lender may designate upon reasonable notice, at its own
expense (unless as part of an audit of the Collateral as provided
in Section 6.1), by and through the representatives and agents of
the Lender, to inspect, audit and examine its books and records,
to make copies thereof, to discuss its affairs, finances and
accounts with their respective officers and independent public
accountants, and to visit and inspect their respective
properties.
6.5 CORPORATE EXISTENCE. The Borrower and each of its
-------------------
Subsidiaries shall preserve and maintain their respective
corporate existences and all of their licenses, privileges and
franchises and other rights necessary or desirable in the normal
course of their businesses, except that any of the Borrower's
Subsidiaries may be merged into the Borrower.
6.6 QUALIFICATIONS TO DO BUSINESS. The Borrower shall
-----------------------------
qualify to do business and shall be and remain in good standing
in each jurisdiction in which the nature of its business requires
it to be so qualified, except where the failure to so qualify
would not in the aggregate have a Material Adverse Effect.
6.7 COMPLIANCE WITH LAWS. The Borrower and its
--------------------
Subsidiaries shall comply with all Governmental Requirements
except where the failure to do so could not reasonably be
expected to have a Material Adverse Effect.
6.8 MATERIAL AGREEMENTS. The Borrower and its Subsidiaries
-------------------
shall comply in all respects with the terms of each agreement to
which any of them is a party, except where all instances of any
failure to so comply would not, in the aggregate, have a Material
Adverse Effect.
6.9 INSURANCE. The Borrower and its Subsidiaries shall
---------
maintain in full force and effect insurance of the types
customarily carried in their respective lines of business,
including, but not limited to, fire, public liability, property
damage, products liability and workers' compensation insurance;
provided, however, that Borrower and its Subsidiaries may
self-insure for workers compensation claims in those states where
such self-insurance is permitted. All such insurance shall be
carried with companies, under policies and in amounts which are
customary and reasonable in the industry and reasonably
satisfactory to the Lender. The Borrower and its Subsidiaries
shall maintain and keep in full force and effect property damage
insurance (including a lender's loss payable endorsement in favor
of the Lender and in form and substance satisfactory to the
Lender) covering Inventory and their respective Fixed Assets.
All policies of liability insurance shall name the Lender as a
first mortgagee, loss payee, and/or additional insured, as the
Lender shall direct. Within ten (10) calendar days of the
Lender's request therefor, the Borrower and the Subsidiaries
shall deliver or cause to be delivered to the Lender, but in any
event concurrently with the financial information required to be
delivered pursuant to Section 6.2(c), schedules identifying all
insurance then in effect and certificates evidencing such
insurance.
6.10 FACILITIES. The Borrower and its Subsidiaries shall
----------
keep the material properties used in their respective businesses
in good repair, working order and condition, and from time to
time shall make necessary repairs or replacements thereto so that
their property shall be maintained adequately for its intended
use.
6.11 TAXES AND OTHER LIABILITIES. The Borrower and its
---------------------------
Subsidiaries shall pay and discharge when due any and all
indebtedness, obligations, assessments and real and personal
property taxes, including, but not limited to, federal and state
income and personal and real property taxes, except as may be
subject to good faith contest or as to which a bona fide dispute
may arise; provided, however, that adequate reserves in
-------- -------
accordance with GAAP or other provision is made to the reasonable
satisfaction of the Lender for prompt payment thereof in the
event that it is found that the same are its obligation.
6.12 GOVERNMENTAL APPROVALS. Except where there exists no
----------------------
reasonable possibility that failure to do so would have a
Material Adverse Effect, the Borrower and its Subsidiaries shall
apply for, diligently pursue, and obtain or cause to be obtained,
and shall thereafter maintain in full force and effect all
Governmental Approvals that shall now or hereafter be necessary
under any Governmental Requirement (a) for land use, public and
employee health and safety, pollution or protection of the
environment, (b) for the grant by the Borrower or any of its
Subsidiaries of the security interests and liens granted by any
of the Security Documents and for the validity and enforceability
thereof, or for the perfection of Lender's rights and remedies
thereunder, and (c) for the operation of the business of the
Borrower and its Subsidiaries. The Borrower shall notify the
Lender within five (5) days after a Responsible Officer receives
actual knowledge of, and shall provide the Lender with a copy of
all notices relating to, any denial, suspension, revocation or
granting of any material Governmental Approvals.
6.13 COMPLIANCE WITH GOVERNMENTAL APPROVALS AND GOVERNMENTAL
-------------------------------------------------------
REQUIREMENTS. Except where the failure to do so could not
------------
reasonably be expected to have a Material Adverse Effect, the
Borrower and each of its Subsidiaries shall comply with all terms
and conditions of all Governmental Approvals and with all other
limitations, restrictions, obligations, schedules, timetables and
reporting requirements in any Governmental Requirements. The
Borrower and its Subsidiaries shall not intentionally interfere
with or prevent material compliance with, or give rise to any
common law, civil or criminal liability related to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport, handling or the presence, emission,
discharge, release or threatened release into or in the air,
land, surface water, groundwater, personal property or
structures, wherever located, of any Hazardous Substance.
6.14 PREVENT CONTAMINATION. The Borrower and its
---------------------
Subsidiaries shall conduct their operations on their Property in
such a way as to prevent material contamination of any part of
the Property by any Hazardous Substance. The Borrower and its
Subsidiaries shall manage all Hazardous Substances in a manner
that does not require a Hazardous Waste Facility Permit (unless a
permit or approval is required for a process change and such
permit or approval is obtained), and in compliance in all
material respects with all Governmental Requirements and
Governmental Approvals. The Borrower and its Subsidiaries shall
not permit any other Person to, emit, release or discharge into
air, soil, surface water or groundwater on, over, or in any
property or facilities owned or leased by Borrower, any Hazardous
Substance in excess of permitted levels or reportable quantities,
or other concentrations, standards, or limitations under any
Governmental Requirements or Governmental Approvals.
6.15 NOTICE OF RELEASE. Unless there is no reasonable
-----------------
possibility that any of the following occurrences could have a
Material Adverse Effect, the Borrower shall promptly notify the
Lender of any leaching, leak, drop, spill, discharge, release,
emission or other contamination by any Hazardous Substance in
violation of any law or which requires notification of a
governmental body pursuant to any Governmental Requirement or
requires any Governmental Approval. The Borrower or its affected
Subsidiary shall, without waiving any defenses it may have
against any third-party claim, or assertion of a claim against a
third party, assume full financial and other responsibility for
(a) the prompt remedy, removal, or cleanup of such leaching,
leak, drip, spill, discharge, release, emission or contamination,
as required by any Governmental Requirement; and (b) the
generation, storage, use and transportation of any Hazardous
Substance in connection with its business.
6.16 NOTICE TO THE LENDER. The Borrower shall promptly give
--------------------
written notice to the Lender of any proceeding or order before
any court or administrative body requiring the Borrower or any of
its Subsidiaries to comply with any Environmental Law or
Governmental Requirement or to clean up, remove or otherwise
remediate any condition in, on or about the Property of the
Borrower and its Subsidiaries.
6.17 PENSION INCREASES. Except with respect to plans
-----------------
maintained pursuant to collective bargaining agreements, without
the prior written consent of the Lender, which consent shall not
be unreasonably withheld, the Borrower shall not, and shall use
its best efforts to not permit any ERISA Affiliate to:
(a) Adopt, or commence contributions to, any new plan
that would be subject to Title IV of ERISA; or
(b) Except as necessary to comply with applicable
Governmental Requirements, adopt any amendment to any plan
which is maintained by the Borrower or such ERISA Affiliate
and which is subject to Title IV of ERISA, if such amendment
would result in a material increase in benefits or unfunded
liabilities.
6.18 TAX QUALIFICATION. For each pension plan (as defined
-----------------
in section 3(2) of ERISA) which is maintained or hereafter
adopted by the Borrower or any ERISA Affiliate and which is
intended to be qualified under Section 401 (a) of the Code, the
Borrower shall, or shall use its best efforts to cause such ERISA
Affiliate to:
(a) Use its best efforts to seek and receive
determination letters from the Internal Revenue Service
stating that such plan, or any material amendment to such
plan, meets the requirements for qualification under section
401(a) of the Code, unless there is no reasonable
possibility that the failure to do so would have a Material
Adverse Effect;
(b) Use its best efforts to cause such plan to meet
such requirements in operation and to be administered in all
material respects in accordance with the requirements of the
Code and ERlSA; and
(c) Refrain from taking any action that would cause
such plan to lose its qualification under Section 401(a) of
the Code or to violate the requirements of the Code or ERISA
in any material respect.
6.19 NOTIFICATION BY THE BORROWER. As soon as possible, and
----------------------------
in any event within ten (10) calendar days, after the Borrower or
any ERISA Affiliate knows or has reason to know that any of the
following events has occurred, the Borrower shall, or shall use
its best efforts to cause such ERISA Affiliate to, deliver to the
Lender a statement of a Responsible Officer describing such event
and any action that it proposes to take with respect thereto:
(a) Any reportable event (as defined in Section 4043
of ERISA) with respect to a plan maintained by the Borrower
or any ERISA Affiliate, other than a reportable event for
which the 30-day notice requirement under ERISA has been
waived in regulations of the PBGC;
(b) The withdrawal of the Borrower or any ERISA
Affiliate from a plan subject to Title IV of ERISA during a
plan year in which it was a substantial employer (as defined
in Section 4001 (a)(2) of ERISA) with respect to such plan;
(c) The filing by the Borrower or any ERISA Affiliate
with the PBGC of a notice of intent to terminate a plan;
(d) The treatment of a plan amendment adopted by the
Borrower or any ERISA Affiliate as a plan termination under
Section 4041(e) of ERISA;
(e) The institution of proceedings by the PBGC to
terminate any plan maintained by the Borrower or any ERISA
Affiliate or to have a trustee appointed to administer such
plan, or receipt of notice of any intention by the PBGC to
do so;
(f) Any event or condition which would constitute
grounds under Section 4042 of ERISA for the termination of,
or the appointment of a trustee to administer, any plan
maintained by the Borrower or any ERISA Affiliate;
(g) The filing of a request for a minimum funding
waiver under Section 412 of the Code with respect to any
plan maintained by the Borrower or any ERISA Affiliate;
(h) The receipt by the Borrower or any ERISA Affiliate
of a demand for withdrawal liability under Sections 4129 and
4202 of ERISA;
(i) The adoption of any new pension plan (as defined
in section 3(2) of ERISA) which is subject to Title IV of
ERISA or Section 412 of the Code by the Borrower or any
ERISA Affiliate;
(j) The adoption of any amendment to any pension plan
(as defined in Section 3(2) of ERISA) which is subject to
Title IV of ERISA or section 412 of the Code maintained by
the Borrower or any ERISA Affiliate, if such amendment
results in a material increase in benefits or unfunded
liabilities; or
(k) The commencencement or contributions by the
Borrower or any ERISA Affiliate to any pension plan (as
defined in Section 3(2) of ERISA) which is subject to Title
IV of ERISA or Section 412 of the Code to which it
previously did not contribute.
6.20 ERISA INFORMATION. As soon as possible, and in any
-----------------
event within ten (10) calendar days after receipt of a written
request from the Lender, the Borrower shall deliver, and shall
use its best efforts to cause any ERISA Affiliate to deliver, to
the Lender the following information or documents, as requested
by the Lender:
(a) A copy of any report, description or other
document filed with any governmental agency with respect to
any plan (as defined in section 3(3) of ERISA) maintained by
the Borrower or any ERISA Affiliate;
(b) A copy of any notice, determination letter, ruling
or opinion that the Borrower or any ERISA Affiliate receives
from any governmental agency with respect to any such plan;
and
(c) Such other information concerning any such plan as
the Lender may reasonably request.
6.21 FUNDING. The Borrower shall, and shall use its best
-------
efforts to cause each ERISA Affiliate to, make all contributions
that it is required to make by law or by any plan prior to the
earliest date when statutory liens could be imposed under the
Code or ERISA on any assets of the Borrower or any such ERISA
Affiliate in order to satisfy payment of such contributions. The
Borrower shall not, and shall use its best efforts to not permit
any ERISA Affiliate to, allow or suffer any statutory lien to be
placed upon its assets under the Code or ERISA.
6.22 FINANCIAL TESTS. The Borrower shall:
---------------
(a) maintain from the Closing Date through May 30,
1997, Consolidated Tangible Net Worth of not less than
$9,000,000, maintain from May 31, 1997 through August 30,
1997, Consolidated Tangible Net Worth of not less than
$9,250,000 and maintain from August 31, 1997 through the
Commitment Expiration Date, Consolidated Tangible Net Worth
of not less than $9,500,000.
(b) maintain at all times a ratio of Consolidated
Liabilities to Consolidated Tangible Net Worth of not more
than 6.25 to 1.0.
(c) maintain at all times on its financial statements
provided to Lender under Section 6.2, a ratio of year to
date cumulative (EBITDA less Extraordinary Income) to year
to date cumulative interest expense of no less than 2.00 to
1.00.
6.23 TAX RETURNS. Borrower and its Subsidiaries shall
-----------
promptly and timely file, with any available extensions, all
federal, state and local tax returns, including, without
limitation, income, sales, property and use taxes.
6.24 REQUIRED FUTURE PERFECTION AND PERFORMANCE. Within ten
------------------------------------------
(10) calendar days of Lender's reasonable request therefor, the
Borrower and its Subsidiaries shall do all things and deliver all
documents and instruments to perfect, protect and enforce the
security interests and liens granted under the Security
Documents. Such acts may include, but shall not be limited to,
the marking of the books and records of the Borrower and each of
its Subsidiaries to show the Lender's security interests,
obtaining the consent of Account Debtors to the assignment of
accounts receivable in such form as the Lender may reasonably
require, the execution and delivery of assignments of tax
refunds, the execution and delivery of assignments of trademarks,
trade narnes, patents and copyrights and other general
intangibles, and the filing of financing statements under the
Uniform Commercial Code and of other documents and instruments
under other applicable laws, and the filing of assignments of
financing statements showing the Borrower or the respective
Subsidiary as secured party. Borrower shall promptly after the
Closing Date deliver or have delivered to the Lender the title
insurance policies described in Section 4.1 (k) of this Loan
Agreement.
6.25 CHANGE OF LOCATION. The Borrower shall notify the
------------------
Lender not later than thirty (30) calendar days in advance of the
change in the location of any place of business of the Borrower
or any of its Subsidiaries or of the establishment of any new, or
the discontinuance of any existing, place of business of the
Borrower or any of its Subsidiaries.
6.26 RIGHTS UNDER MERGER DOCUMENTS. The Borrower shall
-----------------------------
obtain all consents and approvals of, make all filings and
registrations with, and take any other action in respect of, all
governmental agencies, authorities or instrumentalities required
in order to consummate the transactions contemplated by the
Merger Documents at or prior to the time when required, to
maintain the same in full force and effect as required, except
those, if any, the failure of which to obtain, give, file or take
would not materially adversely affect the ability of the Borrower
to perform its obligations under this Agreement, the Note or any
of the other Loan Documents, or to consummate the transactions
contemplated by the Merger Documents. All actions pursuant to or
in furtherance of the transactions contemplated by the Merger
Documents will be taken in compliance in all material respects
with all applicable laws.
ARTICLE 7
---------
Negative Covenants
------------------
The Borrower covenants and agrees that so long as any
principal of and/or interest accrued on any Loan is unpaid it
will comply with and, if applicable, cause each of its
Subsidiaries to comply with the following provisions:
7.1 MERGERS AND CONTINUITY OF OPERATIONS. Neither the
------------------------------------
Borrower nor any of its Subsidiaries shall enter into any merger,
consolidation, reorganization or recapitalization, or any
agreement to do any of the foregoing or reclassify any of its
capital stock, except that any Subsidiary of the Borrower may be
merged into the Borrower. Borrower shall not cease operations,
liquidate, transfer, acquire or consolidate with any other entity
without the express written consent of Lender.
7.2 CHANGE OF NAME OR BUSINESS. Neither the Borrower nor
--------------------------
any of its Subsidiaries shall change its name without at least
thirty (30) days' prior notice to the Lender. Neither the
Borrower nor any of its Subsidiaries shall change the nature of
its business or engage in any other business other than the
businesses in which they are respectively engaged as of the
Closing Date.
7.3 STOCK. Except as described in Schedule 5.2, neither
-----
the Borrower nor any of its Subsidiaries shall issue any
additional Equity Interest or repurchase, redeem or retire any
Equity Interests.
7.4 DIVIDENDS. Etc. Borrower shall not, directly or
---------
indirectly, make or declare any dividend (in cash, securities or
any other form of property) on, or other payment or distribution
on account of, or set aside assets for a sinking fund or other
similar fund for purchase, or redeem, purchase, retire or
otherwise acquire, any Equity Interest, or make any other
distribution in respect thereof, whether in cash or other
property.
7.5 ACCOUNTING POLICIES. Except as provided in Section
-------------------
5.30 or in order to comply with GAAP, the Borrower shall not
materially change any of its accounting policies or its fiscal
year or the fiscal year of any of its Subsidiaries.
7.6 INVESTMENTS. Neither the Borrower nor any of its
-----------
Subsidiaries shall make or permit to remain outstanding any
Investment, except (a) Investments reflected in the Financial
Statements and existing as of the Closing Date; (b) Investments
in certificates of deposit issued by, and other deposits with any
commercial bank organized under the laws of the United States or
a state thereof having capital of at least One Hundred Million
Dollars ($ 100,000,000); (c) Investments in short-term marketable
obligations of the United States and in open market commercial
paper given the highest credit rating by a national credit agency
and maturing not more than one year from the creation thereof;
and (d) Investments received in the settlement of any debt owing
to the Borrower or any of its Subsidiaries, where such debt was
incurred in the ordinary course of business.
7.7 LIENS. Neither the Borrower nor any of its
-----
Subsidiaries shall mortgage, pledge, grant or permit to exist a
security interest in, or lien upon, any of their respective
assets of any kind now owned or hereafter required, or any income
or profits therefrom, except for Permitted Encumbrances, or enter
into any agreement to refrain from granting a lien (other than in
connection with the granting or sufferance of a Permitted
Encumbrance, provided that such agreement pertains only to the
--------
property covered by the Permitted Encumbrance).
7.8 GUARANTEES. Except as permitted under this Agreement,
----------
neither the Borrower nor any of its Subsidiaries shall become
liable, directly or indirectly, for any Contingent Obligation,
except such liabilities incurred in the ordinary course of
business.
7.9 INDEBTEDNESS. Neither the Borrower nor any of its
------------
Subsidiaries shall incur, create, assume or permit to exist any
Indebtedness except:
(a) Obligations;
(b) the Subordinated Debt Obligations (subject to the
holder thereof executing a Subordination
Agreement);
(c) trade indebtedness incurred in the ordinary course
of business;
(d) Indebtedness where payment is secured by a
Permitted Encumbrance;
(e) taxes, assessments and governmental charges or
levies which are not
(f) reserves for contingent liabilities where such
reserves are established in accordance with GAAP;
and
(g) current liabilities incurred in connection with
the obtaining of goods or services in the ordinary
course of business.
7.10 SALE OF ASSETS. Other than sales of Inventory in the
--------------
ordinary course of business and sales of tangible personal
property in any one fiscal year for an aggregate price of not
more than One Hundred Thousand Dollars ($100,000), the proceeds
from which are used by the Borrower to acquire replacement
property of equivalent value and similar in kind to such tangible
personal property, neither the Borrower nor any of its
Subsidiaries shall sell, transfer, lease or otherwise dispose of
any of their respective assets (including, but not limited to,
sales, transfers, leases or other dispositions between or among
any of the Borrower and its Subsidiaries), without the express
written consent of Lender.
7.11 CAPITAL EXPENDITURES. The Borrower and its Subsidiaries
--------------------
shall not make Capital Expenditures during the period commencing
on the Closing Date and ending Commitment Termination Date,
inclusive, or during any fiscal year of Borrower thereafter
which, in the aggregate, exceed Seven Hundred Fifty Thousand
Dollars ($750,000) without the written consent of Lender;
provided, however, that Borrower's purchase of an Apelio III 376V
Punch Laser Combination Machine for $660,044 using funds of the
Loan shall not be included in the determination of Capital
Expenditures.. Upon the occurrence and during the continuation of
any Event of Default or any Incipient Default, neither the
Borrower nor any of its Subsidiaries shall make any Capital
Expenditure to which it is not already legally committed or enter
into any new commitment to make any Capital Expenditure except
for any such capital expenditure required to comply with any
applicable Governmental Requirements.
7.12 OPERATING LEASES. Except for the leases set forth on
----------------
the attached Schedule 7.12, neither the Borrower nor any of its
Subsidiaries shall enter into, extend or renew any operating
lease involving property with a cost or value in excess of
Fifty-Thousand Dollars ($50,000.00) without the express written
consent of Lender.
7.13 PREPAYMENT. Neither the Borrower nor any of its
----------
Subsidiaries shall purchase or prepay any Indebtedness arising
from borrowed money or any Indebtedness secured by any Permitted
Encumbrance except pursuant to Sections 2.3(c) and 2.3(d).
7.14 SALE-LEASE BACKS. Neither the Borrower nor any of its
----------------
Subsidiaries shall enter into or become liable in connection with
any sale-leaseback transaction.
7.15 TRANSACTIONS WITH AFFILIATES. Except for transactions
or
----------------------------
relationships existing as of the Closing Date, neither the
Borrower nor any of its Subsidiaries shall, directly or
indirectly, enter into any transaction or permit to exist any
relationship with or for the benefit of an Affiliate on terms
more favorable to the Affiliate than would have been obtainable
in arm's length dealings. After the Closing Date, but prior to
the Borrower or any of its Subsidiaries engaging in any
transaction or relationship not prohibited by this Section 7.15,
the board of directors of the Borrower shall determine that such
transaction has been negotiated or such relationship will be
conducted in good faith and on an arm's length basis and such
determination shall be evidenced by a resolution of the board of
directors of the Borrower. This section shall not prohibit
Borrower from advancing or reimbursing ordinary and usual
business and travel expenses of its officers and employees in the
ordinary course of Borrower's business.
7.16 MISREPRESENTATIONS. The Borrower shall not and shall
not
------------------
permit any of its Subsidiaries to furnish the Lender with any
certificate or other document that (i) contains any untrue
statement of material fact, or (ii) omits to state a fact
necessary to make it not materially misleading in light of the
circumstances under which it was furnished.
7.17 RESTRICTIVE AGREEMENTS. The Borrower shall not, and
shall
----------------------
not permit any of its Subsidiaries to, enter into any agreement
which restricts the ability of such Subsidiaries to make payments
to the Borrower by way of dividends, advances, reimbursement or
otherwise.
7.18 TRANSACTIONS WITH OFFICERS, DIRECTORS AND AFFILIATES.
The
----------------------------------------------------
Borrower and its Subsidiaries shall not, directly or indirectly,
enter into any transaction with any of their directors, officers
or Affiliates to loan or advance any sums of money. This section
shall not prohibit Borrower from advancing or reimbursing
ordinary and usual business and travel expenses of its officers
and employees in the ordinary course of Borrower's business.
7.19 AMENDMENTS OF OTHER INSTRUMENTS. The Borrower shall not
-------------------------------
amend, modify or supplement in any material respect (or agree to
amend, modify or supplement in any material respect) its Articles
of Incorporation or the Subordinated Debt Documents (except as
permitted in the Subordination Agreement).
ARTICLE 8
---------
Events of Default
-----------------
8.1 EVENTS OF DEFAULT. Each of the following shall
-----------------
constitute an Event of Default under this Agreement:
(a) PAYMENTS. The Borrower shall fail to pay when due
--------
any installment of principal, interest or other surn payable
hereunder or under any other Loan Document within ten (10)
calendar days of the due date thereof;
(b) COVENANTS AND AGREEMENTS. The Borrower shall
default
------------------------
in the performance of any of its respective agreements set
forth herein or in any of the other Loan Documents (and not
constituting an Event of Default under any of the other
clauses of this Section 8.1);
(c) WARRANTIES. Any warranty, representation or
----------
certification made by the Borrower or any Subsidiary, or any
officer of the Borrower or any Subsidiary, in or pursuant to
any of the Loan Documents, shall be untrue in any material
respect, in any case on any date as of which the facts set
forth are stated or certified;
(d) JUDGMENT. A judgment or judgments shall be entered
--------
against the Borrower or any Subsidiary in the aggregate
amount of Fifty Thousand Dollars ($50,000) or more on an
uninsured and unbounded claim or claims, and such judgment
or judgments shall remain unstayed, unvacated, undischarged
or unsatisfied for thirty (30) calendar days;
(e) LIENS FOR PENSION CONTRIBUTIONS. Any statutory
-------------------------------
lien shall have been placed upon the assets of the
Borrower or any ERISA Affiliate under the Code or ERISA
involving a claim for unfunded benefits liabilities or
minimum funding contributions;
(f) PLAN TERMINATION OR WITHDRAWAL LIABILITY. Any
----------------------------------------
termination of a single employer plan (as defined in Section
4001(a)(15) of ERISA) or any complete or partial withdrawal
from a multiemployer plan (as defined in section 4001(a)(3)
of ERISA) shall occur, or steps shall have been taken by any
Person that make it reasonable to expect that such
termination or withdrawal will occur, and such termination
or withdrawal could reasonably be expected to result in
liability of the Borrower or any ERISA Affiliate to the
PBGC, to a trustee or to such multiemployer plan in the
aggregate amount of Twenty-Five Thousand Dollars ($25,000)
or more. A plan amendment described in Section 4041 (e) of
ERISA shall be treated as a plan termination for purposes of
this Section 8.1(f);
(g) FUNDING WAIVER. The Borrower or any Affiliate
shall
--------------
apply under Section 412 of the Code for a waiver of the
minimum funding standard;
(h) PLAN QUALIFICATION. Any plan of the Borrower or
an
------------------
ERISA Affiliate that is intended to have qualification under
Section 401(a) of the Code loses such qualification, and the
Lender believes in good faith that the loss of such
qualification could reasonably be expected to have a
Material Adverse Effect;
(i) CROSS DEFAULT. Subject to the provisions of the
-------------
Subordination Agreement, the Borrower or any of its
Subsidiaries and/or the Guarantors shall default (unless
waived) in the payment when due, whether by Acceleration or
otherwise, of any amount under any other Indebtedness for
borrowed money of, or any guaranty of Indebtedness for
borrowed money by, the Borrower (not arising hereunder or
under any of the other Loan Documents) or any of its
Subsidiaries or by the Guarantor, or default (unless waived)
in the performance or observance (subject to any applicable
grace period) of any agreement, covenant or condition with
respect to any such Indebtedness or guaranty if the effect
of such default is to accelerate the maturity of any such
Indebtedness or to permit the holder or holders of any such
Indebtedness or guaranty, or any trustee or agent for such
holders, to cause such Indebtedness to become due and
payable prior to its expressed maturity or to call upon such
guaranty in advance of nonpayment of the guaranteed
indebtedness;
(j) COLLATERAL. A judgment creditor of the Borrower or
----------
any of its Subsidiaries shall obtain possession of any of
the Collateral by any legal means, including, but not
limited to, levy, distraint, replevin or self-help;
(k) BANKRUPTCY. The Borrower or any of its
Subsidiaries
----------
shall institute a voluntary case seeking liquidation or
reorganization under Chapter 7 or Chapter 11, respectively,
of the United States Bankruptcy Code, or shall consent to
the institution of an involuntary case thereunder against
it; or the Borrower or any of its Subsidiaries shall file a
petition initiating or shall otherwise institute any similar
proceeding under any other applicable federal or state law
of the United States of America, or shall consent thereto;
or the Borrower or any of its Subsidiaries shall apply for,
or by consent or acquiescence there shall be an appointment
of, a receiver, liquidator, sequestrator, trustee or other
officer with similar powers, or the Borrower or any of its
Subsidiaries shall make an assignment for the benefit of
creditors; or the Borrower or any of its Subsidiaries shall
admit in writing its inability to pay its debts generally as
they become due; or, if an involuntary case shall be
commenced seeking the liquidation or reorganization of the
Borrower or any of its Subsidiaries under Chapter 7 or
Chapter 11, respectively, of the United States Bankruptcy
Code, or any similar proceeding shall be commenced against
the Borrower or any of its Subsidiaries under any other
applicable federal or state law of the United States of
America, and (i) the petition commencing the involuntary
case is not timely controverted; or (ii) the petition
commencing the involuntary case is not dismissed within
sixty (60) calendar days of its filing; or (iii) an interim
trustee is appointed to take possession of all or a portion
of the property and/or to operate all or any part of the
business of the Borrower or such Subsidiary; or (iv) an
order for relief shall have been issued or entered therein;
or a decree or order of a court having jurisdiction in the
premises for the appointment of a receiver, liquidator,
sequestrator, trustee or other officer having similar powers
over the Borrower or such Subsidiary, or of all or a part of
the property of any of the foregoing, shall have been
entered; or any other similar relief shall be granted
against the Borrower or any of its Subsidiaries under any
applicable federal or state law;
(l) MATERIAL ADVERSE CHANGE. The Lender shall have
-----------------------
reasonably determined in good faith that a Material Adverse
Change shall have occurred since the Closing Date;
(m) INVALIDITY OF LOAN DOCUMENTS. Any of the Loan
----------------------------
Documents shall cease for any reason to be in full force and
effect or any party thereto (other than the Lender) shall
purport to disavow its obligations thereunder, shall declare
that it does not have any further obligation thereunder or
shall contest the validity or enforceability thereof;
(n) IMPAIRMENT OF COLLATERAL. The Lender's security
------------------------
interest in, or lien on, any portion of the Collateral shall
become materially impaired or otherwise unenforceable or
Borrower shall incur any Indebtedness or create or suffer to
exist any security interest in or encumbrance upon any of
its assets except as otherwise provided in this Loan
Agreement;
(o) DEFAULT OR ACCELERATION OF SUBORDINATED DEBT
--------------------------------------------
OBLIGATIONS. Except as provided in the Subordination
-----------
Agreement, Borrower shall either be in default (or have been
declared to be in default) of any of Borrower's obligations
under the Subordinated Debt Documents, which Subordinated
Debt Documents shall not be modified, amended or otherwise
altered without the express written consent of Lender;
(p) CHANGE OF CONTROL. A Change of Control shall
occur
-----------------
without the prior written consent of the Lender;
(q) TERMINATION OR LIMITATION OF GUARANTY. Any
-------------------------------------
Guarantor seeks, claims, or otherwise attempts to limit,
modify or revoke such Guarantor's guarantee of the Loan or
any other loan with Lender; or
(r) GENERAL INSECURITY. The Lender for any reason in
------------------
good faith deems itself insecure with respect to the
repayment of the indebtedness provided for herein.
8.2 ACCELERATION. If any Event of Default described in
------------
Section 8.1(k) shall occur, the Loan, the Note and all other
Obligations shall become immediately due and payable, and the
Commitment shall automatically and immediately terminate, all
without notice of any kind. If any other Event of Default shall
be continuing, the Lender may declare the Note and all other
Obligations to be due and payable, whereupon the Note and all
other Obligations shall immediately become due and payable, all
as so declared by the Lender and without presentment, demand,
protest or other notice of any kind. Any such declaration made
pursuant to this Section 8.2 may be rescinded by the Lender. In
addition to the foregoing, the Lender may (i) terminate the
Commitment, whereupon the Lender shall have no further obligation
to make Advances; or (ii) exercise all remedies provided in the
Loan Documents, the Uniform Commercial Code, or otherwise at law
or in equity; or (iii) do all of the foregoing.
8.3 OTHER REMEDIES. If any Event of Default shall occur and
--------------
be continuing, the Lender shall have, in addition to the remedies
set forth in Section 8.2, all other remedies specified in the
Loan Documents or otherwise available under law.
8.4 RIGHT TO CURE. If any Event of Default (other than a
-------------
default in payment of Indebtedness under Section 8.1(a) of this
Agreement), is curable, and if Borrower has not been given a
notice of a similar Event of Default within the preceding 12
month period, it may be cured (and no Event of Default will have
occurred) if Borrower (a) cures the default within fifteen (15)
days; or (b) if the cure requires more than fifteen (15) days,
and only with the express written consent of Lender, immediately
initiates steps which Lender deems in Lender's sole discretion to
be sufficient to cure the default and thereafter continues and
completes all reasonable and necessary steps to produce
compliance as soon as reasonably practicable.
ARTICLE 9
---------
Miscellaneous
-------------
9.1 SUCCESSORS AND ASSIGNS AND SALE OF INTERESTS.
--------------------------------------------
(a) SUCCESSORS AND ASSIGNS. The terms and provisions
of
----------------------
this Agreement shall be binding upon, and the benefits
thereof shall inure to, the parties hereto and their
respective successors and assigns; provided, however, that
the Borrower
-------- -------
shall not assign this Agreement or any of the rights, duties
or obligations of the Borrower hereunder without the prior
written consent of the Lender.
(b) SALE OF INTERESTS. Borrower agrees and consents to
-----------------
Lender's sale or transfer, whether now or later, of one or
more participation interests in the Loans to one or more
purchasers, or potential purchasers, whether related or
unrelated to Lender. Lender may provide, without any
limitation whatsoever, to any one or more purchasers or
potential purchasers, any information or knowledge Lender
may have about Borrower or about any other matter relating
to the Loan, and Borrower hereby waives any rights to
privacy it may have with respect to such matters so long as
such purchasers or potential purchases treat such
information in a similar manner as Lender. Borrower
additionally waives any and all notices of sale of
participation interests, as well as all notices of any
repurchase of such participation interests. Borrower also
agrees that the purchasers of any such participation
interests will be considered as the absolute owners of such
interests in the Loans and will have all of the rights of
offset or counterclaim that it may have now or later against
Lender or against any purchaser of such a participation
interest and unconditionally agrees that either Lender or
such purchaser may enforce Borrower's obligation under the
Loans irrespective of the failure or insolvency of any
holder of any interest in the Loan. Borrower further agrees
that the purchaser of any such participation interest may
enforce its interests irrespective of any personal claims or
defenses that Borrower may have against Lender.
9.2 NO IMPLIED WAIVER. Except as otherwise provided in
-----------------
Section 4.3, no delay or omission to exercise any right, power or
remedy accruing to the Lender upon any breach or default of the
Borrower under this Agreement or under any of the other Loan
Documents shall impair any such right, power or remedy of the
Lender, nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of any similar
breach or default occurring thereafter, nor shall any waiver or
any single breach or default be deemed a waiver of any other
breach or default occurring theretofore or thereafter.
9.3 AMENDMENTS; WAIVERS. No amendment, modification or
waiver
-------------------
of, or consent with respect to, any provision of this Agreement,
the Note or any of the other Loan Documents shall in any event be
effective unless the same shall be in writing and signed and
delivered by the Lender to the Borrower. Any amendment,
modification, waiver or consent hereunder shall be effective only
in the specific instance and for the specific purpose for which
given.
9.4 REMEDIES CUMULATIVE. All rights and remedies, either
-------------------
under this Agreement, by law or otherwise accorded to the Lender
shall be cumulative and not exclusive, and any single or partial
exercise of any power or right hereunder or thereunder does not
preclude other or further exercise thereof, or the exercise of
any other power or right.
9.5 SEVERABILITY. Any provision of this Agreement, the
Notes
------------
or any of the other Loan Documents which is prohibited or
unenforceable in any jurisdiction, shall be, only as to such
jurisdiction, ineffective to the extent of such prohibition or
unenforceability, but all the remaining provisions of this
Agreement, the Notes and the other Loan Documents shall remain
valid.
9.6 COSTS, EXPENSES AND ATTORNEYS' FEES. The Borrower
shall
-----------------------------------
reimburse the Lender for all reasonable costs and expenses,
including, but not limited to, reasonable attorneys' fees and
expenses, expended or incurred by the Lender in connection with
the preparation, negotiation and execution of this Agreement and
the other Loan Documents, in connection with the disbursement of
the Loan, and in amending this Agreement, and shall reimburse the
Lender for all reasonable costs and expenses, including, but not
limited to, reasonable attorneys' fees and expenses, expended or
incurred by the Lender in collecting any sum which becomes due
under the Notes or under this Agreement or any of the other Loan
Documents, or in the protection, perfection, preservation and
enforcement of any and all rights of the Lender in connection
with the Loan Documents, including, without limitation, the
reasonable fees and costs incurred in any out-of-court work-out
or a bankruptcy or reorganization proceeding. This obligation on
the part of the Borrower shall survive the expiration or
termination of this Agreement, without occurrence of the Closing
Date.
9.7 INDEMNIFICATION. The Borrower shall indemnify and hold
---------------
the Lender and its directors, officers, employees, Affiliates,
attorneys and agents (collectively called the "Lender
Indemnities") harmless from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments,
suits, claims, costs, expenses and disbursements of any kind or
nature whatsoever (including, without limitation, the reasonable
fees and disbursements of counsel for the Lender Indemnities in
connection with any investigative, administrative or judicial
proceeding, whether or not the Lender shall be designated a party
thereto) which may be imposed on, incurred by or asserted against
the Lender or any Lender Indemnitee by any Person (whether
direct, indirect or consequential and whether based on any
federal or state laws or other statutory regulations, including,
without limitation, securities, environmental and commercial laws
and regulations, under common law or at equitable cause, or on
contract or otherwise) in any manner relating to or arising out
of this Agreement, any other Loan Documents, or any act, event or
transaction related or attendant thereto; the making of Loans
hereunder; the management of the Loans (including any liability
under federal, state or local environmental laws or regulations)
or the use or intended use of the proceeds of the Loans
(collectively, the "Indemnified Matters"); Provided, however,
-----------------------
that the Borrower shall have no obligation to the Lender under
this Section 9.7 with respect to Indemnified Matters to
the extent such Indemnified Matters were caused by or
resulted from the gross negligence or willful misconduct of
the Lender. To the extent that the undertaking to indemnify,
pay and hold harmless set forth in the preceding sentence may
be unenforceable because it is violative of any law or public
policy, the Borrower shall contribute to the payment and
satisfaction of all Indemnified Matters incurred by the Lender
or any Lender Indemnitee the maximum portion which the
Borrower is permitted to pay and satisfy under applicable law.
This indemnification shall survive for seven (7) years following
the repayment by the Borrower of the Loan made under this
Agreement or the termination of this Agreement without occurrence
of the Closing Date.
9.8 NOTICES.Any notice which the Borrower or the Lender may
-------
be required or may desire to give to the other party under any
provision of this Agreement shall be in writing, by telex or
electronic facsimile transmission and shall be deemed to have
been given or made three days after deposit in the United States
mail, or if by telex or electronic facsimile transmission, when
transmitted and addressed as follows:
To the Borrower: CHEMPOWER, INC.
807 East Turkeyfoot Lake Road
Akron, Ohio 44614
Attention: Toomas J. Kukk
Telecopier: (330) 896-1866
Copy to: REID & PRIEST LLP
40 West 57th Street
New York, New York 10019
Attention: Bruce A. Rich, Esq.
Telecopier: (212) 603-2001
and
THOMPSON, HINE & FLORY P.L.L.
3900 Key Center
127 Public Square
Cleveland, Ohio 44114-1216
Attention: Thomas A. Aldrich, Esq.
Telecopier: (216) 566-5800
To the Lender: FIRST NATIONAL BANK OF OHIO
106 S. Main Street
Akron, Ohio 44308-1440
Attention: Nicholas V. Browning,
Vice President
Telecopier: (330) 996-6272
Copy to: BROUSE & McDOWELL
106 S. Main Street, Suite 500
Akron, Ohio 44308-1471
Attention: Marc B. Merklin, Esq.
Telecopier: (330) 253-8601
Any party may change the address to which all notices,
requests and other communications are to be sent to it by giving
written notice of such address change to the other party in
conformity with this Section 9.8, but such change shall not be
effective until notice of such change has been received by the
other party.
9.9 INTERPRETATION. The Agreement, together with the
exhibits
--------------
and schedules to this Agreement, is intended by the Lender and
the Borrower as a final expression of their agreement and,
together with all of the other Loan Documents, is intended as a
complete statement of the terms and conditions of their
agreement. This Agreement completely supersedes the Commitment
Letter.
9.10 GOVERNING LAW AND CONSENT TO JURISDICTION. Borrower
-----------------------------------------
acknowledges that this Agreement has been delivered to Lender and
accepted by Lender in the State of Ohio. The validity,
construction and effect of this Agreement, the Notes and all of
the other Loan Documents shall be governed by the laws of the
State of Ohio, without regard to its laws regarding choice of
applicable law, but giving effect to federal laws applicable to
national and federally insured banks. All judicial proceedings
brought against the Borrower with respect to this Agreement, the
Notes or any of the other Loan Documents may be brought in any
state or federal court of competent jurisdiction in Summit
County, Ohio, and the Borrower accepts for itself and its assets
and properties, generally and unconditionally, the nonexclusive
jurisdiction of the aforesaid courts. The Borrower waives, to the
fullest extent permitted by applicable law, any objection
(including, without limitation, any objection to the laying of
venue or based on the grounds of forum non-conveniens) which it
may now or hereafter have to the bringing of any such action or
proceeding in any such jurisdiction. Nothing herein shall limit
the right of the Lender to bring proceedings against the Borrower
in the court of any other jurisdiction.
9.11 COUNTERPARTS. This Agreement may be executed in any
------------
number of counterparts each of which shall be an original with
the same effect as if the signatures thereto and hereto were upon
the same instrument.
9.12 INTEGRATION. This Agreement and the other Loan
Documents
-----------
contain all of the agreements and understandings between the
Borrower and the Lender, conceding the Loans and the other
transactions contemplated hereby. In the event of any conflict
between this Agreement and any other Loan Document, the
provisions of this Agreement shall govern.
9.13 WAIVER OF JURY TRIAL. THE BORROWER AND THE LENDER
--------
HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY WITH REGARD TO ANY ACTION
OF ANY TYPE OR NATURE WHATSOEVER UNDER OR CONCERNING THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR IN ANY WAY RELATED
TO THE LOANS OR THE ADMINISTRATION OR ENFORCEMENT THEREOF.
9.14 HEADINGS. Captions, headings and the table of contents
--------
in this Agreement are for convenience only, and are not to be
deemed part of this Agreement.
9.15 SCHEDULES AND EXHIBITS. All Schedules, Exhibits and
----------------------
other attachments referred to in, and attached to, this Loan
Agreement are hereby incorporated into and made a part hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement by their respective duly authorized officers as of the
date and year first above written.
CHEMPOWER, INC. FIRST NATIONAL BANK OF OHIO
By: /s/ Toomas J. Kukk By: /s/ Nicholas Browning
------------------------- ---------------------------
Toomas J. Kukk, Nicholas V. Browning,
Chairman/President/CEO Vice President
<PAGE>
Schedule 1.1.1
PERMITTED ENCUMBRANCES
1. Mortgage on 807 East Turkeyfoot Lake Road, Akron,
Summit County, Ohio dated _______________, 1993 in favor of First
National Bank of Ohio by Holiday Properties and recorded on
_____________________, 1993 in Volume __, Page __ of the Records
of Summit County, Ohio.
<PAGE>
Schedule 5.2
ORGANIZATION, STANDING AND QUALIFICATION
OF SUBSIDIARIES (AND EQUITY INTERESTS)
CHEMPOWER, INC. (a wholly-owned Subsidiary of American Eco
--------------
Corporation)
State of Incorporation: Ohio
Foreign Qualifications: AL, IN, KY, LA, Ml, MO, NJ, NV, NY, PA,
TN, and WV
Shares of Common Stock Authorized: 15,000,000
Shares of Common Stock Outstanding: 1,000
Outstanding Options: None
Divisions: Advanced Coil Industries, Houston Products, and Owens
Precision Fabricators
GLOBAL POWER COMPANY (A SUBSIDIARY OF CHEMPOWER. INC.):
-------------------------------------------------------
State of Incorporation: Ohio
Foreign Qualifications: AL, GA, IL, IN, KY, MD, Ml, MN, MO, MS,
NC, NJ, PA, SC, TN, VA, and WV
Shares of Common Stock Authorized: 750
Shares of Common Stock Outstanding: 20 (all held by Chempower)
Divisions: Global Erectors
BROOKFIELD CORP. (A SUBSIDIARY OF CHEMPOWER. INC.):
--------------------------------------------------
State of Incorporation: Ohio
Shares of Common Stock Authorized: 850
Shares of Common Stock Outstanding: 50 (all held by Chempower)
SOUTHWICK CORP. (A SUBSIDIARY OF CHEMPOWER, INC.):
------------------------------------------------
State of Incorporation: Ohio
Foreign Qualifications: CA and IL
Shares of Common Stock Authorized: 850
Shares of Common Stock Outstanding: 50 (all held by
Chempower)
CONTROLLED POWER LIMITED PARTNERSHIP:
------------------------------------
State of Incorporation: An Illinois limited partnership (1)
Foreign Qualifications: OH
General Partner: Southwick Corp.
Limited Partner: Brookfield Corp.
(1) See Application for Reinstatement
<PAGE>
Schedule 5.10
LITIGATION AND CONTINGENT LIABILITIES
None.
<PAGE>
Schedule 5.13
EMPLOYEE BENEFITS
PLANS MAINTAINED:
----------------
1. Employee Pension Plans:
a. Employee Stock Ownership Plan (ESOP)
b. 401(k) Plan
c. Multiemployer Plans
pursuant to various collective bargaining agreements.
2. Employee Welfare Plans:
a. Company-sponsored Employee Health Insurance
b. Company-sponsored Employee Life Insurance
c. Multiemployer Plans
pursuant to various collective bargaining agreements.
<PAGE>
Schedule 5.16
ENVIRONMENTAL MATTERS
To the best knowledge of the Borrower, there are no environmental
matters to disclose in accordance with Section 5.16 of the
Agreement.
<PAGE>
Schedule 5.18
INTELLECTUAL PROPERTY
HOUSTON PRODUCTS, A DIVISION OF CHEMPOWER, INC.:
----------------------------------------------
Patents:
1. Lagging Panel
Patent Number: 5,285,609
Date of Patent: February 15, 1994
CONTROLLED POWER LIMITED PARTNERSHIP:
------------------------------------
Patents:
1. Adjustable Support Assembly for Electrical Conductors
Patent Number: 5,053,584
Date of Patent: October 1, 1991
2. PLC Controller for Circuit Breakers
Patent Number: 5,534,782
Date Filed: July 9, 1996
Patent Applications:
1. Adjustable Support for Electrical Conductors (Canadian
Patent Application)
Registration Number: 1,321,695
Registration Filed: December 17, 1991
Trademarks/Service Marks:
1. CPC Design
Registration Number: 1,870,009
Registration Filed: December 27, 1994
2. Technibus
Registration Number: 1,794,174
Registration Filed: September 21, 1993
License Agreements:
1. Assignment of rights and obligations under License Agreement
between Associated Electrical Industries Limited and Power
Apparatus Manufacturing Company, Inc. dated January 19, 1989
to CPC.
GLOBAL POWER COMPANY:
--------------------
Copyrights:
1. Management Safety Program
Registration Number: TX3-579-438
Registration Date: July 15, 1993
2. Asbestos Abatement Work Procedures Manual
Registration Number: TX3-579-439
Registration Date: July 15, 1993
3. Asbestos Abatement Respiratory Protection Manual
Registration Number: TX3-579-440
Registration Date: July 15, 1993
4. Hazard Communication Plan
Registration Number: TX#-627-879
Registration Date: July 15, 1993
<PAGE>
Schedule 5.20(a)
INSURANCE
POLICY BROKER CARRIER POLICY #
-----------------------------------------------------------------------------
General Liability Seibert-Keck Commerce & Industry AA17779633
Umbrella Seibert-Keck American International 7734491
(GL & Auto)
Property(1) Hylant-MacLean Crum & Forster 503141922
Auto Hylant-MacLean Crum & Forster 133635414
Excess Auto Hylant-MacLean Crum & Forster 5520006493
Boiler & Mach. Hylant-MacLean Hartford Steam & Blr 9847104-02
D&O Liability Hylant-MacLean AIG 482-64-68
Fiduciary ESOP Seibert-Keck National Union 443-24-85
L-T Disability Hylant-MacLean Reliance
Medical/Dental Hylant-MacLean Unicare
Erisa Bond Seibert-Keck
POLICY EFFECTIVE DATES
---------------------------------------------------------------------
General Liability 1-1-97 to 12-31-97
Umbrella 1-1-97 to 12-31-97
(GL & Auto)
Property(1) 5-3-96 to 5-3-97
Auto 12-31-96 to 12-31-97
Excess Auto 12-31-96 to 12-31-97
Boiler & Mach. 12-31-96 to 12-31-97
D&O Liability 2-19-96 to 2-18-97
Fiduciary ESOP 6-22-96 to 6-22-97
L-T Disability
Medical/Dental 1-1-97 to 12-31-97
Erisa Bond 1-1-97 to 12-31-97
LIMIT DEDUCTIBLE PREMIUM NOTES
-------------------------------------------------------------------
$1 MM occur $50,000 $101,000
$1 MM aggr. $100,000 cap
$5 MM occur None $118,230
$5 MM aggr.
$22.3 MM $1,000 $23,063
$1MM None $53,445
$1MM None $8,215
$5MM $5,000 $4,360
$2MM $75,000 $28,000
$250,000 $2,400 ESOP & 401(k) Fiduc.
$270
(1) Includes Installation floater (CPC), EDP & Rented Equipment.
COVERAGE INCLUDES:
LIMITED
PARENT SUBSIDIARIES DIVISIONS PARTNERSHIP
------ ------------ --------- -----------
Chempower, Inc. Brookfield Advanced Cell CPC
Southwick Houston Products
Global Power Global Erectors
Owens Precision
<PAGE>
Schedule 5.20(b)
INSURANCE
WORKERS' COMPENSATION
CHEMPOWER, INC.
--------------
STATE CARRIER
----- -------
Alabama AIG
Delaware AIG
Illinois AIG
Indiana AIG
Kentucky AIG
Michigan AIG
Nevada SIIS/State Fund
New Jersey AIG
North Carolina AIG
Ohio State Fund
Pennsylvania Self-Insured
Tennessee AIG
Virginia AIG
West Virginia State Fund
GLOBAL POWER COMPANY:
--------------------
STATE CARRIER
----- -------
Alabama AIG
Georgia AIG
Indiana AIG
Kentucky AIG
Missouri AIG
North Carolina AIG
Ohio State Fund
Pennsylvania SWIF/State Fund
South Carolina AIG
Tennessee AIG
Virginia AIG
West Virginia State Fund
CONTROLLED POWER LIMITED PARTNERSHIP:
------------------------------------
STATE CARRIER
----- -------
Ohio State Fund
<PAGE>
Schedule 7.12
OPERATING LEASES
----------------
CHEMPOWER, INC.:
---------------
Facility Location Lessor
Akron, OH Holiday Properties
Cincinnati, OH Holiday Properties
Las Vegas, NV Lewis Properties, Inc.
Washington, PA Holiday Properties
EXHIBIT 10.9.8
--------------
THIS INSTRUMENT AND THE OBLIGATIONS REPRESENTED THEREBY IS
SUBORDINATE IN ALL RESPECTS TO CERTAIN OBLIGATIONS OF CHEMPOWER,
INC. AND ITS SUBSIDIARIES TO FIRST NATIONAL BANK OF OHIO,
INCLUDING A PROMISSORY NOTE IN THE MAXIMUM PRINCIPAL AMOUNT OF
$15,700,000 DATED AS OF FEBRUARY 28, 1997.
PROMISSORY NOTE
---------------
Original Principal Amount Cleveland, Ohio
$15,900,005.40 February 28, 1997
FOR VALUE RECEIVED, CHEMPOWER, INC., (the "Maker")
promises to pay to the order of TOOMAS J. KUKK, his executors,
administrators, successors, or assigns ("Holder"), as Agent for
Toomas J. Kukk and Mark L. Rochester (the "Principal
Shareholders"), the principal amount of FIFTEEN MILLION NINE
HUNDRED THOUSAND FIVE DOLLARS AND FORTY CENTS ($15,900,005.40)
together with interest thereon as hereinafter provided.
1. Principal. The principal amount hereof shall be
---------
due and payable in full on February 28, 1998 unless the same
becomes due earlier as provided in Section 12 hereof (the
"Maturity Date").
2. Interest. This Promissory Note shall bear interest
--------
upon the principal amount outstanding from and including the date
hereof at the following per annum rates: 7% until and including
April 30, 1997; 8% during the period from May 1, 1997 until June
30, 1997, inclusive; 9% during the period from July 1, 1997 until
August 31, 1997, inclusive; 10% during the period from September
1, 1997 until November 30, 1997, inclusive; and 11% thereafter
until paid in full. Interest on this Promissory Note shall be
computed on the basis of a 365 day year for the actual number of
days elapsed.
3. Payment Schedule. The Maker shall pay the interest
----------------
accruing on this Promissory Note monthly in arrears, the first
interest payment being due on April 1, 1997, and successive
payments of interest being due at the same day of each month
thereafter until and including the Maturity Date, and on the
Maturity Date, Maker shall repay all principal and interest then
appearing due, in full. Payment of the principal of and interest
on this Promissory Note shall be made in lawful money of the
United States of America to Agent at 807 E. Turkeyfoot Lake Road,
Akron, Ohio 44319 or to such other payee or at such other address
as may be designated to Maker by Holder from time to time.
4. Allocation of Payments to Principal Shareholders.
------------------------------------------------
All payments of principal of and interest on this Promissory Note
received by the Agent shall be paid over to each of the Principal
Shareholders in the amount corresponding to the respective
percentage interest of the Principal Shareholder in such payments
as set forth on Exhibit A hereto.
5. Waiver of Demand, etc. The Maker waives demand,
---------------------
presentment, notice of dishonor, protest, notice of protest and
diligence in collection and bringing suit and agrees that Holder
may extend the time for payment, accept partial payment or take
security therefor without discharging or releasing the Maker.
6. Governing Law. This Promissory Note has been
-------------
executed in Cleveland, Ohio. The construction, validity and
enforceability of this Promissory Note shall be governed by the
laws of the State of Ohio.
7. Costs of Enforcement. The Maker agrees to pay all
--------------------
costs and expenses (including reasonable attorneys' fees)
incurred by Holder in the collection of this Promissory Note and
in the enforcement of the rights under this Promissory Note.
8. THE MAKER, TO THE EXTENT NOT PROHIBITED BY LAW,
---------------------------------------------------------------
WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY
------------------------------------------------------------
DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, BETWEEN
----------------------------------------------------------------
HOLDER AND MAKER ARISING OUT OF, IN CONNECTION WITH, RELATED TO,
----------------------------------------------------------------
OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN MAKER AND
---------------------------------------------------------------
HOLDER IN CONNECTION WITH THIS NOTE, OR ANY OTHER AGREEMENT,
-----------------------------------------------------------
INSTRUMENT OR DOCUMENT EXECUTED OR DELIVERED IN CONNECTION
----------------------------------------------------------
THEREWITH OR THE TRANSACTIONS RELATED THERETO. THIS WAIVER SHALL
----------------------------------------------------------------
NOT IN ANY WAY AFFECT, WAIVE, LIMIT, AMEND OR MODIFY THE ABILITY
----------------------------------------------------------------
OF ANY HOLDER HEREOF TO PURSUE REMEDIES PURSUANT TO ANY
-------------------------------------------------------
CONFESSION OF JUDGMENT OR COGNOVIT PROVISION CONTAINED IN THIS
--------------------------------------------------------------
NOTE OR ANY OTHER AGREEMENT, INSTRUMENT OR DOCUMENT RELATING
------------------------------------------------------------
THERETO.
-------
9. Headings. Section headings used in this Promissory
--------
Note are for convenience of reference only and are not part of
this Promissory Note for any other purpose.
10. Prepayment. The Maker may prepay all or any
----------
portion of the principal sum hereof at any time without penalty.
All such prepayments shall be applied to the payment of the
principal due hereon, and shall be accompanied by the payment of
accrued interest on the amount of the prepayment to the date
thereof.
11. Overdue Payments. Any payment of principal and
----------------
interest under this Promissory Note must be received by Holder by
5:00 p.m. E.S.T. on a business day in order to be credited on
such date. If Maker fails to make any payment of principal,
interest or other amount becoming due pursuant to the provisions
of this Promissory Note within five (5) calendar days of the date
due and payable, the Maker also shall pay to Holder a late charge
equal to five percent (5%) of the amount of such payment. Such
five (5) day period shall not be construed in any way to extend
the due date of any such or subsequent payment.
12. Acceleration of Maturity. Upon the occurrence of
------------------------
any of the following, Holder may, at its option, accelerate the
maturity of this Promissory Note, whereupon all principal of and
interest on this Promissory Note shall become immediately due and
payable in full: (a) failure to pay any principal of or interest
on this Promissory Note when due or (b) the occurrence of an
Event of Default as defined in that certain Financing Agreement
of even date herewith, by and between, among others, Maker and
Holder.
13. Warrant of Attorney. Maker hereby irrevocably
-------------------
authorizes any attorney-at-law to appear for Maker in an action
on this Promissory Note at any time after the same becomes due,
whether by acceleration or otherwise, in any court of record in
the State of Ohio or elsewhere and to waive the issuing of
service of process against Maker, and to confess judgment in
favor of the Holder against Maker for all amounts that may be
due, together with costs of suit, and thereupon to waive all
errors and all rights of appeal and stays of execution in respect
of the judgment rendered. Maker hereby expressly (a) waives any
conflict of interest in an attorney retained by the Holder
confessing judgment against the Maker upon this Promissory Note,
and (b) consents to any attorney retained by the Holder receiving
a legal fee or other value for legal services rendered for
confessing judgment against the Maker upon this Promissory Note.
The foregoing warrant of attorney shall survive any judgment, and
if any judgment is vacated for any reason, the Holder may
thereafter use the foregoing warrant of attorney to obtain
additional judgment or judgments against Maker. A copy of this
Promissory Note, certified by the Holder, may be filed in any
proceeding in place of filing the original as a warrant of
attorney.
"WARNING--BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE
----------------------------------------------------------------
AND COURT TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGEMENT MAY
----------------------------------------------------------------
BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS
----------------------------------------------------------------
OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY
------------------------------------------------------------
CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED
-------------------------------------------------------------
GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
-----------------------------------------------------------
AGREEMENT, OR ANY OTHER CAUSE."
-------------------------------
CHEMPOWER, INC.
By: /s/Toomas J. Kukk
------------------------------
Name:Toomas J. Kukk
--------------------------
Title:President
-------------------------
<PAGE>
EXHIBIT A
---------
RESPECTIVE
PRINCIPAL PERCENTAGE
SHAREHOLDER INTEREST
----------- ----------
THOMAS J. KUKK 49.9999805035%
MARK L. ROCHESTER 50.000001949685%
Exhibit 10.9.9
--------------
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (this "Purchase Agreement") is made and
entered into as of February 28, 1997 (the "Effective Date"), by and between
HOLIDAY PROPERTIES, an Ohio general partnership ("Seller"), and CHEMPOWER,
INC., an Ohio corporation ("Buyer").
RECITALS
--------
A. Seller is the fee simple owner of certain real property
commonly known as 807 East Turkeyfoot Lake Road, Akron, Ohio, and more
particularly described in Exhibit A attached hereto and incorporated
---------
herein, together with any and all rights, privileges, easements,
appurtenances and hereditaments belonging thereto and all buildings and
improvements situated thereon, together with the following items currently
located in or on such property: all components of the electrical, heating,
air conditioning, plumbing and bathroom systems; all built-in equipment
(collectively referred to as the "Akron Parcel").
B. Seller is the fee simple owner of certain real property
commonly known as 3600 Cardiff Avenue, Cincinnati, Ohio, and more
particularly described in Exhibit B attached hereto and incorporated
---------
herein, together with any and all rights, privileges, easements,
appurtenances and hereditaments belonging thereto and all buildings and
improvements situated thereon, together with the following items currently
located in or on such property: all components of the electrical, heating,
air conditioning, plumbing and bathroom systems; all built-in equipment
(collectively referred to as the "Cincinnati Parcel").
C. Seller is the fee simple owner of certain real property
commonly known as 6050 West Virginia State Route 34, Winfield, West
Virginia, and more particularly described in Exhibit C attached hereto and
---------
incorporated herein, together with any and all rights, privileges,
easements, appurtenances and hereditaments belonging thereto and all
buildings and improvements situated thereon, together with the following
items currently located in or on such property: all components of the
electrical, heating, air conditioning, plumbing and bathroom systems; all
built-in equipment (collectively referred to as the "Winfield Parcel").
D. The Akron Parcel, Cincinnati Parcel and Winfield Parcel are
sometimes collectively referred to as the "Premises," and individually as a
"Parcel."
E. In order to induce First National Bank of Ohio ("Bank") to
create for Buyer a line of credit facility pursuant to that certain Loan
Agreement (the "Loan Agreement") between Buyer and Bank dated as of
February 28, 1997, Seller has agreed to guaranty Buyer's performance under
the Loan Agreement pursuant to that certain Limited Guaranty from Seller to
Buyer dated as of February 28, 1997 (the "Limited Guaranty").
F. Seller has granted and delivered to Bank certain mortgages
and deed of trust (the "Mortgages") upon the Premises to secure the Limited
Guaranty.
G. Buyer desires to purchase from Seller the Premises and Seller
desires to sell to Buyer the Premises under the terms of this Purchase
Agreement.
NOW THEREFORE, in consideration of the mutual covenants and
agreements contained herein, the adequacy and sufficiency of which are
hereby acknowledged by this Purchase Agreement, the parties hereto agree to
the following:
SECTION 1. AGREEMENT TO PURCHASE AND SELL. Seller agrees to
sell and convey to Buyer the Premises, and Buyer agrees to purchase from
Seller the Premises under the terms and conditions of this Purchase
Agreement.
SECTION 2. PURCHASE PRICE. The purchase price for the Premises
shall be Four Million Five Hundred Thousand 00/100 Dollars ($4,500,000.00)
(the "Purchase Price") allocated in the following manner:
Parcel Purchase Price
------ --------------
Akron Parcel $1,500,000.00
Cincinnati Parcel $ 600,000.00
Winfield Parcel $2,400,000.00
In the event this transaction closes, the Purchase Price shall be
payable under the terms and provisions of land installment contracts for
each Parcel (collectively, the "Land Installment Contracts" and
individually, a "Land Installment Contract"), which shall be executed by
the parties at the closing of the transaction contemplated herein
("Closing"), substantially in the form attached hereto as Exhibit D and
---------
made a part hereof, subject to the permitted encumbrances (the "Permitted
Encumbrances") set forth on Exhibit E attached hereto and made a part
---------
hereof.
SECTION 3. DEED. Seller shall convey to Buyer fee simple title
to each Parcel by quit claim deed pursuant to the terms and conditions of
the Land Installment Contracts.
SECTION 4. CONDITION OF THE PREMISES. Except and as to the
extent provided in this Purchase Agreement, Buyer acknowledges and agrees
that Seller has made no representation or warranty whatsoever, express or
implied, as to the condition, quantity, design, merchantability, fitness or
quality of the Premises, or any portion thereof. Buyer agrees to accept
the Premises and all portions thereof on the Closing Date (as defined
below) "AS IS" and "WITH ALL FAULTS," subject to all defects therein,
concealed or otherwise, and whether known or unknown to Seller, it being
expressly understood and agreed that Buyer has relied solely on its own
inspections, examinations and evaluations of the Premises. Buyer (and
anyone claiming by, through, or under Buyer) hereby fully and finally
releases Seller from any and all claims that Buyer may now have or
hereafter acquire against Seller for any cost, loss, liability, damage,
expense, demand, action, or cause of action, relating to or arising from
any failure of Seller to disclose any matter with respect to the Premises,
any construction defects, errors, omissions, or other conditions affecting
the Premises and arising out of or resulting from any errors, omissions, or
defects in the Premises including (without limitation) any and all
liability for any release of hazardous substances, pollutants, or
contaminants from any source whatsoever and whenever occurring. Buyer
further acknowledges and agrees that this release shall be given full force
and effect according to each of its express terms and provisions, including
but not limited to those relating to unknown and suspected claims, damages,
and causes of action. This waiver and release of claims shall survive
termination or expiration of this Purchase Agreement and Closing.
SECTION 5. TITLE. Seller and Purchaser acknowledge the issuance
and delivery of the following items:
(a) First American Title Insurance Company Commitment No. A64031
for ALTA Owner's Policy, dated February 19, 1997, showing the condition of
the Akron Parcel (the "Akron Title Commitment").
(b) First American Title Insurance Company Commitment No.
25-57883 for ALTA Owner's Policy, dated February 20, 1997, showing the
condition of the Cincinnati Parcel (the "Cincinnati Title Commitment").
(c) First American Title Insurance Company Commitment No. 96-171
for ALTA Owner's Policy, dated February 21, 1997, showing the condition of
the Winfield Parcel (the "Winfield Title Commitment"; the Winfield Title
Commitment, Akron Title Commitment and Cincinnati Title Commitment are
collectively referred to as the "Title Commitments").
SECTION 6. SELLER'S CONDITION. Seller's obligation to close the
transaction contemplated herein is subject to the condition precedent that
on or before the Closing Date, Buyer causes American Eco Corporation
("American Eco") to deliver to Seller (i) a termination and release
agreement of that certain Real Property Purchase Agreement dated September
10, 1997 between Seller and American Eco, substantially in the form of
Exhibit F attached hereto and made a part hereof, and (ii) a guaranty
---------
agreement substantially in the form of Exhibit G attached hereto and made a
---------
part hereof.
SECTION 7. CLOSING. The transaction contemplated by this
Purchase Agreement shall be closed on or before February 28, 1997 (the
"Closing Date"), which shall also be the "Commencement Date" under each
Land Installment Contract, in escrow with Midland Title Security, Inc.,
having an address at One Erieview Plaza, Cleveland, Ohio 44114-1725, Attn.:
Linda Rankin ("Escrow Agent"). Buyer and Seller shall comply with the
following procedures relating to Closing: On the Closing Date (a) Buyer
shall wire into Escrow Agent the "Downpayment," as that term is defined in
each Land Installment Contract, and any and all closing costs Buyer is
responsible for hereunder, (b) Seller shall cause Bank to deposit the
Mortgages with Escrow Agent; (c) Buyer and Seller shall execute, date and
deliver one (1) fully executed copy of Land Installment Contracts for each
Parcel and cause Escrow Agent to file the respective Mortgages and Land
Installment Contracts, in that order, in Summit County, Ohio Records,
Hamilton County, Ohio Records and Putnam County, West Virginia Records; (d)
Seller shall cause First American Title Insurance Company upon filing each
Land Installment Contract of record, to issue ALTA Owner's Fee Policies of
Title Insurance (Form B - Revised 10-17-70) in the amount of the allocated
Purchase Price, at standard rates, insuring Buyer as the owner of the
vendee's interest in and to fee simple title to each Parcel under the terms
of each Land Installment Contract (collectively the "Title Policies" and
individually a "Title Policy") subject only to the Permitted Encumbrances;
and (e) Escrow Agent shall disburse the net Downpayment proceeds to Seller
by federal wire transfer to the following account:
Acct No.: 42-806-3036
Name: Holiday Properties
Bank: KeyBank
Everhard Road Branch
4495 Everhard Road, N.W.
Canton, Ohio 44718
Routing #: 041001039
SECTION 8. CLOSING EXPENSES. Except as otherwise provided
herein, the following costs and expenses of this transaction shall be
chargeable to Buyer at Closing: (i) the escrow fee charged by Escrow Agent,
(ii) the cost of the title examinations of the Premises and issuance of the
Title Commitments to Buyer, (iii) the premium charge for each Title Policy
and loan policy of title insurance insuring Bank's mortgage interests in
the Premises, and (iv) Buyer shall pay the transfer taxes, conveyance fees
and recording fees of the Mortgages and Land Installment Contracts.
SECTION 9. BROKERS. Seller and Buyer each represent and warrant
to the other that no other broker or finder was in any way involved in the
transaction contemplated by this Purchase Agreement. Each party to this
Purchase Agreement agrees to indemnify, defend and hold harmless the other
from all loss, costs, expenses, claims and liabilities (including, without
limitation attorneys' fees and expenses) arising from a breach of the
warranty of this section. The provisions of the Section 9 shall survive
the expiration or termination of this Purchase Agreement and Closing.
SECTION 10. NOTICES. Any notice required or permitted hereunder
shall be deemed sufficiently given if made in writing and either delivered
in person or deposited, postage prepaid, in the United States certified or
registered mail, addressed as follows:
To Buyer: To Seller:
Chempower, Inc. Holiday Properties
87 East Turkeyfoot Lake Road 3511 Greenburg Road
Akron, Ohio 44319 North Canton, Ohio 44720
Attn: T.J. Kukk, President Attn.: Ernest M. Rochester, General
Partner
Telephone: (330) 896-4202 Telephone: (330) 494-5282
Facsimile: (330) 896-1866 Facsimile: (330) 494-1335
With a copy to: With a copy to:
Reid & Priest LLP Thompson Hine & Flory LLP
40 West 57th Street 3900 Key Center
New York, New York 10019 127 Public Square
Attn.: Bruce A. Rich, Esq. Cleveland, Ohio 44114-1216
Telephone: (212) 603-2000 Attn.: Thomas A. Aldrich, Esq.
Facsimile: (212) 603-2001 Telephone: (216) 566-5749
Facsimile: (216) 566-5800
or to such other address or addresses as Buyer or Seller may designate from
time to time by notice to the other.
SECTION 11. NO WAIVER. Failure of either party to complain of
any act or omission on the part of the other party, no matter how long the
same may continue, shall not be deemed to be a waiver by said party of any
of its rights hereunder. No waiver by either party at any time, express or
implied, of any breach of any provisions of this Purchase Agreement shall
be deemed a waiver of a breach of any other provision of this Purchase
Agreement or a consent to any subsequent breach of the same or any other
provision. If any action by either party shall require the consent or
approval of the other party, the other party's consent to or approval of
such action on any one occasion shall not be deemed a consent to or
approval of said action on any subsequent occasion or a consent to or
approval of any other action on the same or any subsequent occasion.
SECTION 12. REMEDIES CUMULATIVE. Any and all rights and remedies
which either party may have under this Purchase Agreement or by operation
of law, either at law or in equity, upon any breach, shall be distinct,
separate and cumulative and shall not be deemed inconsistent with each
other; and no one of them, whether exercised by said party or not shall be
deemed to be in exclusion of any other; and any two or more or all of such
rights and remedies may be exercised at the same time.
SECTION 13. AGREEMENT NON-TRANSFERABLE. Neither party shall
sell, assign or transfer or permit to be sold, assigned or transferred any
of such party's interest in the Premises, in any property described herein
or in this Purchase Agreement without first obtaining the written consent
of the other party, which consent shall not be unreasonably withheld.
SECTION 14. BINDING AGREEMENT. This Purchase Agreement shall not
be deemed to lack mutuality by virtue of any condition contained herein,
whether or not such condition must be fulfilled to the satisfaction of the
party for whose benefit it is intended. Each such condition shall be
deemed to require the parties to use their good faith efforts to fulfill
the same. The parties also hereby mutually acknowledge that, in addition
to all other consideration for this Purchase Agreement, they have received
other good and valuable consideration in return for their promise that,
pending fulfillment of such conditions, this Purchase Agreement shall
remain in force and binding upon them.
SECTION 15. COUNTERPARTS. This Purchase Agreement may be
executed in any number of counterparts, each of which shall be an original,
and all such counterparts together shall constitute one and the same
instrument.
SECTION 16. RULES OF CONSTRUCTION. This Purchase Agreement has
been reviewed by counsel for each party hereto prior to its execution, and
no presumptions or rules of construction shall be applicable by reason of
the identity of counsel preparing this Purchase Agreement. This Purchase
Agreement shall be construed according to its fair meaning and neither for
nor against either party.
SECTION 17. NOUNS. As used in this Purchase Agreement, unless
the context otherwise specifically requires, the singular includes the
plural, and vice versa, and the masculine includes the feminine, and vice
versa.
SECTION 18. CAPTIONS. The captions used herein are for
convenience only and shall not control or affect the meaning of
construction of any provisions of this Purchase Agreement.
SECTION 19. SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective heirs, executors, administrators, successors and permitted
assigns, as the case may be.
SECTION 20. APPLICABLE LAW. This Purchase Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of Ohio.
SECTION 21. ENTIRE AGREEMENT; MODIFICATION. This Purchase
Agreement constitutes the entire agreement between Buyer and Seller
pertaining to the subject matter contained in it and supersedes all prior
and contemporaneous agreements, representations, and understandings. No
supplement, modification, waiver or amendment of this Purchase Agreement
shall be binding unless specified in a writing executed by the party
against whom such supplement, modification, waiver or amendment is sought
to be enforced.
IN WITNESS WHEREOF, Seller and Buyer have executed this Purchase
Agreement as of the date first written above.
SELLER:
HOLIDAY PROPERTIES
By: /s/ Toomas J. Kukk
-----------------------------------------
Toomas J. Kukk, General Partner
And by: /s/ Ernest M. Rochester
-------------------------------------
Ernest M. Rochester, General
Partner
BUYER:
CHEMPOWER, INC.
By: /s/ Toomas J. Kukk
-----------------------------------------
Toomas J. Kukk, President
<PAGE>
EXHIBIT A
---------
LEGAL DESCRIPTION
(AKRON PARCEL)
Situated in the City of Green, County of Summit, State of Ohio
and known as being a part of the Northeast Quarter of Section No. 8 in said
township and more fully described as follows, to wit: Beginning at a point
in the South line of said quarter section and the centerline of Turkey Foot
Lake Road (S.R. No. 619), said beginning point being S.85 degrees 55'
E., 1942.33 feet as measured along said quarter section line and road
center from the Southwest corner of said quarter section and thence
North 3 degrees 01' East, 260.0 feet to an iron pipe; thence South 85
degrees 55' East, 100.0 feet to an iron pipe; thence North 3 degrees
01' East, 351.58 feet to an iron pipe on the South line of a tract of
land now or formerly owned by Earl E. and Lillie B. Shaffer, as
recorded in Deed Volume 1964, Page 262; thence along the South line
of said tract of land, South 85 degrees 53' 30" East, 200.0 feet to
an iron pipe; thence along the West line of a parcel of land as deeded
to D. O. and U. R. LeMoine, as recorded in Deed Volume 2552, Page 268
and also along the West line of a parcel of land now or formerly
owned by M. E. Parks, as recorded in Deed Volume 1995, Page 685,
South 3 degrees 01' West, 611.49 feet to the South line of said
quarter section and the centerline of said Turkey Foot Lake Road
(an iron pipe is N. 3 degrees 01' E. 30.0 feet from this point); thence
along said quarter section line and road center, North 85 degrees 55'
West, 300.0 feet to the place of beginning (an iron pipe is N. 3 degrees
01' E., 30.0 feet from this point) and containing 3.408 acres of land,
as surveyed March 23, 1953, by Gehres & Kingsley, Surveyors, be the
same more or less, but subject to all legal highways.
<PAGE>
EXHIBIT B
---------
LEGAL DESCRIPTION
(CINCINNATI PARCEL)
Situate in Section 22, Town 4, Fractional Range 2, Miami
Purchase, Columbia Township, City of Cincinnati, Hamilton County, Ohio; and
being part of Lot 1 of Everson's Estate, Case 98500 of the Hamilton County
Common Pleas Court, and part of Lot 4 of Gilmore and Brotherton's Addition,
as recorded in Plat Book 2, Page 20 and being more particularly described
as follows:
Beginning at a point in the southerly line of B & O Railroad,
now CBX Transportation Co. 108.60 feet east of the West line of the
aforementioned Lot 1; thence continuing with said southerly line North 80
degrees 25' East 200.00 feet to an iron pipe at the northeasterly corner of
Registered Land Certificate #7375 of the Hamilton County Registered Land
Office; thence with the west line of said Registered Land South 0 degrees
04' 07" West, 283.65 feet to a pipe; thence South 82 degrees 11' West,
199.05 feet; thence North 0 degrees 04' 07" East, 277.43 feet to the south
line of said railroad and the place of beginning.
<PAGE>
EXHIBIT C
---------
LEGAL DESCRIPTION
(WINFIELD PARCEL)
All of the following described property, situated in Scott
District, County of Putnam, and State of West Virginia, to-wit:
Beginning at an iron pipe in the westerly line of West
Virginia State Route No. 34, said iron pipe being situate in the common
corner of the parcel herein conveyed and parcel of land owned by S. F.
Sturgeon and Helen G. Sturgeon, his wife; thence leaving the line of the
land of S. F. Sturgeon and Helen G. Sturgeon, his wife, and with said line
of West Virginia State Route No. 34, S. 17 degrees, 34' W. 549.13 feet to
an iron pipe; thence leaving the line of West Virginia State Route No. 34,
N. 64 degrees 37' W. 387.18 feet to an iron pipe; thence N. 17 degrees
27' E. 539.88 feet to an iron pipe in an old fence line and in the line
of the land of S. F. Sturgeon and Helen G. Sturgeon, his wife; thence
with the line of S. F. Sturgeon and Helen G. Sturgeon, his wife, S. 66
degrees 00' E. 387.18 feet to the place of beginning, containing 4.84
acres, more or less, and being: "PARCEL 'A' 4.84 ACRES BEING PART OF
LOT NO. 2", as the same is shown and designated upon that certain map
entitled "PROPERTY MAP FOR K.V.D. INCORPORATED PARCEL 'A' 4.84 ACRES
BEING PART OF LOT NO. 2 SITUATE ON THE WATER OF LONG BRANCH OF POPLAR
FORK", etc.; and being the same property conveyed to Holiday Properties,
an Ohio Partnership, by Kanawha Valley Bank, N.A, a national banking
association, by Deed dated September 12, 1986 and recorded in the Office
of the Clerk of the County Commission of Putnam County, West Virginia,
in Deed Book 297 at page 729.
Subject to all prior easements, whether or not visible upon
the ground, and to the prior reservation of all minerals underlying said
real estate.
<PAGE>
EXHIBIT D
---------
LAND INSTALLMENT CONTRACT
THIS LAND INSTALLMENT CONTRACT (this "Contract") is entered
into at Cleveland, Ohio, as of this 28th day of February, 1997 (the
"Commencement Date"), by and between HOLIDAY PROPERTIES, an Ohio general
partnership ("Seller"), and CHEMPOWER, INC., an Ohio corporation ("Buyer").
RECITALS
--------
A. Seller is the fee simple owner of certain real property
commonly known as 807 East Turkeyfoot Lake Road, Akron, Ohio, and more
particularly described in Exhibit A attached hereto and incorporated
---------
herein, together with any and all rights, privileges, easements,
appurtenances and hereditaments belonging thereto and all buildings and
improvements situated thereon, together with the following items currently
located in or on such property: all components of the electrical, heating,
air conditioning, plumbing and bathroom systems; all built-in equipment
(collectively referred to as the "Akron Parcel").
B. Seller, as vendor, and Buyer, as vendee, have entered
into that certain land installment contract (the "Cincinnati Contract") for
the purchase and sale of that certain real property and improvements
commonly known as 3600 Cardiff Avenue, Cincinnati, Ohio, and more
particularly described in the Cincinnati Contract (the "Cincinnati
Parcel").
C. Seller, as vendor, and Buyer, as vendee, have entered
into that certain land installment contract (the "Winfield Contract") for
the purchase and sale of that certain real property and improvements
commonly known as 6050 West Virginia State Route 34, Winfield, West
Virginia, and more particularly described in the Winfield Contract (the
"Winfield Parcel").
D. Buyer desires to purchase from Seller the Akron Parcel
and Seller desires to sell to Buyer the Akron Parcel under the terms of
this Contract.
NOW THEREFORE, in consideration of the mutual covenants and
agreements contained herein, the adequacy and sufficiency of which are
hereby acknowledged by this Purchase Agreement, the parties hereto agree to
the following:
SECTION 1. THE PARCEL. (a) In consideration of the mutual
promises contained herein, Seller agrees to sell and convey to Buyer, and
Buyer agrees to purchase and pay for, upon the provisions, terms, and
conditions of this Contract, the Akron Parcel.
SECTION 2. CONDITION OF THE AKRON PARCEL. Buyer acknowledges
and agrees that Seller has made no representation or warranty whatsoever,
express or implied, as to the condition, quantity, design, merchantability,
fitness or quality of the Akron Parcel, or any portion thereof. Buyer
agrees to accept the Akron Parcel and all portions thereof on the Transfer
Date (as defined hereinbelow) "AS IS" and "WITH ALL FAULTS," subject to all
defects therein, concealed or otherwise, and whether known or unknown to
Seller, it being expressly understood and agreed that Buyer has relied
solely on its own inspections, examinations and evaluations of the Akron
Parcel. Buyer (and anyone claiming by, through, or under Buyer) hereby
fully and finally releases Seller from any and all claims that Buyer may
now have or hereafter acquire against Seller for any cost, loss, liability,
damage, expense, demand, action, or cause of action, relating to or arising
from any failure of Seller to disclose any matter with respect to the Akron
Parcel, any construction defects, errors, omissions, or other conditions
affecting the Akron Parcel and arising out of or resulting from any errors,
omissions, or defects in the Akron Parcel including (without limitation)
any and all liability for any release of hazardous substances, pollutants,
or contaminants from any source whatsoever and whenever occurring. Buyer
further acknowledges and agrees that this release shall be given full force
and effect according to each of its express terms and provisions, including
but not limited to those relating to unknown and suspected claims, damages,
and causes of action. This waiver and release of claims shall survive
termination or expiration of this Contract and closing ("Closing") of the
transaction contemplated herein.
SECTION 3. PURCHASE PRICE. The purchase price for the Akron
Parcel shall be One Million Five Hundred Thousand and No/100 Dollars
($1,500,000.00) (the "Purchase Price"). The Purchase Price provided for
above shall be in addition to, and over and above, all payments to be made
by Buyer for real estate taxes and assessments, insurance and utilities as
hereinafter provided in this Contract and such Purchase Price shall be
absolutely net to Seller except as and to the extent specifically provided
in this Contract. Seller and Buyer hereby acknowledge and agree that the
transaction contemplated under this Contract is not a consumer transaction.
SECTION 4. PAYMENT OF THE PURCHASE PRICE. The Purchase Price
shall be payable under the following terms and conditions and in the
following manner:
(a) On the Commencement Date, Buyer shall pay Seller the
sum of One Hundred Sixty-Six Thousand Six Hundred Sixty-Seven and
No/100 Dollars ($166,667.00) (the "Downpayment"), as downpayment
against and to be applied toward the Purchase Price.
(b) The outstanding principal balance of the Purchase Price
(after deduction of the Downpayment) as of the Commencement Date is
One Million Three Hundred Thirty-Three Thousand Three Hundred
Thirty-Three and No/100 Dollars ($1,333,333.00) (the "Outstanding
Balance").
(c) The Outstanding Balance shall bear interest at the
following per annum rates:
Month(s) Per Annum
-------- ---------
Rate:
-----
1 and 2 7.0%
3 and 4 8.0%
5 and 6 9.0%
7 - 9 10.0%
10 - Maturity 11.0%
Date
(d) On or before the first day of the month following the
month in which the Commencement Date occurs, Buyer shall pay Seller
the interest that Buyer has accrued from the Commencement Date upon
the Outstanding Balance. Thereafter, Buyer shall pay Seller monthly
installments of accrued interest commencing on the first day of the
second month following the month in which the Commencement Date occurs
and continuing on the first day of each subsequent month until said
balance and accrued interest are paid in full; provided, however, that
unless sooner paid the remaining unpaid principal balance and all
accrued interest shall be due and payable on or before the date which
is the first anniversary of the Commencement Date (the "Maturity
Date").
(e) All payments described in this Section 4 shall be paid
by Buyer to Seller at 807 E. Turkeyfoot Lake Road, Akron, Ohio 44319,
or such other address as Seller may designate from time to time.
SECTION 5. PREPAYMENT. Buyer shall have the right to prepay
the Purchase Price, in whole or in partial payment of at least Three
Hundred Seventy-Five Thousand and No/100 Dollars ($375,000.00), at any time
without charge or penalty, provided that Buyer gives to Seller written
notice of any such intent to prepay at least ten (10) days prior to making
such prepayment and further provided that any partial prepayment applied
against the Purchase Price shall be applied in inverse order of the date
due, beginning with the last such payment due.
SECTION 6. POSSESSION. Buyer shall have possession of the
Akron Parcel on the Commencement Date and continuing thereafter so long as
Buyer is not in default under this Contract.
SECTION 7. UTILITIES. To the extent utilities are not
already in Buyer's name, Buyer shall make application for water, gas,
electric, telephone and other utility services for the Akron Parcel in the
name of Buyer. Buyer shall pay directly to the supplying utilities all
amounts billed by the supplying utilities for services used or consumed on
the Akron Parcel.
SECTION 8. REAL ESTATE TAXES AND ASSESSMENTS. During the
term of this Contract, Buyer shall pay all real estate taxes and
assessments, both general and special, on the Akron Parcel as bills are
rendered without regard to periods covered thereunder accruing on and after
the Commencement Date.
SECTION 9. INSURANCE; WAIVER OF SUBROGATION. (a) Buyer
shall, at its own cost and expense, throughout the term of this Contract
maintain on the Akron Parcel (i) commercial general liability insurance for
bodily injury and/or property damage in the amount of Two Million and
00/100 Dollars ($2,000,000.00) single limit and Two Million and 00/100
Dollars ($2,000,000.00) per occurrence, and (ii) all-risk fire insurance in
an amount equal to 100% of replacement cost (which replacement cost shall
be determined by mutual agreement of the parties or, if the parties cannot
agree, by an independent appraiser selected by mutual agreement of the
parties) and otherwise sufficient to prevent Seller from becoming a co--
insured under said policies of insurance, but in no event less than the
unpaid principal balance due under this Contract. Seller and Buyer shall
both be named as insured parties in the insurance policies required above,
as their interests may appear, and copies of all such policies shall be
delivered to Seller on the Commencement Date and thereafter annually.
(b) To the extent that no insurance coverage is invalidated
and that the right of the waiving party to recover under its insurance is
not prejudiced, Seller and Buyer each hereby release and relieve the other,
and waive their entire right of recovery against the other for loss or
damage arising out of or incident to the perils insured against under
Section 9(a) of this Contract, which perils occur in, on, or about the
Akron Parcel, whether due to the negligence of Seller or Buyer or their
agents, employees, contractors and/or invitees. Seller and Buyer shall,
upon obtaining the policies of insurance required hereunder, give notice to
the insurance carrier or carriers that the foregoing mutual waiver of
subrogation is contained in this Contract. Each policy of insurance will
include the waiver of subrogation set forth in this Section 9.
SECTION 10. BENEFICIAL OWNERSHIP. On the Commencement Date,
beneficial ownership of the Akron Parcel, subject to defeasance only in the
event of termination of this Contract, shall be conveyed by Seller to
Buyer.
SECTION 11. TITLE. The Akron Parcel is currently subject to
the liens and encumbrances set forth on Exhibit B attached hereto and made
---------
a part hereof. During the term of this Contract, neither Seller nor Buyer
shall create, permit or suffer any liens or encumbrances against the Akron
Parcel without the prior written consent of the other party, except the
lien of current real estate taxes and assessments not yet due and payable
and this Contract.
SECTION 12. LEGAL TITLE. Seller shall convey to Buyer fee
simple title to the Akron Parcel by quit claim deed (the "Deed") on the
Transfer Date.
SECTION 13. CLOSING. The transaction contemplated by this
Contract shall be closed (the "Closing") within three (3) business days
after Buyer's payment of the full Purchase Price for the Akron Parcel,
Cincinnati Parcel and Winfield Parcel, with interest due thereon and in the
manner and at the time as required or permitted by the terms and conditions
of this Contract and the Cincinnati Contract and Winfield Contract, and
upon Buyer's performance of all other covenants and agreements required of
Buyer by the terms and conditions of this Contract and the Cincinnati
Contract and Winfield Contract (the "Transfer Date"). Closing shall occur
at Midland Title Security, Inc. ("Escrow Agent"), as agent for First
American Title Insurance Company ("Title Company"), or at such other
location as the parties hereto shall mutually agree. Seller shall do all
things necessary to cause Escrow Agent to convey the Akron Parcel to Buyer
by filing the Deed with the Summit County, Ohio Recorder.
SECTION 14. CLOSING EXPENSES. Except as otherwise
provided herein, the following costs and expenses of this transaction shall
be chargeable to Buyer at Closing: (a) the escrow fee charged by Escrow
Agent, and (b) the recording, conveyance and transfer fees of the Deed.
SECTION 15. DUTY TO MAINTAIN; COMPLIANCE WITH LAWS;
INDEMNITY. (a) Buyer acknowledges and agrees that the Akron Parcel is in
good condition, order and repair, and that Buyer shall, at its own cost and
expense, maintain the Akron Parcel in at least as good order and repair as
they are in on the date of this Contract, reasonable wear and tear
excepted.
(b) Buyer shall be responsible for compliance with all
applicable statutes, ordinances, rules, regulations and orders governing
the Akron Parcel and Buyer's use thereof, or the operation of the business
of Buyer on the Akron Parcel.
(c) Buyer shall defend, indemnify and hold harmless Seller
from and against all losses, claims, damages and expenses resulting from
any accident or other occurrence on or about the Akron Parcel resulting in
injury or death to any person or damage to any property. The provisions of
this Section 15(c) shall survive Closing or the termination or expiration
of this Contract.
SECTION 16. TENANT ALTERATIONS OR IMPROVEMENTS. (a) Buyer
shall not remove or permit the removal from the Akron Parcel of any
building or other improvement located thereon or of any other property
described herein without first obtaining written consent of Seller, nor
shall Buyer commit or permit to be committed any waste of the Premises or
of any such building, improvement or other property.
(b) Buyer shall not renovate, remodel or alter any building
or improvement now or hereafter situated on the Akron Parcel, or construct
any additional building, buildings or improvements on the Premises without
obtaining Seller's prior written approval of plans for such renovating,
remodeling or construction, which approval Seller may withhold in its sole
discretion.
SECTION 17. CASUALTY. In the event of any damage to or
destruction of the Akron Parcel by fire or other casualty during the term
of this Contract, Buyer shall restore the Akron Parcel substantially to its
condition prior to such damage or destruction to the extent of insurance
proceeds payable by reason of such damage or destruction.
SECTION 18. EMINENT DOMAIN. Any award or payment received in
connection with the exercise of the right of eminent domain, the alteration
of the grade of any street, or any other injury to or decrease in the value
of the Akron Parcel or any part thereof, shall be the property of Buyer and
Buyer shall bear the risk of any such taking, injury or decrease in value.
SECTION 19. DEFAULT; REMEDIES. (a) If Buyer shall fail to
make payment of any sums due hereunder and shall fail to cure such failure
within ten (10) days from the date that such payment is overdue or shall
default in the performance of any other obligation or covenant herein for
more than thirty (30) days after written notice thereof by Seller to Buyer
(or such longer period as is reasonably required to cure such default if
Buyer promptly commenced and is diligently pursuing the cure thereof, but
in any event such period shall not exceed sixty (60) days); or if an order
for relief shall be issued in any bankruptcy or similar proceeding
commenced by or against Buyer and such order is not dismissed within sixty
(60) days; or if a receiver shall be appointed for all or part of Buyer's
properties and not dismissed within sixty (60) days after the appointment
thereof (each of the foregoing being an "Event of Default"), then and in
any such event Seller may at any time thereafter do any one or more of the
following to the extent not prohibited by law:
(i) Seller shall have the right to assess a late charge of
10% for any sums not paid by the fifteenth (15th) day following the
due date of such sum;
(ii) Seller shall have the right to cause any defaulted
obligation or covenant to be performed, in which event the expense
thereof shall at once be due and payable, to be added to and be a part
of the then remaining balance of the Purchase Price, and shall draw
interest at the rate of fifteen percent (15%) per annum until paid; or
(iii) If such Event of Default occurs at any time during the
term of this Contract or under the terms of the Cincinnati Contract
and/or Winfield Contract, Seller shall have the right to terminate
this Contract and recover possession of any or all of the Premises by
legal proceeding for forcible entry and detainer or otherwise as may
be provided by law.
(b) In addition to and without limitation of the foregoing
remedies, upon occurrence of an Event of Default that is not cured by Buyer
as provided above, Buyer shall reimburse Seller for any and all reasonable
costs and expenses incurred by Seller resulting from such Event of Default,
including without limitation fees and commissions of any real estate
brokers and reasonable attorney's fees as provided below.
(c) In the event either party hereto initiates litigation
or hires legal counsel to enforce or protect its rights under this
Contract, the prevailing party shall be entitled to recover from the
unsuccessful party, in addition to any other damages or relief awarded or
obtained, all court costs and reasonable attorney's fees incurred in
connection with such litigation or action by legal counsel.
SECTION 20. BROKERS. Seller and Buyer each represent and
warrant to the other that no other broker or finder was in any way involved
in the transaction contemplated by this Contract. Each party to this
Contract agrees to indemnify, defend and hold harmless the other from all
loss, costs, expenses, claims and liabilities (including, without
limitation attorneys' fees and expenses) arising from a breach of the
warranty of this section. The provisions of this Section 20 shall survive
Closing or the expiration or termination of this Contract.
SECTION 21. NOTICES. Any notice required or permitted
hereunder shall be deemed sufficiently given if made in writing and either
delivered in person or deposited, postage prepaid, in the United States
certified or registered mail, addressed as follows:
To Buyer: To Seller:
Chempower, Inc. Holiday Properties
87 East Turkeyfoot Lake 3511 Greenburg Road
Road North Canton, Ohio 44720
Akron, Ohio 44319 Attn.: Ernest M. Rochester,
Attn: T.J. Kukk, General Partner
President Telephone: (330) 494-5282
Telephone: (330) 896-4202 Facsimile: (330) 494-1335
Facsimile: (330) 896-1866
With a copy to: With a copy to:
Reid & Priest LLP Thompson Hine & Flory LLP
40 West 57th Street 3900 Key Center
New York, New York 10019 127 Public Square
Attn.: Bruce A. Rich, Cleveland, Ohio 44114-1216
Esq. Attn.: Thomas A. Aldrich,
Telephone: (212) 603-2000 Esq.
Facsimile: (212) 603-2001 Telephone: (216) 556-5749
Facsimile: (216) 566-5800
or to such other address or addresses as Buyer or Seller may designate from
time to time by notice to the other.
SECTION 22. ENVIRONMENTAL INDEMNIFICATION. Buyer shall
defend, indemnify and hold harmless Seller from and against any and all
losses, claims, liabilities, damages, demands, fines, costs and expenses
(including reasonable legal expenses) of whatever kind and nature resulting
from any accident, occurrence or condition caused by the release by Buyer
or any third party acting on behalf or at the direction of Buyer of any
toxic or hazardous substance or waste in, on, under, about or affecting the
Akron Parcel that results in any injury or death to any person or damage to
any property (other than damage to property of the type insurable under a
standard form all risk fire and extended coverage insurance policy) or
which requires the removal or treatment of such hazardous or toxic
substance or waste or any other remedial action or fine under the terms of
any properly constituted law, regulation, rule or directive of any federal,
state or local governmental authority. The provisions of this Section 22
shall survive Closing or the expiration or termination of this Contract.
SECTION 23. NO WAIVER. Failure of either party to complain
of any act or omission on the part of the other party, no matter how long
the same may continue, shall not be deemed to be a waiver by said party of
any of its rights hereunder. No waiver by either party at any time,
express or implied, of any breach of any provisions of this Contract shall
be deemed a waiver of a breach of any other provision of this Contract or a
consent to any subsequent breach of the same or any other provision. If any
action by either party shall require the consent or approval of the other
party, the other party's consent to or approval of such action on any one
occasion shall not be deemed a consent to or approval of said action on any
subsequent occasion or a consent to or approval of any other action on the
same or any subsequent occasion.
SECTION 24. REMEDIES CUMULATIVE. Any and all rights and
remedies that either party may have under this Contract or by operation of
law, either at law or in equity, upon any breach, shall be distinct,
separate and cumulative and shall not be deemed inconsistent with each
other; and no one of them, whether exercised by said party or not shall be
deemed to be in exclusion of any other; and any two or more or all of such
rights and remedies may be exercised at the same time.
SECTION 25. CONTRACT NON-TRANSFERABLE. Neither party shall
sell, assign or transfer or permit to be sold, assigned or transferred any
of such party's interest in the Premises, in any property described herein
or in this Contract without first obtaining the written consent of the
other party, which consent shall not be unreasonably withheld, conditioned
or delayed.
SECTION 26. BINDING CONTRACT. This Contract shall not be
deemed to lack mutuality by virtue of any condition contained herein,
whether or not such condition must be fulfilled to the satisfaction of the
party for whose benefit it is intended. Each such condition shall be
deemed to require the parties to use their good faith efforts to fulfill
the same. The parties also hereby mutually acknowledge that, in addition
to all other consideration for this Contract, they have received other good
and valuable consideration in return for their promise that, pending
fulfillment of such conditions, this Contract shall remain in force and
binding upon them.
SECTION 27. QUADRUPLICATES. This Contract shall be executed
in quadruplicate, each of which shall be an original.
SECTION 28. RULES OF CONSTRUCTION. This Contract has been
reviewed by counsel for each party hereto prior to its execution, and no
presumptions or rules of construction shall be applicable by reason of the
identity of counsel preparing this Contract. This Contract shall be
construed according to its fair meaning and neither for nor against either
party.
SECTION 29. NOUNS. As used in this Contract, unless the
context otherwise specifically requires, the singular includes the plural,
and vice versa, and the masculine includes the feminine, and vice versa.
SECTION 30. CAPTIONS. The captions used herein are for
convenience only and shall not control or affect the meaning of
construction of any provisions of this Contract. All references to
"Sections" shall be to Sections of this Contract unless otherwise
specified.
SECTION 31. SUCCESSORS AND ASSIGNS. This Contract shall be
binding upon and inure to the benefit of the parties hereto and their
respective heirs, executors, administrators, successors and permitted
assigns, as the case may be.
SECTION 32. APPLICABLE LAW. This Contract shall be governed
by, and construed and enforced in accordance with, the laws of the state
where the Akron Parcel is located.
IN WITNESS WHEREOF, Seller and Buyer have executed this
Contract as of the date first written above.
Signed and acknowledged in the SELLER:
presence of:
(both signatures) HOLIDAY PROPERTIES
By:
---------------------------
-------------------------------- Toomas J. Kukk, General
Printed name: Partner
-------------------
And by:
-----------------------
-------------------------------- Ernest M. Rochester, General
Printed name: Partner
-------------------
Signed and acknowledged BUYER:
in the presence of:
CHEMPOWER, INC.
By:
---------------------------
-------------------------------- Toomas J. Kukk, General
Printed name: Partner
-------------------
--------------------------------
Printed name:
-------------------
STATE OF OHIO )
) SS:
COUNTY OF CUYAHOGA )
BEFORE ME, a Notary Public in and for said county and state,
personally appeared Toomas J. Kukk and Ernest M. Rochester, the General
Partners of Holiday Properties, an Ohio general partnership, who
acknowledged that they did sign the foregoing instrument on behalf of said
general partnership and the same is their free act and deed and the free
act and deed of said general partnership.
IN WITNESS WHEREOF, I hereunto set my hand this 28th day of
February, 1997.
[seal]
---------------------------------------------
Notary Public
My commission expires:
-----------------------
STATE OF OHIO )
) SS:
COUNTY OF CUYAHOGA )
BEFORE ME, a Notary Public in and for said county and state,
personally appeared Toomas J. Kukk, the President of Chempower, Inc., an
Ohio corporation, who acknowledged that he did sign the foregoing
instrument on behalf of said corporation and the same is his free act and
deed and the free act and deed of said corporation.
IN WITNESS WHEREOF, I hereunto set my hand this 28th day of
February, 1997.
[seal]
---------------------------------------------
Notary Public
My commission expires:
-----------------------
This instrument prepared by:
Thompson Hine & Flory LLP
3900 Key Center
127 Public Square
Cleveland, Ohio 44114-1216
LAND INSTALLMENT CONTRACT
THIS LAND INSTALLMENT CONTRACT (this "Contract") is entered
into at Cleveland, Ohio, as of this 28th day of February, 1997 (the
"Commencement Date"), by and between HOLIDAY PROPERTIES, an Ohio general
partnership ("Seller"), and CHEMPOWER, INC., an Ohio corporation ("Buyer").
RECITALS
--------
A. Seller is the fee simple owner of certain real property
commonly known as 3600 Cardiff Avenue, Cincinnati, Ohio, and more
particularly described in Exhibit A attached hereto and incorporated
---------
herein, together with any and all rights, privileges, easements,
appurtenances and hereditaments belonging thereto and all buildings and
improvements situated thereon, together with the following items currently
located in or on such property: all components of the electrical, heating,
air conditioning, plumbing and bathroom systems; all built-in equipment
(collectively referred to as the "Cincinnati Parcel").
B. Seller, as vendor, and Buyer, as vendee, have entered
into that certain land installment contract (the "Akron Contract") for the
purchase and sale of that certain real property and improvements commonly
known as 807 East Turkeyfoot Lake Road, Akron, Ohio, and more particularly
described in the Akron Contract (the "Akron Parcel").
C. Seller, as vendor, and Buyer, as vendee, have entered
into that certain land installment contract (the "Winfield Contract") for
the purchase and sale of that certain real property and improvements
commonly known as 6050 West Virginia State Route 34, Winfield, West
Virginia, and more particularly described in the Winfield Contract (the
"Winfield Parcel").
D. Buyer desires to purchase from Seller the Cincinnati
Parcel and Seller desires to sell to Buyer the Cincinnati Parcel under the
terms of this Contract.
NOW THEREFORE, in consideration of the mutual covenants and
agreements contained herein, the adequacy and sufficiency of which are
hereby acknowledged by this Purchase Agreement, the parties hereto agree to
the following:
SECTION 1. THE PARCEL. (a) In consideration of the mutual
promises contained herein, Seller agrees to sell and convey to Buyer, and
Buyer agrees to purchase and pay for, upon the provisions, terms, and
conditions of this Contract, the Cincinnati Parcel.
SECTION 2. CONDITION OF THE CINCINNATI PARCEL. Buyer
acknowledges and agrees that Seller has made no representation or warranty
whatsoever, express or implied, as to the condition, quantity, design,
merchantability, fitness or quality of the Cincinnati Parcel, or any
portion thereof. Buyer agrees to accept the Cincinnati Parcel and all
portions thereof on the Transfer Date (as defined hereinbelow) "AS IS" and
"WITH ALL FAULTS," subject to all defects therein, concealed or otherwise,
and whether known or unknown to Seller, it being expressly understood and
agreed that Buyer has relied solely on its own inspections, examinations
and evaluations of the Cincinnati Parcel. Buyer (and anyone claiming by,
through, or under Buyer) hereby fully and finally releases Seller from any
and all claims that Buyer may now have or hereafter acquire against Seller
for any cost, loss, liability, damage, expense, demand, action, or cause of
action, relating to or arising from any failure of Seller to disclose any
matter with respect to the Cincinnati Parcel, any construction defects,
errors, omissions, or other conditions affecting the Cincinnati Parcel and
arising out of or resulting from any errors, omissions, or defects in the
Cincinnati Parcel including (without limitation) any and all liability for
any release of hazardous substances, pollutants, or contaminants from any
source whatsoever and whenever occurring. Buyer further acknowledges and
agrees that this release shall be given full force and effect according to
each of its express terms and provisions, including but not limited to
those relating to unknown and suspected claims, damages, and causes of
action. This waiver and release of claims shall survive termination or
expiration of this Contract and closing ("Closing") of the transaction
contemplated herein.
SECTION 3. PURCHASE PRICE. The purchase price for the
Cincinnati Parcel shall be Six Hundred Thousand and No/100 Dollars
($600,000.00) (the "Purchase Price"). The Purchase Price provided for
above shall be in addition to, and over and above, all payments to be made
by Buyer for real estate taxes and assessments, insurance and utilities as
hereinafter provided in this Contract and such Purchase Price shall be
absolutely net to Seller except as and to the extent specifically provided
in this Contract. Seller and Buyer hereby acknowledge and agree that the
transaction contemplated under this Contract is not a consumer transaction.
SECTION 4. PAYMENT OF THE PURCHASE PRICE. The Purchase Price
shall be payable under the following terms and conditions and in the
following manner:
(a) On the Commencement Date, Buyer shall pay Seller the
sum of Sixty-Six Thousand Six Hundred Sixty-Six and No/100 Dollars
($66,666.00) (the "Downpayment"), as downpayment against and to be
applied toward the Purchase Price.
(b) The outstanding principal balance of the Purchase Price
(after deduction of the Downpayment) as of the Commencement Date is
Five Hundred Thirty-Three Thousand Three Hundred Thirty-Four and
No/100 Dollars ($533,334.00) (the "Outstanding Balance").
(c) The Outstanding Balance shall bear interest at the
following per annum rates:
Month(s) Per Annum
-------- ---------
Rate:
-----
1 and 2 7.0%
3 and 4 8.0%
5 and 6 9.0%
7 - 9 10.0%
10 - Maturity 11.0%
Date
(d) On or before the first day of the month following the
month in which the Commencement Date occurs, Buyer shall pay Seller
the interest that Buyer has accrued from the Commencement Date upon
the Outstanding Balance. Thereafter, Buyer shall pay Seller monthly
installments of accrued interest commencing on the first day of the
second month following the month in which the Commencement Date occurs
and continuing on the first day of each subsequent month until said
balance and accrued interest are paid in full; provided, however, that
unless sooner paid the remaining unpaid principal balance and all
accrued interest shall be due and payable on or before the date which
is the first anniversary of the Commencement Date (the "Maturity
Date").
(e) All payments described in this Section 4 shall be paid
by Buyer to Seller at 807 E. Turkeyfoot Lake Road, Akron, Ohio 44319,
or such other address as Seller may designate from time to time.
SECTION 5. PREPAYMENT. Buyer shall have the right to prepay
the Purchase Price, in whole or in partial payment of at least One Hundred
Fifty Thousand and No/100 Dollars ($150,000.00), at any time without charge
or penalty, provided that Buyer gives to Seller written notice of any such
intent to prepay at least ten (10) days prior to making such prepayment and
further provided that any partial prepayment applied against the Purchase
Price shall be applied in inverse order of the date due, beginning with the
last such payment due.
SECTION 6. POSSESSION. Buyer shall have possession of the
Cincinnati Parcel on the Commencement Date and continuing thereafter so
long as Buyer is not in default under this Contract.
SECTION 7. UTILITIES. To the extent utilities are not
already in Buyer's name, Buyer shall make application for water, gas,
electric, telephone and other utility services for the Cincinnati Parcel in
the name of Buyer. Buyer shall pay directly to the supplying utilities all
amounts billed by the supplying utilities for services used or consumed on
the Cincinnati Parcel.
SECTION 8. REAL ESTATE TAXES AND ASSESSMENTS. During the
term of this Contract, Buyer shall pay all real estate taxes and
assessments, both general and special, on the Cincinnati Parcel as bills
are rendered without regard to periods covered thereunder accruing on and
after the Commencement Date.
SECTION 9. INSURANCE; WAIVER OF SUBROGATION. (a) Buyer
shall, at its own cost and expense, throughout the term of this Contract
maintain on the Cincinnati Parcel (i) commercial general liability
insurance for bodily injury and/or property damage in the amount of Two
Million and 00/100 Dollars ($2,000,000.00) single limit and Two Million and
00/100 Dollars ($2,000,000.00) per occurrence, and (ii) all-risk fire
insurance in an amount equal to 100% of replacement cost (which replacement
cost shall be determined by mutual agreement of the parties or, if the
parties cannot agree, by an independent appraiser selected by mutual
agreement of the parties) and otherwise sufficient to prevent Seller from
becoming a co-insured under said policies of insurance, but in no event
less than the unpaid principal balance due under this Contract. Seller and
Buyer shall both be named as insured parties in the insurance policies
required above, as their interests may appear, and copies of all such
policies shall be delivered to Seller on the Commencement Date and
thereafter annually.
(b) To the extent that no insurance coverage is invalidated
and that the right of the waiving party to recover under its insurance is
not prejudiced, Seller and Buyer each hereby release and relieve the other,
and waive their entire right of recovery against the other for loss or
damage arising out of or incident to the perils insured against under
Section 9(a) of this Contract, which perils occur in, on, or about the
Cincinnati Parcel, whether due to the negligence of Seller or Buyer or
their agents, employees, contractors and/or invitees. Seller and Buyer
shall, upon obtaining the policies of insurance required hereunder, give
notice to the insurance carrier or carriers that the foregoing mutual
waiver of subrogation is contained in this Contract. Each policy of
insurance will include the waiver of subrogation set forth in this Section
9.
SECTION 10. BENEFICIAL OWNERSHIP. On the Commencement Date,
beneficial ownership of the Cincinnati Parcel, subject to defeasance only
in the event of termination of this Contract, shall be conveyed by Seller
to Buyer.
SECTION 11. TITLE. The Cincinnati Parcel is currently
subject to the liens and encumbrances set forth on Exhibit B attached
---------
hereto and made a part hereof. During the term of this Contract, neither
Seller nor Buyer shall create, permit or suffer any liens or encumbrances
against the Cincinnati Parcel without the prior written consent of the
other party, except the lien of current real estate taxes and assessments
not yet due and payable and this Contract.
SECTION 12. LEGAL TITLE. Seller shall convey to Buyer fee
simple title to the Cincinnati Parcel by quit claim deed (the "Deed") on
the Transfer Date.
SECTION 13. CLOSING. The transaction contemplated by this
Contract shall be closed (the "Closing") within three (3) business days
after Buyer's payment of the full Purchase Price for the Cincinnati Parcel,
Akron Parcel and Winfield Parcel, with interest due thereon and in the
manner and at the time as required or permitted by the terms and conditions
of this Contract and the Akron Contract and Winfield Contract, and upon
Buyer's performance of all other covenants and agreements required of Buyer
by the terms and conditions of this Contract and the Akron Contract and
Winfield Contract (the "Transfer Date"). Closing shall occur at Midland
Title Security, Inc. ("Escrow Agent"), as agent for First American Title
Insurance Company ("Title Company"), or at such other location as the
parties hereto shall mutually agree. Seller shall do all things necessary
to cause Escrow Agent to convey the Cincinnati Parcel to Buyer by filing
the Deed with the Hamilton County, Ohio Recorder.
SECTION 14. CLOSING EXPENSES. Except as otherwise provided
herein, the following costs and expenses of this transaction shall be
chargeable to Buyer at Closing: (a) the escrow fee charged by Escrow
Agent, and (b) the recording, conveyance and transfer fees of the Deed.
SECTION 15. DUTY TO MAINTAIN; COMPLIANCE WITH LAWS;
INDEMNITY. (a) Buyer acknowledges and agrees that the Cincinnati Parcel is
in good condition, order and repair, and that Buyer shall, at its own cost
and expense, maintain the Cincinnati Parcel in at least as good order and
repair as they are in on the date of this Contract, reasonable wear and
tear excepted.
(b) Buyer shall be responsible for compliance with all
applicable statutes, ordinances, rules, regulations and orders governing
the Cincinnati Parcel and Buyer's use thereof, or the operation of the
business of Buyer on the Cincinnati Parcel.
(c) Buyer shall defend, indemnify and hold harmless Seller
from and against all losses, claims, damages and expenses resulting from
any accident or other occurrence on or about the Cincinnati Parcel
resulting in injury or death to any person or damage to any property. The
provisions of this Section 15(c) shall survive Closing or the termination
or expiration of this Contract.
SECTION 16. TENANT ALTERATIONS OR IMPROVEMENTS. (a) Buyer
shall not remove or permit the removal from the Cincinnati Parcel of any
building or other improvement located thereon or of any other property
described herein without first obtaining written consent of Seller, nor
shall Buyer commit or permit to be committed any waste of the Premises or
of any such building, improvement or other property.
(b) Buyer shall not renovate, remodel or alter any building
or improvement now or hereafter situated on the Cincinnati Parcel, or
construct any additional building, buildings or improvements on the
Premises without obtaining Seller's prior written approval of plans for
such renovating, remodeling or construction, which approval Seller may
withhold in its sole discretion.
SECTION 17. CASUALTY. In the event of any damage to or
destruction of the Cincinnati Parcel by fire or other casualty during the
term of this Contract, Buyer shall restore the Cincinnati Parcel
substantially to its condition prior to such damage or destruction to the
extent of insurance proceeds payable by reason of such damage or
destruction.
SECTION 18. EMINENT DOMAIN. Any award or payment received in
connection with the exercise of the right of eminent domain, the alteration
of the grade of any street, or any other injury to or decrease in the value
of the Cincinnati Parcel or any part thereof, shall be the property of
Buyer and Buyer shall bear the risk of any such taking, injury or decrease
in value.
SECTION 19. DEFAULT; REMEDIES. (a) If Buyer shall fail to
make payment of any sums due hereunder and shall fail to cure such failure
within ten (10) days from the date that such payment is overdue or shall
default in the performance of any other obligation or covenant herein for
more than thirty (30) days after written notice thereof by Seller to Buyer
(or such longer period as is reasonably required to cure such default if
Buyer promptly commenced and is diligently pursuing the cure thereof, but
in any event such period shall not exceed sixty (60) days); or if an order
for relief shall be issued in any bankruptcy or similar proceeding
commenced by or against Buyer and such order is not dismissed within sixty
(60) days; or if a receiver shall be appointed for all or part of Buyer's
properties and not dismissed within sixty (60) days after the appointment
thereof (each of the foregoing being an "Event of Default"), then and in
any such event Seller may at any time thereafter do any one or more of the
following to the extent not prohibited by law:
(i) Seller shall have the right to assess a late charge of
10% for any sums not paid by the fifteenth (15th) day following the
due date of such sum;
(ii) Seller shall have the right to cause any defaulted
obligation or covenant to be performed, in which event the expense
thereof shall at once be due and payable, to be added to and be a part
of the then remaining balance of the Purchase Price, and shall draw
interest at the rate of fifteen percent (15%) per annum until paid; or
(iii) If such Event of Default occurs at any time during the
term of this Contract or under the terms of the Akron Contract and/or
Winfield Contract, Seller shall have the right to terminate this
Contract and recover possession of any or all of the Premises by legal
proceeding for forcible entry and detainer or otherwise as may be
provided by law.
(b) In addition to and without limitation of the foregoing
remedies, upon occurrence of an Event of Default that is not cured by Buyer
as provided above, Buyer shall reimburse Seller for any and all reasonable
costs and expenses incurred by Seller resulting from such Event of Default,
including without limitation fees and commissions of any real estate
brokers and reasonable attorney's fees as provided below.
(c) In the event either party hereto initiates litigation
or hires legal counsel to enforce or protect its rights under this
Contract, the prevailing party shall be entitled to recover from the
unsuccessful party, in addition to any other damages or relief awarded or
obtained, all court costs and reasonable attorney's fees incurred in
connection with such litigation or action by legal counsel.
SECTION 20. BROKERS. Seller and Buyer each represent and
warrant to the other that no other broker or finder was in any way involved
in the transaction contemplated by this Contract. Each party to this
Contract agrees to indemnify, defend and hold harmless the other from all
loss, costs, expenses, claims and liabilities (including, without
limitation attorneys' fees and expenses) arising from a breach of the
warranty of this section. The provisions of this Section 20 shall survive
Closing or the expiration or termination of this Contract.
SECTION 21. NOTICES. Any notice required or permitted
hereunder shall be deemed sufficiently given if made in writing and either
delivered in person or deposited, postage prepaid, in the United States
certified or registered mail, addressed as follows:
To Buyer: To Seller:
Chempower, Inc. Holiday Properties
87 East Turkeyfoot Lake 3511 Greenburg Road
Road North Canton, Ohio 44720
Akron, Ohio 44319 Attn.: Ernest M. Rochester,
Attn: T.J. Kukk, General Partner
President Telephone: (330) 494-5282
Telephone: (330) 896-4202 Facsimile: (330) 494-1335
Facsimile: (330) 896-1866
With a copy to: With a copy to:
Reid & Priest LLP Thompson Hine & Flory LLP
40 West 57th Street 3900 Key Center
New York, New York 10019 127 Public Square
Attn.: Bruce A. Rich, Cleveland, Ohio 44114-1216
Esq. Attn.: Thomas A. Aldrich,
Telephone: (212) 603-2000 Esq.
Facsimile: (212) 603-2001 Telephone: (216) 556-5749
Facsimile: (216) 566-5800
or to such other address or addresses as Buyer or Seller may designate from
time to time by notice to the other.
SECTION 22. ENVIRONMENTAL INDEMNIFICATION. Buyer shall
defend, indemnify and hold harmless Seller from and against any and all
losses, claims, liabilities, damages, demands, fines, costs and expenses
(including reasonable legal expenses) of whatever kind and nature resulting
from any accident, occurrence or condition caused by the release by Buyer
or any third party acting on behalf or at the direction of Buyer of any
toxic or hazardous substance or waste in, on, under, about or affecting the
Cincinnati Parcel that results in any injury or death to any person or
damage to any property (other than damage to property of the type insurable
under a standard form all-risk fire and extended coverage insurance policy)
or which requires the removal or treatment of such hazardous or toxic
substance or waste or any other remedial action or fine under the terms of
any properly constituted law, regulation, rule or directive of any federal,
state or local governmental authority. The provisions of this Section 22
shall survive Closing or the expiration or termination of this Contract.
SECTION 23. NO WAIVER. Failure of either party to complain
of any act or omission on the part of the other party, no matter how long
the same may continue, shall not be deemed to be a waiver by said party of
any of its rights hereunder. No waiver by either party at any time,
express or implied, of any breach of any provisions of this Contract shall
be deemed a waiver of a breach of any other provision of this Contract or a
consent to any subsequent breach of the same or any other provision. If any
action by either party shall require the consent or approval of the other
party, the other party's consent to or approval of such action on any one
occasion shall not be deemed a consent to or approval of said action on any
subsequent occasion or a consent to or approval of any other action on the
same or any subsequent occasion.
SECTION 24. REMEDIES CUMULATIVE. Any and all rights and
remedies that either party may have under this Contract or by operation of
law, either at law or in equity, upon any breach, shall be distinct,
separate and cumulative and shall not be deemed inconsistent with each
other; and no one of them, whether exercised by said party or not shall be
deemed to be in exclusion of any other; and any two or more or all of such
rights and remedies may be exercised at the same time.
SECTION 25. CONTRACT NON-TRANSFERABLE. Neither party shall
sell, assign or transfer or permit to be sold, assigned or transferred any
of such party's interest in the Premises, in any property described herein
or in this Contract without first obtaining the written consent of the
other party, which consent shall not be unreasonably withheld, conditioned
or delayed.
SECTION 26. BINDING CONTRACT. This Contract shall not be
deemed to lack mutuality by virtue of any condition contained herein,
whether or not such condition must be fulfilled to the satisfaction of the
party for whose benefit it is intended. Each such condition shall be
deemed to require the parties to use their good faith efforts to fulfill
the same. The parties also hereby mutually acknowledge that, in addition
to all other consideration for this Contract, they have received other good
and valuable consideration in return for their promise that, pending
fulfillment of such conditions, this Contract shall remain in force and
binding upon them.
SECTION 27. QUADRUPLICATES. This Contract shall be executed
in quadruplicate, each of which shall be an original.
SECTION 28. RULES OF CONSTRUCTION. This Contract has been
reviewed by counsel for each party hereto prior to its execution, and no
presumptions or rules of construction shall be applicable by reason of the
identity of counsel preparing this Contract. This Contract shall be
construed according to its fair meaning and neither for nor against either
party.
SECTION 29. NOUNS. As used in this Contract, unless the
context otherwise specifically requires, the singular includes the plural,
and vice versa, and the masculine includes the feminine, and vice versa.
SECTION 30. CAPTIONS. The captions used herein are for
convenience only and shall not control or affect the meaning of
construction of any provisions of this Contract. All references to
"Sections" shall be to Sections of this Contract unless otherwise
specified.
SECTION 31. SUCCESSORS AND ASSIGNS. This Contract shall be
binding upon and inure to the benefit of the parties hereto and their
respective heirs, executors, administrators, successors and permitted
assigns, as the case may be.
SECTION 32. APPLICABLE LAW. This Contract shall be governed
by, and construed and enforced in accordance with, the laws of the state
where the Cincinnati Parcel is located.
IN WITNESS WHEREOF, Seller and Buyer have executed this
Contract as of the date first written above.
Signed and acknowledged in the SELLER:
presence of:
(both signatures) HOLIDAY PROPERTIES
By:
---------------------------
-------------------------------- Toomas J. Kukk, General
Printed name: Partner
-------------------
And by:
-----------------------
-------------------------------- Ernest M. Rochester, General
Printed name: Partner
-------------------
Signed and acknowledged BUYER:
in the presence of:
CHEMPOWER, INC.
By:
---------------------------
-------------------------------- Toomas J. Kukk, General
Printed name: Partner
-------------------
--------------------------------
Printed name:
-------------------
STATE OF OHIO )
) SS:
COUNTY OF CUYAHOGA )
BEFORE ME, a Notary Public in and for said county and state,
personally appeared Toomas J. Kukk and Ernest M. Rochester, the General
Partners of Holiday Properties, an Ohio general partnership, who
acknowledged that they did sign the foregoing instrument on behalf of said
general partnership and the same is their free act and deed and the free
act and deed of said general partnership
IN WITNESS WHEREOF, I hereunto set my hand this 28th day
of February, 1997.
[seal]
---------------------------------------------
Notary Public
My commission expires:
-----------------------
STATE OF OHIO )
) SS:
COUNTY OF CUYAHOGA )
BEFORE ME, a Notary Public in and for said county and state,
personally appeared Toomas J. Kukk, the President of Chempower, Inc., an
Ohio corporation, who acknowledged that he did sign the foregoing
instrument on behalf of said corporation and the same is his free act and
deed and the free act and deed of said corporation.
IN WITNESS WHEREOF, I hereunto set my hand this 28th day of
February, 1997.
[seal]
---------------------------------------------
Notary Public
My commission expires:
-----------------------
This instrument prepared by:
Thompson Hine & Flory LLP
3900 Key Center
127 Public Square
Cleveland, Ohio 44114-1216
LAND INSTALLMENT CONTRACT
THIS LAND INSTALLMENT CONTRACT (this "Contract") is entered
into at Cleveland, Ohio, as of this 28th day of February, 1997 (the
"Commencement Date"), by and between HOLIDAY PROPERTIES, an Ohio general
partnership ("Seller"), and CHEMPOWER, INC., an Ohio corporation ("Buyer").
RECITALS
--------
A. Seller is the fee simple owner of certain real property
commonly known as 6050 West Virginia State Route 34, Winfield, West
Virginia, and more particularly described in Exhibit A attached hereto and
---------
incorporated herein, together with any and all rights, privileges,
easements, appurtenances and hereditaments belonging thereto and all
buildings and improvements situated thereon, together with the following
items currently located in or on such property: all components of the
electrical, heating, air conditioning, plumbing and bathroom systems; all
built-in equipment (collectively referred to as the "Winfield Parcel").
B. Seller, as vendor, and Buyer, as vendee, have entered
into that certain land installment contract (the "Akron Contract") for the
purchase and sale of that certain real property and improvements commonly
known as 807 East Turkeyfoot Lake Road, Akron, Ohio, and more particularly
described in the Akron Contract (the "Akron Parcel").
C. Seller, as vendor, and Buyer, as vendee, have entered
into that certain land installment contract (the "Cincinnati Contract") for
the purchase and sale of that certain real property and improvements
commonly known as 3600 Cardiff Avenue, Cincinnati, Ohio, and more
particularly described in the Cincinnati Contract (the "Cincinnati
Parcel").
D. Buyer desires to purchase from Seller the Winfield
Parcel and Seller desires to sell to Buyer the Winfield Parcel under the
terms of this Contract.
NOW THEREFORE, in consideration of the mutual covenants and
agreements contained herein, the adequacy and sufficiency of which are
hereby acknowledged by this Purchase Agreement, the parties hereto agree to
the following:
SECTION 1. THE PARCEL. (a) In consideration of the mutual
promises contained herein, Seller agrees to sell and convey to Buyer, and
Buyer agrees to purchase and pay for, upon the provisions, terms, and
conditions of this Contract, the Winfield Parcel.
SECTION 2. CONDITION OF THE WINFIELD PARCEL. Buyer
acknowledges and agrees that Seller has made no representation or warranty
whatsoever, express or implied, as to the condition, quantity, design,
merchantability, fitness or quality of the Winfield Parcel, or any portion
thereof. Buyer agrees to accept the Winfield Parcel and all portions
thereof on the Transfer Date (as defined hereinbelow) "AS IS" and "WITH ALL
FAULTS," subject to all defects therein, concealed or otherwise, and
whether known or unknown to Seller, it being expressly understood and
agreed that Buyer has relied solely on its own inspections, examinations
and evaluations of the Winfield Parcel. Buyer (and anyone claiming by,
through, or under Buyer) hereby fully and finally releases Seller from any
and all claims that Buyer may now have or hereafter acquire against Seller
for any cost, loss, liability, damage, expense, demand, action, or cause of
action, relating to or arising from any failure of Seller to disclose any
matter with respect to the Winfield Parcel, any construction defects,
errors, omissions, or other conditions affecting the Winfield Parcel and
arising out of or resulting from any errors, omissions, or defects in the
Winfield Parcel including (without limitation) any and all liability for
any release of hazardous substances, pollutants, or contaminants from any
source whatsoever and whenever occurring. Buyer further acknowledges and
agrees that this release shall be given full force and effect according to
each of its express terms and provisions, including but not limited to
those relating to unknown and suspected claims, damages, and causes of
action. This waiver and release of claims shall survive termination or
expiration of this Contract and closing ("Closing") of the transaction
contemplated herein.
SECTION 3. PURCHASE PRICE. The purchase price for the
Winfield Parcel shall be Two Million Four Hundred Thousand and No/100
Dollars ($2,400,000.00) (the "Purchase Price"). The Purchase Price
provided for above shall be in addition to, and over and above, all
payments to be made by Buyer for real estate taxes and assessments,
insurance and utilities as hereinafter provided in this Contract and such
Purchase Price shall be absolutely net to Seller except as and to the
extent specifically provided in this Contract. Seller and Buyer hereby
acknowledge and agree that the transaction contemplated under this Contract
is not a consumer transaction.
SECTION 4. PAYMENT OF THE PURCHASE PRICE. The Purchase Price
shall be payable under the following terms and conditions and in the
following manner:
(a) On the Commencement Date, Buyer shall pay Seller the
sum of Two Hundred Sixty-Six Thousand Six Hundred Sixty-Seven and
No/100 Dollars ($266,667.00) (the "Downpayment"), as downpayment
against and to be applied toward the Purchase Price.
(b) The outstanding principal balance of the Purchase Price
(after deduction of the Downpayment) as of the Commencement Date is
Two Million One Hundred Thirty-Three Thousand Three Hundred
Thirty-Three and No/100 Dollars ($2,133,333.00) (the "Outstanding
Balance").
(c) The Outstanding Balance shall bear interest at the
following per annum rates:
Month(s) Per Annum
-------- ---------
Rate:
-----
1 and 2 7.0%
3 and 4 8.0%
5 and 6 9.0%
7 - 9 10.0%
10 - Maturity 11.0%
Date
(d) On or before the first day of the month following the
month in which the Commencement Date occurs, Buyer shall pay Seller
the interest that Buyer has accrued from the Commencement Date upon
the Outstanding Balance. Thereafter, Buyer shall pay Seller monthly
installments of accrued interest commencing on the first day of the
second month following the month in which the Commencement Date occurs
and continuing on the first day of each subsequent month until said
balance and accrued interest are paid in full; provided, however, that
unless sooner paid the remaining unpaid principal balance and all
accrued interest shall be due and payable on or before the date which
is the first anniversary of the Commencement Date (the "Maturity
Date").
(e) All payments described in this Section 4 shall be paid
by Buyer to Seller at 807 E. Turkeyfoot Lake Road, Akron, Ohio 44319,
or such other address as Seller may designate from time to time.
SECTION 5. PREPAYMENT. Buyer shall have the right to prepay
the Purchase Price, in whole or in partial payment of at least Six Hundred
Thousand and No/100 Dollars ($600,000.00), at any time without charge or
penalty, provided that Buyer gives to Seller written notice of any such
intent to prepay at least ten (10) days prior to making such prepayment and
further provided that any partial prepayment applied against the Purchase
Price shall be applied in inverse order of the date due, beginning with the
last such payment due.
SECTION 6. POSSESSION. Buyer shall have possession of the
Winfield Parcel on the Commencement Date and continuing thereafter so long
as Buyer is not in default under this Contract.
SECTION 7. UTILITIES. To the extent utilities are not
already in Buyer's name, Buyer shall make application for water, gas,
electric, telephone and other utility services for the Winfield Parcel in
the name of Buyer. Buyer shall pay directly to the supplying utilities all
amounts billed by the supplying utilities for services used or consumed on
the Winfield Parcel.
SECTION 8. REAL ESTATE TAXES AND ASSESSMENTS. During the
term of this Contract, Buyer shall pay all real estate taxes and
assessments, both general and special, on the Winfield Parcel as bills are
rendered without regard to periods covered thereunder accruing on and after
the Commencement Date.
SECTION 9. INSURANCE; WAIVER OF SUBROGATION. (a) Buyer
shall, at its own cost and expense, throughout the term of this Contract
maintain on the Winfield Parcel (i) commercial general liability insurance
for bodily injury and/or property damage in the amount of Two Million and
00/100 Dollars ($2,000,000.00) single limit and Two Million and 00/100
Dollars ($2,000,000.00) per occurrence, and (ii) all-risk fire insurance in
an amount equal to 100% of replacement cost (which replacement cost shall
be determined by mutual agreement of the parties or, if the parties cannot
agree, by an independent appraiser selected by mutual agreement of the
parties) and otherwise sufficient to prevent Seller from becoming a co--
insured under said policies of insurance, but in no event less than the
unpaid principal balance due under this Contract. Seller and Buyer shall
both be named as insured parties in the insurance policies required above,
as their interests may appear, and copies of all such policies shall be
delivered to Seller on the Commencement Date and thereafter annually.
(b) To the extent that no insurance coverage is invalidated
and that the right of the waiving party to recover under its insurance is
not prejudiced, Seller and Buyer each hereby release and relieve the other,
and waive their entire right of recovery against the other for loss or
damage arising out of or incident to the perils insured against under
Section 9(a) of this Contract, which perils occur in, on, or about the
Winfield Parcel, whether due to the negligence of Seller or Buyer or their
agents, employees, contractors and/or invitees. Seller and Buyer shall,
upon obtaining the policies of insurance required hereunder, give notice to
the insurance carrier or carriers that the foregoing mutual waiver of
subrogation is contained in this Contract. Each policy of insurance will
include the waiver of subrogation set forth in this Section 9.
SECTION 10. BENEFICIAL OWNERSHIP. On the Commencement Date,
beneficial ownership of the Winfield Parcel, subject to defeasance only in
the event of termination of this Contract, shall be conveyed by Seller to
Buyer.
SECTION 11. TITLE. The Winfield Parcel is currently subject
to the liens and encumbrances set forth on Exhibit B attached hereto and
---------
made a part hereof. During the term of this Contract, neither Seller nor
Buyer shall create, permit or suffer any liens or encumbrances against the
Winfield Parcel without the prior written consent of the other party,
except the lien of current real estate taxes and assessments not yet due
and payable and this Contract.
SECTION 12. LEGAL TITLE. Seller shall convey to Buyer fee
simple title to the Winfield Parcel by quit claim deed (the "Deed") on the
Transfer Date.
SECTION 13. CLOSING. The transaction contemplated by this
Contract shall be closed (the "Closing") within three (3) business days
after Buyer's payment of the full Purchase Price for the Winfield Parcel,
Akron Parcel and Cincinnati Parcel, with interest due thereon and in the
manner and at the time as required or permitted by the terms and conditions
of this Contract and the Akron Contract and Cincinnati Contract, and upon
Buyer's performance of all other covenants and agreements required of Buyer
by the terms and conditions of this Contract and the Akron Contract and
Cincinnati Contract (the "Transfer Date"). Closing shall occur at Midland
Title Security, Inc. ("Escrow Agent"), as agent for First American Title
Insurance Company ("Title Company"), or at such other location as the
parties hereto shall mutually agree. Seller shall do all things necessary
to cause Escrow Agent to convey the Winfield Parcel to Buyer by filing the
Deed with the Putnam County, West Virginia Recorder.
SECTION 14. CLOSING EXPENSES. Except as otherwise provided
herein, the following costs and expenses of this transaction shall be
chargeable to Buyer at Closing: (a) the escrow fee charged by Escrow
Agent, and (b) the recording, conveyance and transfer fees of the Deed.
SECTION 15. DUTY TO MAINTAIN; COMPLIANCE WITH LAWS;
INDEMNITY. (a) Buyer acknowledges and agrees that the Winfield Parcel is
in good condition, order and repair, and that Buyer shall, at its own cost
and expense, maintain the Winfield Parcel in at least as good order and
repair as they are in on the date of this Contract, reasonable wear and
tear excepted.
(b) Buyer shall be responsible for compliance with all
applicable statutes, ordinances, rules, regulations and orders governing
the Winfield Parcel and Buyer's use thereof, or the operation of the
business of Buyer on the Winfield Parcel.
(c) Buyer shall defend, indemnify and hold harmless Seller
from and against all losses, claims, damages and expenses resulting from
any accident or other occurrence on or about the Winfield Parcel resulting
in injury or death to any person or damage to any property. The provisions
of this Section 15(c) shall survive Closing or the termination or
expiration of this Contract.
SECTION 16. TENANT ALTERATIONS OR IMPROVEMENTS. (a) Buyer
shall not remove or permit the removal from the Winfield Parcel of any
building or other improvement located thereon or of any other property
described herein without first obtaining written consent of Seller, nor
shall Buyer commit or permit to be committed any waste of the Premises or
of any such building, improvement or other property.
(b) Buyer shall not renovate, remodel or alter any building
or improvement now or hereafter situated on the Winfield Parcel, or
construct any additional building, buildings or improvements on the
Premises without obtaining Seller's prior written approval of plans for
such renovating, remodeling or construction, which approval Seller may
withhold in its sole discretion.
SECTION 17. CASUALTY. In the event of any damage to or
destruction of the Winfield Parcel by fire or other casualty during the
term of this Contract, Buyer shall restore the Winfield Parcel
substantially to its condition prior to such damage or destruction to the
extent of insurance proceeds payable by reason of such damage or
destruction.
SECTION 18. EMINENT DOMAIN. Any award or payment received in
connection with the exercise of the right of eminent domain, the alteration
of the grade of any street, or any other injury to or decrease in the value
of the Winfield Parcel or any part thereof, shall be the property of Buyer
and Buyer shall bear the risk of any such taking, injury or decrease in
value.
SECTION 19. DEFAULT; REMEDIES. (a) If Buyer shall fail to
make payment of any sums due hereunder and shall fail to cure such failure
within ten (10) days from the date that such payment is overdue or shall
default in the performance of any other obligation or covenant herein for
more than thirty (30) days after written notice thereof by Seller to Buyer
(or such longer period as is reasonably required to cure such default if
Buyer promptly commenced and is diligently pursuing the cure thereof, but
in any event such period shall not exceed sixty (60) days); or if an order
for relief shall be issued in any bankruptcy or similar proceeding
commenced by or against Buyer and such order is not dismissed within sixty
(60) days; or if a receiver shall be appointed for all or part of Buyer's
properties and not dismissed within sixty (60) days after the appointment
thereof (each of the foregoing being an "Event of Default"), then and in
any such event Seller may at any time thereafter do any one or more of the
following to the extent not prohibited by law:
(i) Seller shall have the right to assess a late charge of
10% for any sums not paid by the fifteenth (15th) day following the
due date of such sum;
(ii) Seller shall have the right to cause any defaulted
obligation or covenant to be performed, in which event the expense
thereof shall at once be due and payable, to be added to and be a part
of the then remaining balance of the Purchase Price, and shall draw
interest at the rate of fifteen percent (15%) per annum until paid; or
(iii) If such Event of Default occurs at any time during the
term of this Contract or under the terms of the Akron Contract and/or
Cincinnati Contract, Seller shall have the right to terminate this
Contract and recover possession of any or all of the Premises by legal
proceeding for forcible entry and detainer or otherwise as may be
provided by law.
(b) In addition to and without limitation of the foregoing
remedies, upon occurrence of an Event of Default that is not cured by Buyer
as provided above, Buyer shall reimburse Seller for any and all reasonable
costs and expenses incurred by Seller resulting from such Event of Default,
including without limitation fees and commissions of any real estate
brokers and reasonable attorney's fees as provided below.
(c) In the event either party hereto initiates litigation
or hires legal counsel to enforce or protect its rights under this
Contract, the prevailing party shall be entitled to recover from the
unsuccessful party, in addition to any other damages or relief awarded or
obtained, all court costs and reasonable attorney's fees incurred in
connection with such litigation or action by legal counsel.
SECTION 20. BROKERS. Seller and Buyer each represent and
warrant to the other that no other broker or finder was in any way involved
in the transaction contemplated by this Contract. Each party to this
Contract agrees to indemnify, defend and hold harmless the other from all
loss, costs, expenses, claims and liabilities (including, without
limitation attorneys' fees and expenses) arising from a breach of the
warranty of this section. The provisions of this Section 20 shall survive
Closing or the expiration or termination of this Contract.
SECTION 21. NOTICES. Any notice required or permitted
hereunder shall be deemed sufficiently given if made in writing and either
delivered in person or deposited, postage prepaid, in the United States
certified or registered mail, addressed as follows:
To Buyer: To Seller:
Chempower, Inc. Holiday Properties
87 East Turkeyfoot Lake 3511 Greenburg Road
Road North Canton, Ohio 44720
Akron, Ohio 44319 Attn.: Ernest M. Rochester,
Attn: T.J. Kukk, General Partner
President Telephone: (330) 494-5282
Telephone: (330) 896-4202 Facsimile: (330) 494-1335
Facsimile: (330) 896-1866
With a copy to: With a copy to:
Reid & Priest LLP Thompson Hine & Flory LLP
40 West 57th Street 3900 Key Center
New York, New York 10019 127 Public Square
Attn.: Bruce A. Rich, Cleveland, Ohio 44114-1216
Esq. Attn.: Thomas A. Aldrich,
Telephone: (212) 603-2000 Esq.
Facsimile: (212) 603-2001 Telephone: (216) 556-5749
Facsimile: (216) 566-5800
or to such other address or addresses as Buyer or Seller may designate from
time to time by notice to the other.
SECTION 22. ENVIRONMENTAL INDEMNIFICATION. Buyer shall
defend, indemnify and hold harmless Seller from and against any and all
losses, claims, liabilities, damages, demands, fines, costs and expenses
(including reasonable legal expenses) of whatever kind and nature resulting
from any accident, occurrence or condition caused by the release by Buyer
or any third party acting on behalf or at the direction of Buyer of any
toxic or hazardous substance or waste in, on, under, about or affecting the
Winfield Parcel that results in any injury or death to any person or damage
to any property (other than damage to property of the type insurable under
a standard form all-risk fire and extended coverage insurance policy) or
which requires the removal or treatment of such hazardous or toxic
substance or waste or any other remedial action or fine under the terms of
any properly constituted law, regulation, rule or directive of any federal,
state or local governmental authority. The provisions of this Section 22
shall survive Closing or the expiration or termination of this Contract.
SECTION 23. NO WAIVER. Failure of either party to complain
of any act or omission on the part of the other party, no matter how long
the same may continue, shall not be deemed to be a waiver by said party of
any of its rights hereunder. No waiver by either party at any time,
express or implied, of any breach of any provisions of this Contract shall
be deemed a waiver of a breach of any other provision of this Contract or a
consent to any subsequent breach of the same or any other provision. If any
action by either party shall require the consent or approval of the other
party, the other party's consent to or approval of such action on any one
occasion shall not be deemed a consent to or approval of said action on any
subsequent occasion or a consent to or approval of any other action on the
same or any subsequent occasion.
SECTION 24. REMEDIES CUMULATIVE. Any and all rights and
remedies that either party may have under this Contract or by operation of
law, either at law or in equity, upon any breach, shall be distinct,
separate and cumulative and shall not be deemed inconsistent with each
other; and no one of them, whether exercised by said party or not shall he
deemed to be in exclusion of any other; and any two or more or all of such
rights and remedies may be exercised at the same time.
SECTION 25. CONTRACT NON-TRANSFERABLE. Neither party shall
sell, assign or transfer or permit to be sold, assigned or transferred any
of such party's interest in the Premises, in any property described herein
or in this Contract without first obtaining the written consent of the
other party, which consent shall not be unreasonably withheld, conditioned
or delayed.
SECTION 26. BINDING CONTRACT. This Contract shall not be
deemed to lack mutuality by virtue of any condition contained herein,
whether or not such condition must be fulfilled to the satisfaction of the
party for whose benefit it is intended. Each such condition shall be
deemed to require the parties to use their good faith efforts to fulfill
the same. The parties also hereby mutually acknowledge that, in addition
to all other consideration for this Contract, they have received other good
and valuable consideration in return for their promise that, pending
fulfillment of such conditions, this Contract shall remain in force and
binding upon them.
SECTION 27. QUADRUPLICATES. This Contract shall be executed
in quadruplicate, each of which shall be an original.
SECTION 28. RULES OF CONSTRUCTION. This Contract has been
reviewed by counsel for each party hereto prior to its execution, and no
presumptions or rules of construction shall be applicable by reason of the
identity of counsel preparing this Contract. This Contract shall be
construed according to its fair meaning and neither for nor against either
party.
SECTION 29. NOUNS. As used in this Contract, unless the
context otherwise specifically requires, the singular includes the plural,
and vice versa, and the masculine includes the feminine, and vice versa.
SECTION 30. CAPTIONS. The captions used herein are for
convenience only and shall not control or affect the meaning of
construction of any provisions of this Contract. All references to
"Sections" shall be to Sections of this Contract unless otherwise
specified.
SECTION 31. SUCCESSORS AND ASSIGNS. This Contract shall be
binding upon and inure to the benefit of the parties hereto and their
respective heirs, executors, administrators, successors and permitted
assigns, as the case may be.
SECTION 32. APPLICABLE LAW. This Contract shall be governed
by, and construed and enforced in accordance with, the laws of the state
where the Winfield Parcel is located.
IN WITNESS WHEREOF, Seller and Buyer have executed this
Contract as of the date first written above.
Signed and acknowledged in the SELLER:
presence of:
(both signatures) HOLIDAY PROPERTIES
By:
---------------------------
-------------------------------- Toomas J. Kukk, General
Printed name: Partner
-------------------
And by:
-----------------------
-------------------------------- Ernest M. Rochester, General
Printed name: Partner
-------------------
Signed and acknowledged BUYER:
in the presence of:
CHEMPOWER, INC.
By:
-------------------------------- ---------------------------
Printed name: Toomas J. Kukk, General
------------------- Partner
--------------------------------
Printed name:
-------------------
STATE OF OHIO )
) SS:
COUNTY OF CUYAHOGA )
BEFORE ME, a Notary Public in and for said county and state,
personally appeared Toomas J. Kukk and Ernest M. Rochester, the General
Partners of Holiday Properties, an Ohio general partnership, who
acknowledged that they did sign the foregoing instrument on behalf of said
general partnership and the same is their free act and deed and the free
act and deed of said general partnership
IN WITNESS WHEREOF, I hereunto set my hand this 28th day
of February, 1997.
[seal]
---------------------------------------------
Notary Public
My commission expires:
-----------------------
STATE OF OHIO )
) SS:
COUNTY OF CUYAHOGA )
BEFORE ME, a Notary Public in and for said county and state,
personally appeared Toomas J. Kukk, the President of Chempower, Inc., an
Ohio corporation, who acknowledged that he did sign the foregoing
instrument on behalf of said corporation and the same is his free act and
deed and the free act and deed of said corporation.
IN WITNESS WHEREOF, I hereunto set my hand this 28th day of
February, 1997.
[seal]
---------------------------------------------
Notary Public
My commission expires:
-----------------------
This instrument prepared by:
Thompson Hine & Flory LLP
3900 Key Center
127 Public Square
Cleveland, Ohio 44114-1216
<PAGE>
EXHIBIT E
---------
PERMITTED ENCUMBRANCES
(Akron Parcel)
1. Real estate taxes and assessments, both general and special, which are
a lien but not yet due and payable.
2. Lease for oil and gas from Susan Vandersall, et al., to The Ohio Oil
Company, dated November 6, 1905 and recorded in Volume 307, Page 215
of Summit County Records.
3. Lease for oil and gas from Oliver F. Kepler and Emma L. Kepler to S.
J. Brendel, dated August 10, 1928 and recorded in Volume 1295, Page
162 of Summit County Records.
4. Supplemental Gas Storage Agreement by and between O. F. Kepler and The
East Ohio Gas Company, dated April 27, 1943, recorded in Volume 2038,
Page 287 of Summit County Records.
5. Partial Release of Oil and Gas Lease and Supplemental Gas Storage
Agreement by The East Ohio Gas Company, dated April 18, 1951, recorded
in Volume 2830, Page 413 of Summit County Records.
6. Easement for pole lines from Oliver F. Kepler to Ohio Edison Company,
dated April 4, 1941, recorded in Volume 1875, Page 627 of Summit
County Records.
7. Easement for highway purposes from Clayton Kepler, Lottie I. Williams
and Teddy E. Williams to the State of Ohio, dated September 19, 1958,
recorded in Volume 3633, Page 135 of Summit County Records.
8. Easement for highway purposes from Lottie I. Williams and Teddy E.
Williams to the State of Ohio dated September 29, 1958, recorded in
Volume 3638, Page 364 of Summit County Records.
9. Easement for pole lines from 1201 Corporation to Ohio Edison Company,
dated October 30, 1973, recorded in Volume 5496, Page 766 of Summit
County Records.
10. Mortgage deed from Holiday Properties to First National Bank of Ohio,
covering caption premises, in the amount of $250,000.00 dated November
15, 1993, filed November 19, 1993 at 10:53 A.M. and recorded in Volume
OR 1523, page 99 of Summit County Records.
11. Assignment of Rentals Under Lease by Holiday Properties in favor of
First National Bank of Ohio, dated November 9, 1993, filed November
19, 1993 at 10:53 A.M. and recorded in Volume OR 1523, Page 105 of
Summit County Records.
12. Mortgage dated as of February 28, 1997 from Holiday Properties to
First National Bank of Ohio (to be recorded at Closing).
PERMITTED ENCUMBRANCES
(CINCINNATI PARCEL)
1. Real estate taxes and assessments, both general and special, which are
a lien but not yet due and payable.
2. Easement to The C G & E Company as set forth in Deed Book 1536, Page
375, Recorder's Office, Hamilton County, Ohio.
3. Perpetual Use and Maintenance Easement, as set forth in Deed Book
2879, page 208, Hamilton County, Ohio Records.
4. Easement to C G & E Company as set forth in Deed Book 3221, page 69,
Recorder's Office, Hamilton County, Ohio Records.
5. Easement to C G & E Company as set forth in Deed Book 1537, page 339,
Recorder's Office, Hamilton County, Ohio.
6. Mortgage dated as of February 28, 1997 from Holiday Properties to
First National Bank of Ohio (to be recorded at Closing).
PERMITTED ENCUMBRANCES
(WINFIELD PARCEL)
1. Real estate taxes and assessments, both general and special, which are
a lien but not yet due and payable.
2. Reservation of all minerals as contained in Deed from W. Dale Long and
wife to KVD, Inc., a corporation, dated August 15, 1972, of record in
Deed Book 192, Page 709.
3. Deed dated July 8, 1941, in Deed Book 75, Page 487, J. D. Surbaugh
granted West Virginia Gas Corporation a right-of-way and easement for
a pipeline, which was assigned to John W. Nichols and Eason Oil
Company by Deed dated June 21, 1973, in Oil and Gas Book 57, Page 303.
4. Deed dated April 30, 1947, in Deed Book 89, Page 22, J. D. Surbaugh
granted Patrick Gas Co. a right-of-way and easement for a gas line 2
inches to 4 inches in diameter.
5. Deed dated July 27, 1948, in Deed Book 94, Page 70, J. D. Surbaugh
granted Appalachian Power Company a right-of-way and easement.
6. By Deed dated May 3, 1950, in Deed Book 98, Page 574, J. D. Surbaugh
granted Appalachian Power Company a right-of-way and easement.
7. By Deed dated September 9, 1947, in Deed Book 127, Page 55, James W.
Lanier and other granted unto Appalachian Power Company a right-of-way
and easement.
8. Deed dated July 19, 1960, in Deed Book 138, Page 225, W Dale Long and
wife granted Appalachian Power Company a right-of-way and easement.
9. Deed of Trust dated as of February 28, 1997, from Holiday Properties
to First National Bank of Ohio (to be recorded at Closing).
<PAGE>
EXHIBIT F
---------
TERMINATION AGREEMENT AND MUTUAL RELEASE
THIS TERMINATION AGREEMENT AND MUTUAL RELEASE (this
"Termination Agreement") is made and entered into as of the 28th day of
February, 1997, by and between AMERICAN ECO CORPORATION, a Canadian
corporation ("American Eco"), and HOLIDAY PROPERTIES, an Ohio general
partnership ("HP").
R E C I T A L S:
- - - - - - - -
(a) American Eco, as Buyer, and HP, as Seller, have entered
into that certain Real Property Purchase Agreement dated September 10, 1996
(the "Purchase Agreement"), pursuant to which Seller agreed to convey and
Buyer agreed to purchase certain described premises located in Akron, Ohio,
Cincinnati, Ohio, and Winfield, West Virginia (collectively the
"Premises").
(b) American Eco and HP each desire to cancel and terminate
the Purchase Agreement and to release each other of all claims, rights of
action and causes of action, including, but not limited to, all of the
respective rights and obligations of American Eco and HP under the Purchase
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants
hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
1. American Eco and HP each acknowledge and agree that the
Purchase Agreement shall be terminated and null and void as of February 28,
1997.
2. The parties hereto each for itself, its employees,
partners, directors, officers, successors, subsidiaries, agents, partners
and assigns, does hereby release and forever discharge the other and their
employees, partners, directors, officers, successors, subsidiaries and
assigns, of and from any and all claims, damages, demands, actions, duties,
causes of action, judgments, controversies and liabilities whatsoever,
known or unknown, matured or unmatured, fixed or contingent, arising out of
contract (including, without limitation, the Purchase Agreement) or
otherwise, in law or equity, against the other which it has now or may have
by reason of any matter whatsoever from the beginning of the world to the
date of this Termination Agreement.
3. This Termination Agreement shall be binding upon and
shall inure to the benefit of the successors and assigns of the parties
hereto.
4. This Termination Agreement embodies and constitutes the
entire understanding between the parties with respect to the Purchase
Agreement and the Premises and all matters relating thereto and may not be
amended or modified except in writing executed by the parties hereto.
IN WITNESS WHEREOF, American Eco and HP have hereunto executed
this Termination Agreement and Mutual Release as of the day and year first
above written.
HOLIDAY PROPERTIES
By:
----------------------------------
Toomas J. Kukk, General Partner
And by:
------------------------------
Ernest M. Rochester, General
Partner
AMERICAN ECO CORPORATION
By:
----------------------------------
Michael E. McGinnis, President
<PAGE>
EXHIBIT G
---------
THIS INSTRUMENT AND THE OBLIGATIONS REPRESENTED THEREBY IS SUBORDINATE IN
ALL RESPECTS TO CERTAIN OBLIGATIONS OF CHEMPOWER, INC. AND ITS SUBSIDIARIES
TO FIRST NATIONAL BANK OF OHIO, INCLUDING A PROMISSORY NOTE IN THE MAXIMUM
PRINCIPAL AMOUNT OF $15,700,000 DATED AS OF FEBRUARY 28, 1997.
GUARANTY
--------
THIS GUARANTY (this "Guaranty") is made as of this 28th day of
February, 1997, by AMERICAN ECO CORPORATION, an Ontario, Canada corporation
("Guarantor") in favor of HOLIDAY PROPERTIES, an Ohio general partnership
("HP").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Guarantor has this date executed and delivered in
favor of First National Bank of Ohio (the "Bank") a certain Commercial
Guaranty (the "Commercial Guaranty"); and
WHEREAS, pursuant to the Commercial Guaranty, Guarantor has
guaranteed the obligations of Chempower, Inc., an Ohio corporation
("Chempower") to the Bank; and
WHEREAS, HP has this date executed and delivered in favor of
the Bank a certain Unconditional and Continuing Limited Non-Recourse
Guaranty (the "Non-Recourse Guaranty") pursuant to which HP has guaranteed,
on a non-recourse basis, the obligations of Chempower to the Bank; and
WHEREAS, the Non-Recourse Guaranty will insure to the benefit
of Guarantor, and the execution and delivery of this Guaranty by Guarantor
to HP is a condition of HP's willingness to execute and deliver the
Non-Recourse Guaranty;
NOW, THEREFORE, for good and valuable consideration, the
Guarantor agrees as follows:
1. Definitions. The term "Guaranteed Obligations" shall
-----------
mean the obligations of HP pursuant to the Non-Recourse Guaranty to pay all
of the indebtedness evidenced by the Non-Recourse Guaranty and any and all
other indebtedness of HP to the Bank pursuant to the terms of and
transactions and agreements provided for in the Non-Recourse Guaranty.
2. Unconditional Guarantee. Guarantor hereby represents
-----------------------
and warrants to HP that it is the sole shareholder of Chempower and that it
will receive substantial benefits in respect of the Non-Recourse Guaranty.
Guarantor hereby absolutely and unconditionally guarantees to HP, its
successors and assigns:
(a) the punctual and full payment when due of all the
Guaranteed Obligations; it being the intention of Guarantor that this
Guaranty be an absolute, irrevocable, and unconditional guarantee of
payment; and
(b) the performance and observance by Chempower of all its
obligations, agreements, and covenants with HP under any land installment
contracts or related agreements or undertakings; the guarantee of such
performance and observance to be absolute, irrevocable and unconditional
(the obligations, agreements, and covenants referred to in this
subparagraph (b) also being included within and being a part of the
Guaranteed Obligations).
Guarantor further agrees that its guarantee hereunder will not
be discharged or affected by the fact that the Guaranteed Obligations or
any of them shall be or become invalid or unenforceable for any reason.
Guarantor represents and warrants to HP that it has full power, authority,
and capacity to enter into and to fully perform all of its obligations
under this Guaranty.
3. Costs. In addition to its obligations under Section 2
-----
above, Guarantor agrees to pay all costs and expenses incurred by HP in the
enforcement and/or collection of any and all of the Guaranteed Obligations,
including, without limitation, reasonable attorneys' fees.
4. Dealing with Guaranteed Obligations. Guarantor hereby
-----------------------------------
grants to HP full power and authority, and without notice to or the consent
of Guarantor:
(a) to modify, supplement, or otherwise change any terms of
the Guaranteed Obligations; to grant any extensions or renewals of the
Guaranteed Obligations; to grant any other waiver or indulgence with
respect to the Guaranteed Obligations; and to effect any release,
compromise, or settlement with respect to the Guaranteed Obligations;
and
(b) to accelerate the maturity of the Guaranteed
Obligations from and after the occurrence of a default thereunder; to
fail to set off any amounts owing by Chempower to HP; to waive or
enter into any agreement of forbearance with respect to the Guaranteed
Obligations; and to change the term of any such waiver or agreement of
forbearance.
No action which HP may take or fail to take pursuant to the foregoing
powers shall operate to release or terminate this Guaranty or impose any
liability on HP.
5. HP Not Required to Pursue Chempower or Exhaust
----------------------------------------------
Collateral. Guarantor hereby waives any right to require payment of the
----------
Guaranteed Obligations by Chempower, or to require HP to proceed against
any collateral or security for the Guaranteed Obligations, or to require
any action or proceeding against Chempower on the Guaranteed Obligations,
or otherwise to require HP to exhaust any and all remedies against
Chempower or any other person before proceeding against Guarantor on this
Guaranty.
6. Waiver of Acceptance, Etc. Guarantor waives
--------------------------
acceptance and notice of acceptance hereof, presentment, demand, protest or
other notice of any kind, promptness in commencing suit and/or giving
notice to or in making any claim or demand upon it, and agrees that no act
or omission of any kind on the part of HP shall in any event affect or
impair this Guaranty.
7. Notices. If HP desires to give notice to Guarantor,
-------
such notice shall be deemed given when mailed, certified mail, return
receipt requested, postage prepaid, addressed to Guarantor at 11011 Jones
Road, Houston, Texas 77070, or to such other address as Guarantor may from
time to time file in writing with HP for notices to it.
8. Binding Effect. All of the terms, provisions, and
--------------
agreements of this Guaranty shall inure to the benefit of and be
enforceable by HP, its successors and assigns, and shall be binding upon
and be enforceable against Guarantor and its successors and assigns.
9. No Right of Subrogation. Guarantor shall not have any
-----------------------
right of reimbursement, subrogation, or setoff with respect to the
Guaranteed Obligations unless and until HP shall have received payment in
full of all Guaranteed Obligations.
10. Reinstatement of Guaranty. This Guaranty shall continue
-------------------------
to be effective, or be reinstated, as the case may be, if at any time
payment, or any part thereof, of any amount paid by or on behalf of
Chempower with respect to the Guaranteed Obligations is rescinded or must
otherwise be restored or returned upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of Chempower or, upon or as a
result of the appointment of a receiver, intervenor, or conservator of, or
trustee or similar officer for, or any substantial part of its property, or
otherwise, all as though such payments had not been made.
11. Governing Law. This Guaranty is a contract entered into
-------------
under and pursuant to the laws of the State of Ohio, and shall be in all
respects governed, construed, applied and enforced in accordance with the
laws of such state.
12. Termination of Guaranty. This Guaranty shall remain in
-----------------------
full force and effect until all Guaranteed Obligations have been paid and
performed in full.
13. Warrant of Attorney. Guarantor hereby irrevocably
-------------------
authorizes any attorney-at-law to appear for Guarantor in an action on this
Guaranty at any time after the same becomes due, whether by acceleration or
otherwise, in any court of record in the State of Ohio or elsewhere and to
waive the issuing of service of process against Guarantor and to confess
judgment in favor of HP, its successors and assigns, and against Guarantor,
for all amounts that may be due, together with costs of suit, and thereupon
to waive all errors and all rights of appeal and stays of execution in
respect of the judgment rendered. Guarantor hereby expressly (a) waives
any conflict of interest in an attorney retained by HP confessing judgment
against the Guarantor upon this Guaranty, and (b) consents to any attorney
retained by HP receiving a legal fee or other value from HP for legal
services rendered for confessing judgment against the Guarantor upon this
Guaranty. The foregoing warrant of attorney shall survive any judgment,
and if any judgment is vacated for any reason, HP may thereafter use the
foregoing warrant of attorney to obtain additional judgment or judgments
against Guarantor. A copy of this Guaranty, certified by the Agent, may be
filed in any proceeding in place of filing the original as a warrant of
attorney.
IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be
executed and delivered to HP as of the date first above written.
--------------------------------------------------------------------------
"WARNING BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO
-------------------------------------------------------
NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME A
----------------------------------------------------
COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR
----------------------------------------------------
PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO
--------------------------------------------------------
COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE
------------------------------------------------------
AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY
-------------------------------------------------------
GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
-------------------------------------------------------
OR ANY OTHER CAUSE."
-------------------
---------------------------------------------------------------------------
AMERICAN ECO CORPORATION
By:
----------------------------------
Michael E. McGinnis, President
Exhibit 10.9.10
---------------
COMMERCIAL GUARANTY
=========================================================================
LOAN LOAN
PRINCIPAL DATE MATURITY NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
--------- ---- -------- --- ---- ---------- ------- ------- ------
BL,RE 0224851 NVB
===========================================================================
References in the shaded area are for Lender's use only and do not limit
the applicability of this document to any particular loan
or item.
===========================================================================
BORROWER: CHEMPOWER, INC. LENDER: FIRST NATIONAL BANK OF OHIO
807 E. TURKEYFOOT LAKE ROAD COMMERCIAL LOAN DEPARTMENT
AKRON, OHIO 44319 106 S. MAIN STREET
AKRON, OHIO 44308
GUARANTOR: AMERICAN ECO CORPORATION
11011 JONES ROAD
HOUSTON, TX 77070
===========================================================================
AMOUNT OF GUARANTY. The amount of this Guaranty is Unlimited.
CONTINUING UNLIMITED GUARANTY. For good and valuable consideration,
American Eco Corporation ("Guarantor") absolutely and unconditionally
guarantees and promises to pay to First National Bank of Ohio ("Lender") or
its order, on demand, in legal tender of the United States of America, the
Indebtedness (as that term is defined below) of Chempower, Inc.
("Borrower") to Lender on the terms and conditions set forth in this
Guaranty. Under this Guaranty, the liability of Guarantor is unlimited and
the obligations of Guarantor are continuing.
DEFINITIONS. The following words shall have the following meanings when
used in this Guaranty:
BORROWER. The word "Borrower" means Chempower, Inc.
GUARANTOR. The word "Guarantor" means American Eco Corporation.
GUARANTY. The word "Guaranty" means this Guaranty made by Guarantor for
the benefit of Lender dated February 28, 1997.
INDEBTEDNESS. The word "Indebtedness" is used in its most comprehensive
sense and means and includes any and all of Borrower's liabilities,
obligations, debts, and indebtedness to Lender, now existing or
hereinafter incurred or created, including, without limitation, all
loans, advances, interest, costs, debts, overdraft indebtedness, credit
card indebtedness, lease obligations, other obligations, and liabilities
of Borrower, or any of them, and any present or future judgments against
Borrower, or any of them; and whether any such Indebtedness is
voluntarily or involuntarily incurred, due or not due, absolute or
contingent, liquidated or unliquidated, determined or undetermined;
whether Borrower may be liable individually or jointly with others, or
primarily or secondarily, or as guarantor or surety; whether recovery on
the Indebtedness may be or may become barred or unenforceable against
Borrower for any reason whatsoever; and whether the Indebtedness arises
from transactions which may be voidable on account of infancy, insanity,
ultra vires, or otherwise.
LENDER. The word "Lender" means First National Bank of Ohio, its
successors and assigns.
RELATED DOCUMENTS. The words "Related Documents" mean and include
without limitation ail promissory notes, credit agreements, loan
agreements, environmental agreements, guarantees, security agreements,
mortgages, deeds of trust, and all other instruments, agreements and
documents, whether now or hereafter existing, executed in connection
with the Indebtedness.
NATURE OF GUARANTY. Guarantor's liability under this Guaranty shall be open
and continuous for so long as this Guaranty remains in force. Guarantor
intends to guarantee at all times the performance and prompt payment when
due, whether at maturity or earlier by reason of acceleration or otherwise,
of all Indebtedness. Accordingly, no payments made upon the Indebtedness
will discharge or diminish the continuing liability of Guarantor in
connection with any remaining portions of the Indebtedness or any of the
Indebtedness which subsequently arises or is thereafter incurred or
contracted.
DURATION OF GUARANTY. This Guaranty will take effect when received by
Lender without the necessity of any acceptance by Lender, or any notice to
Guarantor or to Borrower, and will continue in full force until all
Indebtedness incurred or contracted before receipt by Lender of any notice
of revocation shall have been fully and finally paid and satisfied and all
other obligations of Guarantor under this Guaranty shall have been
performed in full. If Guarantor elects to revoke this Guaranty, Guarantor
may only do so in writing. Guarantor's written notice of revocation must be
delivered to Lender at the address of Lender listed above or such other
place as Lender may designate in writing. Written revocation of this
Guaranty will apply only to advances or new Indebtedness created after
actual receipt by Lender of Guarantor's written revocation. For this
purpose and without limitation, the term "new Indebtedness" does not
include Indebtedness which at the time of notice of revocation is
contingent, unliquidated, undetermined or not due and which later becomes
absolute, liquidated, determined or due. This Guaranty will continue to
bind Guarantor for all Indebtedness incurred by Borrower or committed by
Lender prior to receipt of Guarantor's written notice of revocation,
including any extensions, renewals, substitutions or modifications of the
Indebtedness. All renewals, extensions, substitutions, and modifications of
the Indebtedness granted after Guarantor's revocation, are contemplated
under this Guaranty and, specifically will not be considered to be new
Indebtedness. This Guaranty shall bind the estate of Guarantor as to
Indebtedness created both before and after the death or incapacity of
Guarantor, regardless of Lender's actual notice of Guarantor's death.
Subject to the foregoing, Guarantor's executor or administrator or other
legal representative may terminate this Guaranty in the same manner in
which Guarantor might have terminated it and with the same effect. Release
of any other guarantor or termination of any other guaranty of the
Indebtedness shall not affect the liability of Guarantor under this
Guaranty. A revocation received by Lender from any one or more Guarantors
shall not affect the liability of any remaining Guarantors under this
Guaranty. IT IS ANTICIPATED THAT FLUCTUATIONS MAY OCCUR IN THE AGGREGATE
AMOUNT OF INDEBTEDNESS COVERED BY THIS GUARANTY, AND IT IS SPECIFICALLY
ACKNOWLEDGED AND AGREED BY GUARANTOR THAT REDUCTIONS IN THE AMOUNT OF
INDEBTEDNESS, EVEN TO ZERO DOLLARS ($0.00), PRIOR TO WRITTEN REVOCATION OF
THIS GUARANTY BY GUARANTOR SHALL NOT CONSTITUTE A TERMINATION OF THIS
GUARANTY. THIS GUARANTY IS BINDING UPON GUARANTOR AND GUARANTOR'S HEIRS,
SUCCESSORS AND ASSIGNS SO LONG AS ANY OF THE GUARANTEED INDEBTEDNESS
REMAINS UNPAID AND EVEN THOUGH THE INDEBTEDNESS GUARANTEED MAY FROM TIME TO
TIME BE ZERO DOLLARS ($0.00).
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, either
before or after any revocation hereof, without notice or demand and without
lessening Guarantor's liability under this Guaranty, from time to time:
(a) prior to revocation as set forth above, to make one or more additional
secured or unsecured loans to Borrower, to lease equipment or other goods
to Borrower, or otherwise to extend additional credit to Borrower; (b) to
alter, compromise, renew, extend, accelerate, or otherwise change one or
more times the time for payment or other terms of the Indebtedness or any
part of the Indebtedness, including increases and decreases of the rate of
interest on the Indebtedness; extensions may be repeated and may be for
longer than the original loan term; (c) to take and hold security for the
payment of this Guaranty or the Indebtedness, and exchange, enforce, waive,
fall or decide not to perfect, and release any such security, with or
without the substitution of new collateral; (d) to release, substitute,
agree not to sue, or deal with any one or more of Borrower's sureties,
endorsers, or other guarantors on any terms or in any manner Lender may
choose; (e) to determine how, when and what application of payments and
credits shall be made on the Indebtedness; (f) to apply such security and
direct the order or manner of sale thereof, including without limitation,
any nonjudicial sale permitted by the terms of the controlling security
agreement or deed of trust, as Lender in its discretion may determine;
(g) to sell, transfer, assign, or grant participations in all or any part
of the Indebtedness; and (h) to assign or transfer the Guaranty in whole or
in part.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and
warrants to Lender that (a) no representations or agreements of any kind
have been made to Guarantor which would limit or qualify in any way the
terms of this Guaranty; (b) this Guaranty is executed at Borrower's request
and not at the request of Lender; (c) Guarantor has not and will not,
without the prior written consent of Lender, sell, release, assign,
encumber, hypothecate, transfer, or otherwise dispose of all or
substantially all of Guarantor's assets, or any interest therein; (d)
Lender has made no representation to Guarantor as to the creditworthiness
of Borrower; (e) upon Lenders request, Guarantor will provide to Lender
financial and credit information in form acceptable to Lender, and all such
financial information provided to Lender is true and correct in all
material respects and fairly presents the financial condition of Guarantor
as of the dates thereof, and no material adverse change has occurred in the
financial condition of Guarantor since the date of the financial
statements; and (f) Guarantor has established adequate means of obtaining
from Borrower on a continuing basis information regarding Borrower's
financial condition. Guarantor agrees to keep adequately informed from
such means of any facts, events, or circumstances which might in any way
affect Guarantor's risks under this Guaranty, and Guarantor further agrees
that, absent a request for information, Lender shall have no obligation to
disclose to Guarantor any information or documents acquired by Lender in
the course of its relationship with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor
waives any right to require Lender (a) to continue lending money or to
extend other credit to Borrower; (b) to make any presentment, protest,
demand, or notice of any kind, including notice of any nonpayment of the
Indebtedness or of any nonpayment related to any collateral, or notice of
any action or nonaction on the part of Borrower, Lender, any surety,
endorser, or other guarantor in connection with the Indebtedness or in
connection with the creation of new or additional loans or obligations; (c)
to resort for payment or to proceed directly or at once against any person,
including Borrower or any other guarantor; (d) to proceed directly against
or exhaust any collateral held by Lender from Borrower, any other
guarantor, or any other person; (e) to give notice of the terms, time, and
place of any public or private sale of personal property security held by
Lender from Borrower or to comply with any other applicable provisions of
the Uniform Commercial Code; (f) to pursue any other remedy within Lender's
power; or (g) to commit any act or omission of any kind, or at any time,
with respect to any matter whatsoever.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by
collateral pledged by Borrower, Guarantor hereby forever waives and
relinquishes in favor of Lender and Borrower, and their respective
successors, any claim or right to payment Guarantor may now have or
hereafter have or acquire against Borrower, by subrogation or otherwise, so
that at no time shall Guarantor be or become a "creditor" of Borrower
within the meaning of 11 U.S.C. section 547(b), or any successor provision
of the Federal bankruptcy laws.
Guarantor also waives any and all rights or defenses arising by reason of
(a) any "one action" or "anti-deficiency" law or any other law which may
prevent Lender from bringing any action, including a claim for deficiency,
against Guarantor, before or after Lender's commencement or completion of
any foreclosure action, either judicially or by exercise of a power of
sale; (b) any election of remedies by Lender which destroys or otherwise
adversely affects Guarantor's subrogation rights or Guarantors rights to
proceed against Borrower for reimbursement, including without limitation,
any loss of rights Guarantor may suffer by reason of any law limiting,
qualifying, or discharging the Indebtedness; (c) any disability or other
defense of Borrower, of any other guarantor, or of any other person, or by
reason of the cessation of Borrower's liability from any cause whatsoever,
other than payment in full in legal tender, of the Indebtedness; (d) any
right to claim discharge of the Indebtedness on the basis of unjustified
impairment of any collateral for the Indebtedness; (e) any statute of
limitations, if at any time any action or suit brought by Lender against
Guarantor is commenced there is outstanding Indebtedness of Borrower to
Lender which is not barred by any applicable statute of limitations; or (f)
any defenses given to guarantors at law or in equity other than actual
payment and performance of the Indebtedness. If payment is made by
Borrower, whether voluntarily or otherwise, or by any third party, on the
Indebtedness and thereafter Lender is forced to remit the amount of that
payment to Borrower's trustee in bankruptcy or to any similar person under
any federal or state bankruptcy law or law for the relief of debtors, the
Indebtedness shall be considered unpaid for the purpose of enforcement of
this Guaranty.
Guarantor further waives and agrees not to assert or claim at any time any
deductions to the amount guaranteed under this Guaranty for any claim of
setoff, counterclaim, counter demand, recoupment or similar right, whether
such claim, demand or right may be asserted by the Borrower, the Guarantor,
or both.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and
agrees that each of the waivers set forth above is made with Guarantor's
full knowledge of its significance and consequences and that, under the
circumstances, the waivers are reasonable and not contrary to public policy
or law. If any such waiver is determined to be contrary to any applicable
law or public policy, such waiver shall be effective only to the extent
permitted by law or public policy.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter
created, shall be prior to any claim that Guarantor may now have or
hereafter acquire against Borrower, whether or not Borrower becomes
insolvent. Guarantor hereby expressly subordinates any claim Guarantor may
have against Borrower, upon any account whatsoever, to any claim that
Lender may now or hereafter have against Borrower. In the event of
insolvency and consequent liquidation of the assets of Borrower through
bankruptcy, by an assignment for the benefit of creditors, by voluntary
liquidation, or otherwise, the assets of Borrower applicable to the payment
of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied by Lender to the Indebtedness of Borrower to Lender.
Guarantor does hereby assign to Lender all claims which it may have or
acquire against Borrower or against any assignee or trustee in bankruptcy
of Borrower; provided however, that such assignment shall be effective only
for the purpose of assuring to Lender full payment in legal tender of the
Indebtedness. If Lender so requests, any notes or credit agreements now or
hereafter evidencing any debts or obligations of Borrower to Guarantor
shall be marked with a legend that the same be subject to the Guaranty and
shall be delivered to Lender. Guarantor agrees, and Lender hereby is
authorized, in the name of Guarantor, from time to time to execute such
other documents and to take such other actions as Lender deems
necessary or appropriate to perfect, preserve and enforce its
rights under this Guaranty.
CONFESSION OF JUDGMENT. Guarantor hereby irrevocably authorizes and
empowers any attorney-at-law to appear in any court of record and to
confess judgment against Guarantor for the unpaid amount of this Guaranty
as evidenced by an affidavit signed by an officer of Lender setting forth
the amount then due, plus attorneys' fees as provided in this Guaranty,
plus costs of suit, and to release all errors, and waive all rights of
appeal. If a copy of this Guaranty, verified by an affidavit, shall have
been filed in the proceeding, it will not be necessary to file the original
as a warrant of attorney. Guarantor waives the right to any stay of
execution and the benefit of all exemption laws now or hereafter In effect.
No single exercise of the foregoing warrant and power to confess judgment
will be deemed to exhaust the power, whether or not any such exercise shall
be held by any court to be invalid, voidable, or void; but the power will
continue undiminished and may be exercised from time to time as Lender may
elect until all amounts owing on this Guaranty have been paid in full.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a
part of this Guaranty:
AMENDMENTS. This Guaranty, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Guaranty. No alteration of or amendment
to this Guaranty shall be effective unless given in writing and signed
by the party or parties sought to be charged or bound by the alteration
or amendment.
APPLICABLE LAW. This Guaranty has been delivered to Lender and accepted
by Lender in the Sate of Ohio. If there is a lawsuit, Guarantor agrees
upon Lender's request to submit to the jurisdiction of the courts of
Summit County, State of Ohio. This Guaranty shall be governed by and
construed in accordance with the laws of the State of Ohio.
ATTORNEYS FEES; EXPENSES. Guarantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Guaranty.
Lender may pay someone else to help enforce this Guaranty, and Guarantor
shall pay the costs and expenses of such enforcement. Costs and expenses
Include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Guarantor also shall pay all court costs and such additional fees
as may be directed by the court.
NOTICES. Except for revocation notices by Guarantor, all notices required
to be given by either party to the other under this Guaranty shall be in
writing and shall be effective when actually delivered or when deposited
with a nationally recognized overnight courier, or when deposited In the
United States mail, first class postage prepaid, addressed to the party to
whom the notice is to be given at the address shown above or to such other
addresses as either party may designate to the other in writing. All
revocation notices by Guarantor shall be in writing and shall be effective
only upon delivery to Lender as provided above in the section titled
"DURATION OF GUARANTY." If there is more than one Guarantor, notice to any
Guarantor will constitute notice to all Guarantors. For notice purposes,
Guarantor agrees to keep Lender informed at all times of Guarantor's
current address.
INTERPRETATION. In all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty In the singular shall be
deemed to have been used in the plural where the context and construction
so require; and where there is more than one Borrower named in this
Guaranty or when this Guaranty is executed by more than one Guarantor, the
words "Borrower" and "Guarantor" respectively shall mean all and any one or
more of them. The words "Guarantor," "Borrower" and "Lender" include the
heirs, successors, assigns, and transferees of each of them. Caption
headings in this Guaranty are for convenience purposes only and are not to
be used to interpret or define the provisions of this Guaranty. If a court
of competent jurisdiction finds any provision of this Guaranty to be
invalid or unenforceable as to any person or circumstance, such finding
shall not render that provision invalid or unenforceable as to any other
persons or circumstances, and all provisions of this Guaranty in all other
respects shall remain valid and enforceable. If any one or more of Borrower
or Guarantor are corporations or partnerships, it is not necessary for
Lender to inquire into the powers of Borrower or Guarantor or of the
officers, directors, partners, or agents acting or purporting to act on
their behalf, and any Indebtedness made or created in reliance upon the
professed exercise of such powers shall be guaranteed under this Guaranty.
WAIVER. Lender shall not be deemed to have waived any rights under this
Guaranty unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Guaranty shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Guaranty. No prior waiver by Lender, nor any
course of dealing between Lender and Guarantor, shall constitute a waiver
of any of Lenders rights or of any of Guarantor's obligations as to any
future transactions. Whenever the consent of Lender is required under this
Guaranty, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
EXHIBIT A. An exhibit, titled "Exhibit A", is attached to this Guaranty
and by this reference is made part of this Guaranty just as if the
provisions, terms and conditions of the Exhibit had been fuly set forth
in this Guaranty.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF
THIS GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR
UNDERSTANDS THAT THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND
DELIVERY OF THIS GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE
UNTIL TERMINATED IN THE MANNER SET FORTH IN THE SECTION TITLED "DURATION OF
GUARANTY." NO FORMAL ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS
GUARANTY EFFECTIVE. THIS GUARANTY IS DATED FEBRUARY 28, 1997.
NOTICE: FOR THIS NOTICE "YOU" MEANS THE GUARANTOR. WARNING: BY SIGNING
THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU
DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT
YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR
WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON CREDITOR'S PART
TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE.
GUARANTOR:
American Eco Corporation
By: /s/ Michael E. McGinnis
-------------------------------
President & CEO
EXHIBIT 10.9.11
---------------
PROMISSORY NOTE
===========================================================================
LOAN MA- LOAN COL- INIT-
PRINCIPAL DATE TURITY NO. CALL LATERAL ACCOUNT OFFICER IALS
--------- ---- ------ ---- ---- ------- ------- ------- ------
$15,700,000.00 02-28-97 03-02-98 BL,RE 0224851 NVB
---------------------------------------------------------------------------
REFERENCES IN THE SHADED AREA ARE FOR LENDER'S USE ONLY AND DO NOT LIMIT
THE APPLICABILITY OF THIS DOCUMENT TO ANY PARTICULAR LOAN
OR ITEM.
===========================================================================
BORROWER: CHEMPOWER, INC. LENDER: FIRST NATIONAL BANK OF OHIO
807 E. TURKEYFOOT LAKE ROAD COMMERCIAL LOAN DEPARTMENT
AKRON, OHIO 44319 106 S. MAIN STREET
AKRON, OHIO 44308
PRINCIPAL AMOUNT: $15,700,000.00 INITIAL INTEREST RATE: 6.938%
DATE OF NOTE: 02-28-97
PROMISE TO PAY. Chempower, Inc. ("Borrower") promises to pay to First
National Bank of Ohio ("Lender"), or order, in lawful money of the United
States of America, the principal amount of Fifteen Million Seven Hundred
Thousand and 00/100 Dollars ($15,700,000.00) or so much as may be
outstanding, together with interest on the unpaid outstanding principal
balance of each advance. Interest shall be calculated from the date of each
advance until repayment of each advance.
PAYMENT. In one payment of all outstanding principal plus all accrued
unpaid interest on March 2, 1998. In addition, Borrower will pay regular
monthly payments of accrued unpaid interest beginning April 1, 1997, and
all subsequent interest payments are due on the same day of each month
after that. Interest on this Note is computed on a 365/360 simple interest
basis; that is, by applying the ratio of the annual interest rate over a
year of 360 days, multiplied by the outstanding principal balance,
multiplied by the actual number of days the principal balance is
outstanding. Borrower will pay Lender at Lender's address shown above or at
such other place as Lender may designate in writing. Unless otherwise
agreed or required by applicable law, payments will be applied first to
accrued unpaid interest, then to principal, and any remaining amount to any
unpaid collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an independent index which is the 30
DAY LONDON INTERBANK OFFERED RATE (LIBOR) AS PUBLISHED IN THE WALL STREET
JOURNAL (the "Index"). The Index is not necessarily the lowest rate charged
by Lender on its loans. If the Index becomes unavailable during the term of
this loan, Lender may designate a substitute index after notice to
Borrower. Lender will tell Borrower the current index rate upon Borrower's
request. Borrower understands that Lender may make loans based on other
rates as well. The interest rate change will not occur more often than each
THIRTY (30) DAYS, AFTER THE DATE OF NOTE AND EVERY THIRTY (30) DAYS
THEREAFTER. CHANGES IN THE INTEREST RATE WILL BE BASED ON THE INDEX VALUE
OF THE MOST RECENT PUBLISHED RELEASE TWO DAYS PRIOR TO SCHEDULED RATE
CHANGE DATE. The Index currently is 5.438% per annum. The Interest rate to
be applied to the unpaid principal balance of this Note will be at a rate
of 1.500 percentage points over the Index, resulting in an initial rate of
6.938% per annum. NOTICE: Under no circumstances will the interest rate on
this Note be more than the maximum rate allowed by applicable law.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount
owed earlier than it is due. Early payments will not, unless agreed to by
Lender in writing, relieve Borrower or Borrower's obligation to continue to
make payments of accrued unpaid interest. Rather, they will reduce the
principal balance due.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
7.000% of the unpaid portion of the regularly scheduled payment or $500.00,
whichever is less.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of
Default under this Agreement:
(a) PAYMENTS. The Borrower shall fail to pay when due any installment
--------
of principal, interest or other sum payable hereunder within ten (10)
calendar days of the due date thereof;
(b) BREACH OF LOAN AGREEMENT OR NOTE. The Borrower shall be in
------------------------------------
default of any of the provisions of this Note or the provisions of
the Loan Agreement between Borrower and Lender dated as of the
date hereof pursuant to which this Note was executed.
(c) GENERAL INSECURITY. The Lender for any reason in good faith deems
------------------
itself insecure with respect to the repayment of the indebtedness
provided for herein.
DEFAULT. Borrower shall be in default of this Note if there occurs any
Event of Default.
RIGHT TO CURE. If any Event of Default (other than a default in payment) is
curable, and if Borrower has not been given a notice of a similar Event of
Default within the preceding 12 month period, it may be cured (and no Event
of Default will have occurred) if Borrower (a) cures the default within
fifteen (15) days; or (b) if the cure requires more than fifteen (15) days,
and only with the express written consent of Lender, immediately initiates
steps which Lender deems in Lender's sole discretion to be sufficient to
cure the default and thereafter continues and completes all reasonable and
necessary steps to produce compliance as soon as reasonably practicable.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid
principal balance on this Note and all accrued unpaid interest immediately
due, without notice, and then Borrower will pay that amount. Lender may
hire or pay someone else to help collect this Note if Borrower does not
pay. Borrower also will pay Lender that amount. This includes, subject to
any limits under applicable law, Lender's attorneys' fees and Lender's
legal expenses whether or not there is a lawsuit, including attorneys' fees
and legal expenses for bankruptcy proceedings (including efforts to modify
or vacate any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. If not prohibited by applicable law,
Borrower also will pay any court costs, in addition to all other sums
provided by law. If any Event of Default shall occur and be continuing, the
Lender shall have, in addition to the remedies set forth herein, all other
remedies specified in the Loan Agreement or any document executed in
connection therewith, or such remedies as otherwise available under law.
This Note has been delivered to Lender and accepted by Lender in the State
of Ohio. If there is a lawsuit, Borrower agrees upon Lender's request to
submit to the jurisdiction of the courts of Summit County, the State of
Ohio. This Note shall be governed by and construed in accordance with the
laws of the State of Ohio.
CONFESSION OF JUDGMENT. Borrower hereby irrevocably authorizes and empowers
any attorney-at-law to appear in any court of record and to confess
judgment against Borrower for the unpaid amount of this Note as evidenced
by an affidavit signed by an officer of Lender setting forth the amount
then due, plus attorneys' fees as provided in this Note, plus costs of this
suit, and to release all errors, and waive all rights of appeal. If a copy
of this Note, verified by an affidavit, shall have been filed in the
proceeding, it will not be necessary to file the original as a warrant of
attorney. Borrower waives the right to any stay of execution and the
benefit of all exemption laws now or hereafter in effect. No single
exercise of the foregoing warrant and power to confess judgment will be
deemed to exhaust the power, whether or not any such exercise shall be held
by any court to be invalid, voidable, or void; but the power will continue
undiminished and may be exercised from time to time as Lender may elect
until all amounts owing on this Note have been paid in full.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $20.00 if
Borrower makes a payment on Borrower's loan and the check or preauthorized
charge with which Borrower pays is later dishonored.
COLLATERAL. This Note is secured by among other things, a first lien on
accounts receivable, inventory, equipment, as well as a first mortgage on
Real Estate located at 1501 Raff Road, Canton, Ohio, 185 Plumpton Avenue,
Washington, Pennsylvania, 4801 West Trace Creek Road, Waverly, Tennessee,
807 E. Turkeyfoot Lake Road, Akron, Ohio, 3600 Cardiff Avenue, Cincinnati,
Ohio, 6050 West Virginia State Route 34, Winfield, West Virginia, as
evidenced by a Security Agreement and Mortgages of even date.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances
under this Note may be requested orally by Borrower or by an authorized
person. Lender may, but need not, require that all oral requests be
confirmed in writing. All communications, instructions, or directions by
telephone or otherwise to Lender are to be directed to Lender's office
shown above. The following party or parties are authorized to request
advances under the line of credit until Lender receives from Borrower at
Lender's address shown above written notice of revocation of their
authority. Toomas J. Kukk, Chairman/President/CEO. Borrower agrees to be
liable for all sums either: (a) advanced in accordance with the
instructions of an authorized person or (b) credited to any of Borrower's
accounts with Lender. The unpaid principal balance owing on this Note at
any time may be evidenced by endorsements on this Note or by Lender's
internal records, including daily computer print-outs. Lender will have no
obligation to advance funds under this Note if: (a) Borrower or any
guarantor is in default under the terms of this Note or any agreement that
Borrower or any guarantor has with Lender, including any agreement made in
connection with the signing of this Note; (b) Borrower or any guarantor
ceases doing business or is insolvent; (c) any guarantor seeks, claims or
otherwise attempts to limit, modify or revoke such guarantor's guarantee of
this Note or any other loan with Lender; (d) Borrower has applied funds
provided pursuant to this Note for purposes other than those authorized by
Lender; or (e) Lender in good faith deems itself insecure under this Note
or any other agreement between Lender and Borrower.
LETTER OF CREDIT. Borrower hereby authorizes Lender to draw against this
Line of Credit for reimbursement of any payments made by Lender pursuant to
any Letter of Credit, Check Guarantee Letter or Foreign Exchange Contract,
issued or signed by Lender, or any affiliate of the Lender, for the account
of the Borrower. Borrower agrees to reimburse Lender for any such payments
in accordance with the terms of this agreement. Borrower agrees that Lender
may reduce the availability of this Line of Credit by the amount of the
Letter of Credit, Check Guarantee Letter or 15% of the Foreign Exchange
Contract, for the period of time that the Letter of Credit, Check Guarantee
Letter or Foreign Exchange Contract, is outstanding if the Letter of
Credit, Check Guarantee Letter or Foreign Exchange Contract, is issued
against this Line of Credit.
GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact
will not affect the rest of the Note. In particular, this section means
(among other things) that Borrower does not agree or intend to pay, and
Lender does not agree or intend to contract for, charge, collect, take,
reserve or receive (collectively referred to herein as "charge or
collect"), any amount in the nature of interest or in the nature of a fee
for this loan, which would in any way or event (including demand,
prepayment, or acceleration) cause Lender to charge or collect more for
this loan than the maximum Lender would be permitted to charge or collect
by federal law or the law of the State of Ohio (as applicable). Any such
excess interest or unauthorized fee shall, instead of anything stated to
the contrary, be applied first to reduce the principal balance of this
loan, and when the principal has been paid in full, be refunded to
Borrower. Lender may delay or forgo enforcing any of its rights or remedies
under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law,
waiver presentment, demand for payment, protest and notice of dishonor.
Upon any change in the terms of this Note, and unless otherwise expressly
stated in writing, no party who signs this Note, whether as maker,
guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew or extend
(repeatedly and for any length of time) this loan, or release any party or
guarantor or collateral; or impair, fail to realize upon or perfect
Lender's security interest in the collateral; and take any other action
deemed necessary by Lender without the consent of or notice to anyone. All
such parties also agree that Lender may modify this loan without the
consent of or notice to anyone other than the party with whom the
modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER
AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED
COPY OF THE NOTE.
NOTICE: FOR THIS NOTICE "YOU" MEANS THE BORROWER.
===========================================================================
=
WARNING: BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO
COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR
WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY
WITH THE AGREEMENT, OR ANY OTHER CAUSE.
===========================================================================
=
BORROWER:
Chempower, Inc.
By: /s/ Toomas J. Kukk
______________________________________
Toomas J. Kukk, Chairman/President/CEO
EXHIBIT 10.9.12
SUBORDINATION AGREEMENT
-----------------------
THIS SUBORDINATION AGREEMENT (the "AGREEMENT") is made and
entered into as of February 28, 1997 by and among Chempower, Inc., an
Ohio corporation with its principal offices at 807 East Turkeyfoot
Lake Road, Akron, Ohio 44319 (the "BORROWER"); First National Bank of
Ohio, a national banking association with its principal offices at 106
S. Main Street, Akron, Ohio 44308 (the "LENDER"); and Toomas J. Kukk,
an individual whose residence address is 4140 Derrwood Drive, Akron,
Ohio 44313 ("KUKK"), Mark L. Rochester, an individual whose residence
address is 3905 Daventry Street, N. Canton, Ohio ("ROCHESTER") and
Kukk, as agent (the "AGENT") for Rochester and Kukk, the former
principal shareholders of Borrower ("PRINCIPAL SHAREHOLDERS").
R E C I T A L S:
A. Lender and Borrower are parties to a certain Loan Agreement
of even date herewith (the "LOAN AGREEMENT" and, together with the
other documents and instruments described therein and relating
thereto, the "LOAN DOCUMENTS") pursuant to which the Lender has agreed
to make a revolving loan in the maximum principal amount at any time
outstanding of Fifteen Million Seven Hundred Thousand Dollars
($15,700,000) (the "LOAN") to Borrower.
B. The Loan is to be secured by a security interest in and to
all of the assets of Borrower and each of its Subsidiaries, including,
without limitation, accounts, inventory, equipment, fixtures and
general intangibles (the "COLLATERAL") and by a mortgage or similar
interest in and to certain real estate owned by the Borrower (the
"OWNED PROPERTIES") and certain real estate (the "PURCHASED
PROPERTIES") owned by Holiday Properties, a general partnership in
which Kukk is a general partner, and which will be sold to Borrower
pursuant to a Purchase Agreement and associated Land Installment
Contracts (the "LAND CONTRACTS").
C. Borrower will use a portion of the proceeds of the Loan to
fund certain transactions (the "MERGER TRANSACTION") provided for in
an Agreement and Plan of Merger (the "MERGER AGREEMENT") between and
among Borrower, American Eco Corporation ("AMERICAN ECO") and Sub
Acquisition Corp. ("SUB ACQUISITION"), a wholly owned subsidiary of
American Eco. As a result of the Merger Transaction, Sub Acquisition
and Borrower will merge, and Borrower, as a result, will be a wholly
owned subsidiary of American Eco.
D. In connection with the Merger Transaction, the Principal
Shareholders will enter into a Financing Agreement with American Eco
and Borrower (the "FINANCING AGREEMENT") pursuant to which Borrower
will execute and deliver to the Principal Shareholders a promissory
note or notes in the aggregate principal amount of $15,900,000 (the
"SHAREHOLDER NOTES").
E. The Shareholder Notes will be secured by a security interest
in and to the Collateral, and a mortgage or similar interest in and to
the Owned Properties and the Purchased Properties (collectively, the
("SHAREHOLDER COLLATERAL"). In addition, American Eco will guaranty
payment of the Shareholder Notes (the "GUARANTY") which Guaranty will
be secured by a pledge of Borrower's stock (the "STOCK PLEDGE").
F. Lender, as a condition for extension of the Loan to
Borrower, has required that Kukk and Rochester, as the Principal
Shareholders, and Agent (collectively, the "CREDITOR") execute and
deliver this Agreement. Principal Shareholders and Agent, in order to
facilitate the Loan, have agreed to execute and deliver this Agreement
to Lender. Borrower and Creditor each represent and acknowledge to
Lender that Creditor will benefit as a result of these financial
accommodations from Lender to Borrower, and Creditor acknowledges
receipt of valuable consideration for entering into this Agreement.
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Lender, Borrower,
Principal Shareholders and Agent agree as follows:
ARTICLE I
DEFINITIONS
-----------
SECTION 1.01. DEFINED TERMS. Capitalized terms used in this
----------------
agreement shall have the meaning as defined in the recital paragraphs,
and if not therein defined, shall have the following meanings:
"SECURITY INTEREST" means and includes, without limitation, any
type of collateral security, whether in the form of a lien, charge,
mortgage, deed of trust, land installment contract, assignment,
pledge, chattel mortgage, chattel trust, factor's lien, equipment
trust, conditional sale, trust receipt, lien or title retention
contract, lease or consignment intended as a security device, or any
other security or lien interest whatsoever, whether created by law,
contract, or otherwise.
"SUBORDINATED INDEBTEDNESS" means and includes, without
limitation, all present and future indebtedness, obligations,
liabilities, claims, rights, and demands of any kind which may be now
or hereafter owing from Borrower to Creditor, including, without
limitation, the Financing Agreement and the Shareholder Notes. The
term "Subordinated Indebtedness" is used in its broadcast sense and
includes without limitation all principal, all interest, all costs and
attorneys' fees, all sums paid for the purpose of protecting the
rights of a holder of security (such as a secured party paying for
insurance on collateral if the owner fails to do so), all contingent
obligations of Borrower (such as a guaranty), and all other
obligations, secured or unsecured, of any nature whatsoever; provided,
however, Subordinated Indebtedness shall not include obligations of
Borrower to Kukk or Rochester for salary or employee benefits arising
out of employment agreements provided for in the Merger Agreement or
made generally available to Borrower's executive employees and not
otherwise prohibited under the Loan Documents.
"SUBSIDIARY" means any or all corporations, partnerships, joint
ventures, associations or other business entities of which the
Borrower now or hereafter owns, directly or indirectly, securities or
other ownership interests having ordinary voting power to elect a
majority of the board of directors or other governing body thereof,
including, without limitation, Global Power Company, Brookfield
Corporation, Southwick Corporation and Controlled Power Limited
Partnership.
"SUPERIOR INDEBTEDNESS" means and includes, without limitation,
all present and future indebtedness, obligations, liabilities, claims,
rights, and demands of any kind which may be now or hereafter owing
from Borrower to Lender, including the Loan. The term "Superior
Indebtedness" is used in its broadest sense and includes without
limitation all principal, all interest, all costs and attorneys' fees,
all sums paid for the purpose of protecting Lender's rights in
security (such as paying for insurance on collateral if the owner
fails to do so), all contingent obligations of Borrower (such as a
guaranty), all obligations arising by reason of Borrower's accounts
with Lender (such as an overdraft on a checking account), and all
other obligations of Borrower to Lender, secured or unsecured, of any
nature whatsoever.
SECTION 1.02. OTHER TERMS. Terms not otherwise defined in this
-------------------------
Agreement shall have the meanings attributed to such terms in the Uniform
Commercial Code. All references to dollar amounts shall mean amounts in
lawful money of the United States of America.
ARTICLE II
SUBORDINATION OF PAYMENT AND PRIORITY
-------------------------------------
SECTION 2.01. SUBORDINATION OF SUBORDINATED INDEBTEDNESS. All
--------------------------------------------------------
Subordinated Indebtedness of Borrower to Creditor is and shall be
subordinated in all respects, including as to payment and priority, to
all Superior Indebtedness of Borrower to Lender. If Creditor holds one
or more Security Interests, whether now existing or hereafter
acquired, in any of Borrower's real property or personal property,
Creditor also subordinates all its Security Interests to all Security
Interests held by Lender, whether the Lender's Security Interest or
Interests exist now or are acquired later.
SECTION 2.02. PAYMENT TO CREDITOR. Borrower will not make and
----------------------------------
Creditor will not accept, at any time while any Superior Indebtedness
is owing to Lender, (a) any payment upon any Subordinated Indebtedness,
whether such payment is made by Borrower or by a Subsidiary, (b) any
advance, transfer, or assignment of assets of Borrower or any
Subsidiary to Creditor in any form whatsoever that would reduce at
any time or in any way the amount of Subordinated Indebtedness, or
(c) any transfer of any assets of Borrower or any Subsidiary as
security for the Subordinated Indebtedness, except upon Lender's
prior written consent. Notwithstanding the foregoing, Borrower shall
be permitted to make all regularly scheduled payments of interest on
the Subordinated Indebtedness, provided that (i) there exists, either
prior to or as a result of such payment, no default or Event of
Default under the Loan Documents of which Creditor has actual
knowledge or as to which Lender has given Creditor notice; (ii)
Borrower is Solvent (as such term is defined in the Loan Documents)
at the time of and after giving effect to any such interest payment;
and (iii) American Eco is not in default of payments on any Account
owed to Borrower.
SECTION 2.03. DISTRIBUTIONS TO CREDITOR. In the event of any
---------------------------------------
distribution, division, or application, whether partial or complete,
voluntary or involuntary, by operation of law or otherwise, of all or
any part of the assets of Borrower or a Subsidiary, or the proceeds
thereof, in whatever form, to creditors of Borrower or a Subsidiary
or upon any indebtedness of Borrower or a Subsidiary, whether by
reason of the liquidation, dissolution or other winding-up of
Borrower or a Subsidiary, or by reason of any execution sale,
receivership, insolvency, or bankruptcy proceeding, assignment for
the benefit of creditors, proceedings for reorganization, or
readjustment of Borrower or a Subsidiary's properties, then and in
such event, (a) the Superior Indebtedness shall be paid in full
before any payment is made upon the Subordinated Indebtedness, and
(b) all payments and distributions, of any kind or character and
whether in cash, property, or securities, which shall be payable or
deliverable upon or in respect of the Subordinated Indebtedness shall
be paid or delivered directly to Lender for application in payment of
the amounts then due on the Superior Indebtedness until the Superior
Indebtedness shall have been paid in full.
SECTION 2.04. ASSIGNMENT OF SUBORDINATED INDEBTEDNESS. In order
-----------------------------------------------------
that Lender may establish its right to prove claims and recover for its
own account distributions based on the Subordinated Indebtedness,
Creditor does hereby assign all its right, title, and interest in
such claims to Lender. Creditor further agrees to supply such
information and evidence, provide access to and copies of such of
Creditor's records as may pertain to the Subordinated Indebtedness,
and execute such instruments as may be required by Lender to enable
Lender to enforce all such claims and collect all distributions,
payments, or other disbursements which may be made on account of the
Subordinated Indebtedness. For such purposes, Creditor hereby
irrevocably authorizes Lender in its discretion to make and present
for or on behalf of Creditor such proofs of claims on account of the
Subordinated Indebtedness as Lender may deem expedient and proper and
to vote such claims in any such proceeding and to receive and collect
any and all dividends, payments, or other disbursements made thereon
in whatever form the same may be paid or issued and to apply the same
on account of the Superior Indebtedness. Creditor agrees to deliver to
Lender, at Lender's request, all notes of Borrower to Creditor,
including the Shareholder Notes, or other evidence of the Subordinated
Indebtedness, now held or hereafter acquired by Creditor, while this
Agreement remains in effect. Attached hereto are copies of the
Financing Agreement, the Shareholder Note, and the Stock Pledge,
certified by Kukk (individually and as Agent) as true, complete and
accurate copies thereof. Creditor agrees not to sell, assign, pledge
or otherwise transfer any of such notes except subject to all the
terms and conditions of this Agreement. Should Lender receive any
payments on account of the Subordinated Indebtedness, as between
Borrower and Lender, such payments shall not be treated as payment of
the Superior Indebtedness, provided, however, that upon payment to
Lender of the Superior Indebtedness, in full, then the holder of the
Subordinated Indebtedness shall be subrogated to Lender's rights under
the Superior Indebtedness to the extent Lender received payment on
account of the Subordinated Indebtedness.
SECTION 2.05. APPLICATION OF PAYMENT. Should any payment,
------------------------------------
distribution, security, or proceeds thereof be received by Creditor
at any time on the Subordinated Indebtedness contrary to the terms of
this Agreement, Creditor immediately will deliver the same to Lender
in precisely the form received (except for the endorsement or
assignment of Creditor where necessary), for application on or to
secure the Superior Indebtedness, whether it is due or not due, and
until so delivered the same shall be held in trust by Creditor as
property of Lender. In the event Creditor fails to make any such
endorsement or assignment, Lender, or any of its officers on behalf
of Lender, is hereby irrevocably authorized by Creditor to make
the same.
SECTION 2.06. LEGEND ON SUBORDINATED OBLIGATIONS. Each note,
------------------------------------------------
contract, or other evidence of the Subordinated Indebtedness, including,
without limitation, the Financing Agreement, the Shareholder Note,
mortgages and UCC Financing Statements, shall contain a prominent
legend, substantially as follows:
THIS INSTRUMENT AND THE OBLIGATIONS REPRESENTED THEREBY IS
SUBORDINATE IN ALL RESPECTS TO CERTAIN OBLIGATIONS OF
CHEMPOWER, INC. AND ITS SUBSIDIARIES TO FIRST NATIONAL BANK
OF OHIO, INCLUDING A PROMISSORY NOTE IN THE MAXIMUM
PRINCIPAL AMOUNT OF $15,700,000 DATED AS OF FEBRUARY 28,
1997.
ARTICLE III
WARRANTIES AND REPRESENTATIONS OF CREDITOR
------------------------------------------
SECTION 3.01. WARRANTIES AND REPRESENTATIONS OF CREDITOR. Kukk,
--------------------------------------------------------
Rochester, and Agent each represents and warrants to Lender that:
(a) no representations or agreements of any kind have been made
to Creditor which would limit or qualify in any way the terms of
this Agreement;
(b) Lender has made no representation to Creditor as to the
creditworthiness of Borrower;
(c) Creditor has established adequate means of obtaining from
Borrower on a continuing basis information regarding Borrower's
financial condition. Lender shall have no obligation to disclose
to Creditor information or material acquired by Lender in the
course of its relationship with Borrower, including any facts,
events, or circumstances which might in any way affect Creditor's
risks under this Agreement.
(d) Each person executing this Agreement is duly, properly and
fully authorized to execute and deliver this Agreement.
(e) This Agreement is, or upon the execution of will be, a
legal, valid and binding obligation of Kukk, Rochester and the
Agent, in full force and effect and enforceable with its
respective terms, except for the effect of applicable laws
regarding bankruptcy or insolvency or general principles of
equity.
ARTICLE IV
RIGHTS, WAIVERS AND ENFORCEMENT
-------------------------------
SECTION 4.01. CREDITORS WAIVERS. Creditor waives any right to
-------------------------------
require Lender: (a) to make, extend, renew, or modify any loan to
Borrower or to grant any other financial accommodations to Borrower
whatsoever; (b) to make any presentment, protest, demand, or notice of
any kind, including notice of any nonpayment of the Superior
Indebtedness or of any nonpayment related to any Security Interests,
or notice of any action or nonaction on the part of Borrower, Lender,
any surety, endorser, or other guarantor in connection with the
Superior Indebtedness, or in connection with the creation of new or
additional Superior Indebtedness; (c) to resort for payment or to
proceed directly or at once against any person, including Borrower;
(d) to proceed directly against or exhaust any Security Interests
held by Lender from Borrower, any other guarantor, or any other
person; (e) to give notice of the terms, time, and place of any
public or private sale of personal property security held by Lender
from Borrower or to comply with any other applicable provisions of
the Uniform Commercial Code; (f) to pursue any other remedy within
Lender's power; or (g) to commit any act or omission of any kind,
at any time, with respect to any matter whatsoever.
SECTION 4.02. LENDER'S RIGHTS. Lender may take or omit any and all
-----------------------------
actions with respect to the Superior Indebtedness or any Security
Interests for the Superior Indetedness without affecting whatsoever
any of Lender's rights under this Agreement. In particular, without
limitation, Lender may, without notice of any kind to Creditor, (a)
make one or more additional secured or unsecured loans to Borrower;
(b) repeatedly alter, compromise, renew, extend, accelerate, or
otherwise change the time for payment or other terms of the Superior
Indebtedness or any part thereof, including increases and decreases
of the rate of interest on the Superior Indebtedness; extensions may
be repeated and may be for longer than the original loan term; (c)
take and hold Security Interests for the payment of the Superior
Indebtedness, and exchange, enforce, waive, and release any such
Security Interests, with or without the substitution of new
collateral; (d) release, substitute, agree not to sue, or deal with
any one or more of Borrower's sureties, endorses, or guarantors on
any terms or manner Lender chooses; (e) determine how, when and what
application of payments and credits, shall be made on the Superior
Indebtedness; (f) apply such security and direct the order or manner
of sale thereof, as Lender in its discretion may determine; and (g)
assign this Agreement in whole or in part.
SECTION 4.03. DEFAULT BY BORROWER. If Borrower becomes insolvent
---------------------------------
or bankrupt, this Agreement shall remain in full force and effect.
In the event of a corporate reorganization or corporate arrangement
of Borrower undo the provisions of the Bankruptcy Code, as amended,
this Agreement shall remain in full force and effect and the court
having jurisdiction over the reorganization or arrangement is hereby
authorized to preserve such priority and subordination in approving
any such plan of reorganization or arrangement. Any default by
Borrower under the terms of the Subordinated Indebtedness also shall
be a default under the terms of the Superior Indebtedness to Lender
provided, however, that if the holders of the Subordinated
Indebtedness declare a default and accelerate the Subordinated
Indebtedness, such action will not cause a default in the Superior
Indebtedness if, and only if, the holder of the Subordinated
Indebtedness takes no action to enforce or collect on the Subordinated
Indebtedness other than to enforce any rights to proceed against
Borrower's stock held by American Eco Corporation as provided in the
Stock Pledge, and the default under the Subordinated Indebtedness
giving rise to such action shall not cause a default in the Superior
Indebtedness unless such default constitutes an Event of Default (as
defined in the Loan Agreement) other than an Event of Default
described in clause (i) or clause (o) of Section 8.1 of the Loan
Agreement.
SECTION 4.04. DURATION AND TERMINATION. This Agreement will take
--------------------------------------
effect when received by Lender, without the necessity of any
acceptance by Lender, in writing or otherwise, and will remain in
full force and effect until Creditor shall notify Lender in writing
at the address shown above to the contrary. Any such notice shall
not affect the Superior Indebtedness owed Lender by Borrower at the
time of such notice, nor shall such notice affect Superior
Indebtedness thereafter granted in compliance with a commitment
made by Lender to Borrower prior to receipt of such notice, nor shall
such notice affect any renewals of or substitutions for any of the
foregoing. Such notice shall affect only indebtedness of Borrower to
Lender arising after receipt of such notice and not arising from
financial assistance granted by Lender to Borrower in compliance with
Lender's obligations under a commitment. Any notes lodged with Lender
pursuant to Section 2.04 of this Agreement need not be returned to
Creditor until this Agreement has no further force or effect.
SECTION 4.05. MODIFICATIONS TO SUBORDINATED INDEBTEDNESS.
--------------------------------------------------------
Borrower and Creditor agree that no modifications, alterations
or changes may be made to any documents evidencing the Subordinated
Indebtedness, including without limitation, the Financing Agreement
and the Shareholder Note, or any documents evidencing any interest
of Creditor in the Shareholder Collateral without the express written
consent of Lender.
ARTICLE V
MISCELLANEOUS PROVISIONS
------------------------
SECTION 5.01. APPLICABLE LAW. This Agreement has been delivered
----------------------------
to Lender and accepted by Lender in Summit County, in the State of Ohio.
If there is a lawsuit, Creditor and Borrower agree upon Lender's request
to submit to the jurisdiction of the courts of Summit County, State of
Ohio. This Agreement shall be governed by and construed in accordance
with the laws (but not the law of conflicts) of the State of Ohio. No
provision contained in this Agreement shall be construed (a) as
requiring Lender to grant to Borrower or to Creditor any financial
assistance or other accommodations, or (b) as limiting or precluding
Lender from the exercise of Lender's own judgment and discretion about
amounts and times of payment in making loans or extending
accommodations to Borrower.
SECTION 5.02. AMENDMENTS. This Agreement constitutes the entire
------------------------
understanding and agreement of the parties as to the matters set forth
in this Agreement. No alteration of or amendment to this Agreement
shall be effective unless made in writing and signed by Lender,
Borrower, and Creditor.
SECTION 5.03. ATTORNEYS' FEES; EXPENSES. Creditor and Borrower
---------------------------------------
agree to pay upon demand all of Lender's costs and expenses, including
attorneys' fees and Lender's legal expenses, incurred in connection
with the enforcement of this Agreement. Lender may pay someone else
to help enforce this Agreement, and Creditor and Borrower shall pay
the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not
there is a lawsuit, including attorneys' fees and legal expenses for
bankruptcy proceedings (and including efforts to modify or vacate
any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Creditor and Borrower also pay
all court costs and such additional fees as may be directed by the
court.
SECTION 5.04. SUCCESSORS AND ASSIGNS. This Agreement shall
------------------------------------
extend to and bind the respective heirs, personal representatives,
successors and assigns of the parties to this Agreement, and the
covenants of Borrower and Creditor respecting subordination of the
Subordinated Indebtedness in favor of Lender shall extend to,
include, and be enforceable by any transferee or endorse to whom
Lender may transfer any or all of the Superior Indebtedness.
SECTION 5.05. WAIVER. Lender shall not be deemed to have waived
--------------------
any rights under this Agreement unless such waiver is given in writing
and signed by Lender. No delay or omission on the part of Lender in
exercising any right shall operate as a waiver of such right or any
other right. A waiver by Lender of a provision of this Agreement
shall not prejudice or constitute a waiver of Lender's right
otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender,
nor any course of dealing between Lender and Creditor, shall
constitute a waiver of any of Lender's rights or of any of Creditor's
obligations as to any future transactions. Whenever the consent of
Lender is required under this Agreement, the granting of such consent
by Lender in any instance shall not constitute continuing consent to
subsequent instances where such consent is required and in all cases
such consent may be granted or withheld in the sole discretion of
Lender.
BORROWER AND CREDITOR ACKNOWLEDGE HAVING READ ALL THE PROVISIONS OF
THIS SUBORDINATION AGREEMENT, AND BORROWER AND CREDITOR AGREE TO ITS
TERMS.
Chempower, Inc.
By: /s/ Toomas J. Kukk
------------------------------------------
Toomas J. Kukk, Chairman/President/CEO
/s/ Toomas J. Kukk
---------------------------------------------
Toomas J. Kukk, Individually and as Agent
/s/ Mark L. Rochester
---------------------------------------------
Mark L. Rochester
First National Bank of Ohio
By: /s/ Nick Browning
-------------------------------------
Its: Vice-President
------------------------------------
<PAGE>
CERTIFICATE
The undersigned certifies that attached hereto are true, complete and
accurate copies of the Financing Agreement, the Shareholder Note, and
the Pledge Agreement. Capitalized terms used in this Certificate have
the respective meanings assigned to them in the Subordination
Agreement, dated as of February 28, 1997, by and among Chempower,
Inc., First National Bank of Ohio, Toomas J. Kukk, Mark L. Rochester,
and Toomas J. Kukk as Agent.
/s/ Toomas J. Kukk
-------------------------------
Toomas J. Kukk, Principal Shareholder
/s/ Toomas J. Kukk
-------------------------------
Toomas J. Kukk, Agent
---------------
EXHIBIT 10.9.13
---------------
COMMERCIAL SECURITY AGREEMENT
THIS COMMERCIAL SECURITY AGREEMENT is entered into between
Chempower, Inc., an Ohio corporation with its principal offices
at 807 East Turkeyfoot Lake Road, Akron, Ohio 44319 (referred to
below as either "BORROWER" or "GRANTOR"); and First National Bank
of Ohio, a national Banking Association with its principal
offices at 106 S. Main Street, Akron, Ohio 44308 (referred to
below as "LENDER").
GRANT OF SECURITY INTEREST. For valuable consideration, Grantor
grants to Lender a security interest in the Collateral to secure
the Indebtedness and agrees that Lender shall have the rights
stated in this Agreement with respect to the Collateral, in
addition to all other rights which Lender may have by law.
DEFINITIONS. The following words shall have the following
meanings when used in this Agreement. Terms not otherwise
defined in this Agreement or in the Loan Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code.
All references to dollar amounts shall mean amounts in lawful
money of the United States of America.
Agreement. The word "AGREEMENT" means this Commercial
---------
Security Agreement, as this Commercial Security Agreement
may be amended or modified from time to time, together with
all exhibits and schedules attached to this Commercial
Security Agreement from time to time.
Borrower. The word "BORROWER" means Chempower, Inc. and its
--------
successors and assigns.
Collateral. The word "COLLATERAL" means the following
----------
described property of Grantor, whether now owned or
hereafter acquired, whether now existing or hereafter
arising, and wherever located:
All inventory, accounts, contract rights, equipment and
general intangibles.
In addition, the word "Collateral" includes all the
following, whether now owned or hereafter acquired, whether
now existing or hereafter arising, and wherever located:
(a) All attachments, accessions, accessories, tools,
parts, supplies, increases, and additions to and all
replacements of and substitutions for any property
described above.
(b) All products and produce of any of the property
described in this Collateral section.
(c) All accounts, contract rights, general
intangibles, instruments, rents, monies, payments, and
all other rights, arising out of a sale, lease, or
other disposition of any of the property described in
this Collateral section.
(d) All proceeds (including insurance proceeds) from
the sale, destruction, loss, or other disposition of
any of the property described in this Collateral
section.
(e) All records and data relating to any of the
property described in this Collateral section, whether
in the form of a writing, photograph, microfilm,
microfiche, or electronic media, together with all of
Grantor's right, title, and interest in and to all
computer software required to utilize, create,
maintain, and process any such records or data on
electronic media.
Event of Default. The words "EVENT OF DEFAULT" mean and
----------------
include, without limitation any of the Events of Default set
forth in the Loan Agreement or below in the section titled
"Events of Default."
Grantor. The word "GRANTOR" means Chempower, Inc.
-------
Guarantor. The word "GUARANTOR" means and includes without
---------
limitation each and all of the guarantors, sureties, and
accommodation parties in connection with the Indebtedness.
Indebtedness. The word "INDEBTEDNESS" means the
------------
indebtedness evidenced by the Note, including all principal
and interest, together with all other indebtedness and costs
and expenses for which Grantor or Borrower is responsible
under this Agreement or under any of the Related Documents.
Loan Agreement means the Loan Agreement between Borrower and
--------------
Lender dated as of February 28, 1997.
Lender. The word "LENDER" means First National Bank of
------
Ohio, its successors and assigns.
Note. The word "NOTE" as used herein shall mean the Note
----
referred to in the Loan Agreement which is the promissory
note of Borrower to Lender dated as of February 28, 1997 in
the maximum principal amount of $15,700,000; together with
all renewals of, extensions of, modifications of,
refinancings of, consolidations of and substitutions for the
note or credit agreement.
Related Documents. The words "RELATED DOCUMENTS" mean and
-----------------
include without limitation all promissory notes, credit
agreements, loan agreements, environmental agreements,
guaranties, security agreements, mortgages, deeds of trust,
and all other instruments, agreements and documents, whether
now or hereafter existing, executed in connection with the
Indebtedness.
BORROWER'S WAIVERS AND RESPONSIBILITIES. Except as otherwise
required under this Agreement or by applicable law, (a) Borrower
agrees that Lender need not tell Borrower about any action or
inaction Lender takes in connection with this Agreement; (b)
Borrower assumes the responsibility for being and keeping
informed about the Collateral; and (c) Borrower waives any
defenses that may arise because of any action or inaction of
Lender, including without limitation any failure of Lender to
realize upon the Collateral or any delay by Lender in realizing
upon the Collateral; and Borrower agrees to remain liable under
the Note no matter what action Lender takes or fails to take
under this Agreement.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender
as follows:
Perfection of Security Interest. Grantor agrees to execute
-------------------------------
such financing statements and to take whatever other actions
are requested by Lender to perfect and continue Lender's
security interest in the Collateral. Upon request of
Lender, Grantor will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and
Grantor will note Lender's interest upon any and all chattel
paper if not delivered to Lender for possession by Lender.
Grantor hereby appoints Lender as its irrevocable
attorney-in-fact for the purpose of executing any documents
necessary to perfect or to continue the security interest
granted in this Agreement. Lender may at any time, and
without further authorization from Grantor, file a carbon,
photographic or other reproduction of any financing
statement or of this Agreement for use as a financing
statement. Grantor will reimburse Lender for all expenses
for the perfection and the continuation of the perfection of
Lender's security interest in the Collateral. Grantor
promptly will notify Lender before any change in Grantor's
name including any change to the assumed business names of
Grantor. This is a continuing Security Agreement and will
continue in effect even though all or any part of the
Indebtedness is paid in full and even though for a period of
time Borrower may not be indebted to Lender.
No Violation. The execution and delivery of this Agreement
------------
will not violate any laws or agreement governing Grantor or
to which Grantor is a party, and its certificate or articles
of incorporation and bylaws or code of regulations do not
prohibit any term or condition of this Agreement.
Enforceability of Collateral. To the extent the Collateral
----------------------------
consists of accounts, contract rights, chattel paper, or
general intangibles, the Collateral is enforceable in
accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner of
preparation and execution, and all persons appearing to be
obliged on the Collateral have authority and capacity to
contract and are in fact obligated as they appear to be on
the Collateral. At the time any account becomes subject to
a security interest in favor of Lender, the account shall be
a good and valid account representing an undisputed, bona
fide indebtedness incurred by the account debtor, for
merchandise held subject to delivery instructions or
theretofore shipped or delivered pursuant to a contract of
sale, or for services theretofore performed by Grantor with
or for the account debtor; there shall be no setoffs or
counterclaims against any such account; and no agreement
under which any deductions or discounts may be claimed shall
have been made with the account debtor except those
disclosed to Lender in writing.
Location of the Collateral. Grantor, upon request of
--------------------------
Lender, will deliver to Lender in form satisfactory to
Lender a schedule of real properties and Collateral
locations relating to Grantor's operations, including
without limitation the following: (a) all real property
owned or being purchased by Grantor; (b) all real property
being rented or leased by Grantor; (c) all storage
facilities owned, rented, leased, or being used by Grantor;
and (d) all other properties where Collateral is or may be
located. Except in the ordinary course of its business,
Grantor shall not remove the Collateral from its existing
locations without the prior written consent of Lender.
Removal of Collateral. Grantor shall keep the Collateral
---------------------
(or to the extent the Collateral consists of intangible
property such as accounts, the records concerning the
Collateral) at Grantor's address shown above, or at such
other locations as are acceptable to Lender. Except in the
ordinary course of its business, including the sales of
inventory, Grantor shall not remove the Collateral from its
existing locations without the prior written consent of
Lender. To the extent that the Collateral consists of
vehicles, or other titled property, Grantor shall not take
or permit any action which would require application for
certificates of title for the vehicles outside the State of
Ohio, without the prior written consent of Lender.
Transactions Involving Collateral. Other than as expressly
---------------------------------
provided in the Loan Agreement, except for inventory sold or
accounts collected in the ordinary course of Grantor's
business, Grantor shall not sell, offer to sell, or
otherwise transfer or dispose of the Collateral. While
Grantor is not in default under this Agreement, Grantor may
sell inventory, but only in the ordinary course of its
business and only to buyers who qualify as a buyer in the
ordinary course of business. A sale in the ordinary course
of Grantor's business does not include a transfer in partial
or total satisfaction of a debt or any bulk sale. Grantor
shall not pledge, mortgage, encumber or otherwise permit the
Collateral to be subject to any lien, security interest,
encumbrance, or charge, other than the security interest
provided for in this Agreement or under the Loan Agreement,
without the prior written consent of Lender. This includes
security interests even if junior in right to the security
interests granted under this Agreement. Unless waived by
Lender, all proceeds from any disposition of the Collateral
(for whatever reason) shall be held in trust for Lender and
shall not be commingled with any other funds; provided
however, this requirement shall not constitute consent by
Lender to any sale or other disposition. Upon receipt,
Grantor shall immediately deliver any such proceeds to
Lender.
Title. Grantor represents and warrants to Lender that,
-----
except as otherwise provided expressly in the Loan
Agreement, it holds good and marketable title to the
Collateral, free and clear of all liens and encumbrances
except for the lien granted pursuant to this Agreement. No
financing statement covering any of the Collateral is on
file in any public office other than those which reflect the
security interest created by this Agreement or to which
Lender has specifically consented. Grantor shall defend
Lender's rights in the Collateral against the claims and
demands of all other persons.
Collateral Schedules and Locations. As often as Lender
----------------------------------
shall require, and insofar as the Collateral consists of
accounts and general intangibles, Grantor shall deliver to
Lender schedules of such Collateral, including such
information as Lender may require, including without
limitation names and addresses of account debtors and agings
of accounts and general intangibles. Insofar as the
Collateral consists of inventory and equipment, Grantor
shall deliver to Lender, as often as Lender shall require,
such lists, descriptions, and designations of such
Collateral as Lender may require to identify the nature,
extent, and location of such Collateral. Such information
shall be submitted for Grantor and each of its subsidiaries
or related companies.
Maintenance and Inspection of Collateral. Grantor shall
----------------------------------------
maintain all tangible Collateral in good condition and
repair. Grantor will not commit or permit damage to or
destruction of the Collateral or any part of the Collateral.
Lender and its designated representatives and agents shall
have the right at all reasonable times to examine, inspect,
and audit the Collateral wherever located. Subject to the
limitations set forth in the Loan Agreement, Grantor shall
immediately notify Lender of all cases involving the return,
rejection, repossession, loss or damage of or to any
Collateral; of any request for credit or adjustment or of
any other dispute arising with respect to the Collateral;
and generally of all happenings and events affecting the
Collateral or the value or the amount of the Collateral.
Taxes, Assessments and Liens. Grantor will pay when due all
----------------------------
taxes, assessments and liens upon the Collateral, its use or
operation, upon this Agreement, upon any promissory note or
notes evidencing the Indebtedness, or upon any of the other
Related Documents. Grantor may withhold any such payment or
may elect to contest any lien if Grantor is in good faith
conducting an appropriate proceeding to contest the
obligation to pay and so long as Lender's interest in the
Collateral is not jeopardized in Lender's sole opinion. If
the Collateral is subjected to a lien which is not
discharged within fifteen (15) days, Grantor shall deposit
with Lender cash, a sufficient corporate surety bond or
other security satisfactory to Lender in an amount adequate
to provide for the discharge of the lien plus any interest,
costs, attorneys' fees or other charges that could accrue as
a result of foreclosure or sale of the Collateral. In any
contest Grantor shall defend itself and Lender and shall
satisfy any final adverse judgment before enforcement
against the Collateral. Grantor shall name Lender as an
additional obligee under any surety bond furnished in the
contest proceedings.
Compliance With Governmental Requirements. Grantor shall
-----------------------------------------
comply promptly with all laws, ordinances, rules and
regulations of all governmental authorities, now or
hereafter in effect, applicable to the ownership,
production, disposition, or use of the Collateral. Grantor
may contest in good faith any such law, ordinance or
regulation and withhold compliance during any proceeding,
including appropriate appeals, so long as Lender's interest
in the Collateral, in Lender's opinion, is not jeopardized.
Hazardous Substances. Grantor represents and warrants that
--------------------
the Collateral never has been, and never will be so long as
this Agreement remains a lien on the Collateral, used for
the generation, manufacture, storage, transportation,
treatment, disposal, release or threatened release of any
hazardous waste or substance, as those terms are defined in
the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, 42 U.S.C. Section 9601,
et seq. ("CERCLA"), the Superfund Amendments and
Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"),
the Hazardous Materials Transportation Act, 49 U.S.C.
Section 1801, et seq., the Resource Conservation and
Recovery Act, 49 U.S.C. Section 6901, et seq., or other
applicable state or Federal laws, rules, or regulations
adopted pursuant to any of the foregoing. The terms
"HAZARDOUS WASTE" and "HAZARDOUS SUBSTANCE" shall also
include, without limitation, petroleum and petroleum
by-products or any fraction thereof and asbestos. The
representations and warranties contained herein are based on
Grantor's due diligence in investigating the Collateral for
hazardous wastes and substances. Grantor hereby
(a) releases and waives any future claims against Lender for
indemnity or contribution in the event Grantor becomes
liable for cleanup or other costs under any such laws, and
(b) agrees to indemnify and hold harmless Lender against any
and all claims and losses resulting from a breach of this
provision of this Agreement. This obligation to indemnify
shall survive the payment of the Indebtedness and the
satisfaction of this Agreement.
Maintenance of Casualty Insurance. Grantor shall procure
---------------------------------
and maintain all risks insurance, including without
limitation fire, theft and liability coverage together with
such other insurance as Lender may require with respect to
the Collateral, in form, amounts, coverages and basis
reasonably acceptable to Lender and issued by a company or
companies reasonably acceptable to Lender. Grantor, upon
request of Lender, will deliver to Lender from time to time
the policies or certificates of insurance in form
satisfactory to Lender, including stipulations that coverage
will not be canceled or diminished without at least ten (10)
days' prior written notice to Lender and not including any
disclaimer of the insurer's liability for failure to give
such a notice. Each insurance policy also shall include an
endorsement providing that coverage in favor of Lender will
not be impaired in any way by any act, omission or default
of Grantor or any other person. In connection with all
policies covering assets in which Lender holds or is offered
a security interest, Grantor will provide Lender with such
loss payable or other endorsements as Lender may require.
If Grantor at any time fails to obtain or maintain any
insurance as required under this Agreement, Lender may (but
shall not be obligated to) obtain such insurance as Lender
deems appropriate, including if it so chooses "single
interest insurance," which will cover only Lender's interest
in the Collateral.
Application of Insurance Proceeds. Grantor shall promptly
---------------------------------
notify Lender of any loss or damage to the Collateral.
Lender may make proof of loss if Grantor fails to do so
within fifteen (15) days of the casualty. All proceeds of
any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral.
If Lender consents to repair or replacement of the damaged
or destroyed Collateral, which consent shall not be
unreasonably withheld, Lender shall, upon satisfactory proof
of expenditure, pay or reimburse Grantor from the proceeds
for the reasonable cost of repair or restoration. If Lender
does not consent to repair or replacement of the Collateral,
Lender shall retain a sufficient amount of the proceeds to
pay all of the Indebtedness, and shall pay the balance to
Grantor. Any proceeds which have not been disbursed within
six (6) months after their receipt and which Grantor has not
committed to the repair or restoration of the Collateral
shall be used to prepay the Indebtedness.
Insurance Reports. Grantor, upon request of Lender, shall
-----------------
furnish to Lender reports on each existing policy of
insurance showing such information as Lender may reasonably
request including the following: (a) the name of the
insurer; (b) the risks insured; (c) the amount of the
policy; (d) the property insured; (e) the then current value
on the basis of which insurance has been obtained and the
manner of determining that value; and (f) the expiration
date of the policy. In addition, Grantor shall upon request
by Lender (however not more often than annually) have an
independent appraiser satisfactory to Lender determine, as
applicable, the cash value or replacement cost of the
Collateral.
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until
default and except as otherwise provided below with respect to
accounts, Grantor may have possession of the tangible personal
property and beneficial use of all the Collateral and may use it
in any lawful manner not inconsistent with this Agreement or the
Related Documents, provided that Grantor's right to possession
and beneficial use shall not apply to any Collateral where
possession of the Collateral by Lender is required by law to
perfect Lender's security interest in such Collateral. Until
otherwise notified by Lender, Grantor may collect any of the
Collateral consisting of accounts. At any time and even though
no Event of Default exists, Lender may exercise its rights to
collect the accounts and to notify account debtors to make
payments directly to Lender for application to the Indebtedness.
If Lender at any time has possession of any Collateral, whether
before or after an Event of Default, Lender shall be deemed to
have exercised reasonable care in the custody and preservation of
the Collateral if Lender takes such action for that purpose as
Grantor shall request or as Lender, in Lender's sole discretion,
shall deem appropriate under the circumstances, but failure to
honor any request by Grantor shall not of itself be deemed to be
a failure to exercise reasonable care. Lender shall not be
required to take any steps necessary to preserve any rights in
the Collateral against prior parties, nor to protect, preserve or
maintain any security interest given to secure the Indebtedness.
EXPENDITURE BY LENDER. If not discharged or paid when due,
Lender may (but shall not be obligated to) discharge or pay any
amounts required to be discharged or paid by Grantor under this
Agreement, including without limitation all taxes, liens,
security interests, encumbrances, and other claims, at any time
levied or placed on the Collateral. Lender also may (but shall
not be obligated to) pay all costs for insuring, maintaining and
preserving the Collateral. All such expenditures incurred or
paid by Lender for such purposes will then bear interest at the
rate charged under the Note from the date incurred or paid by
Lender to the date of repayment by Grantor. All such expenses
shall become a part of the Indebtedness and, at Lender's option,
will (a) be payable on demand, (b) be added to the balance of the
Note and be apportioned among and be payable with any installment
payments to become due during either (i) the term of any
applicable insurance policy or (ii) the remaining terms of the
Note, or (c) be treated as a balloon payment which will be due
and payable at the Note's maturity. This Agreement also will
secure payment of these amounts. Such right shall be in addition
to all other rights and remedies to which Lender may be entitled
upon the occurrence of an Event of Default.
EVENTS OF DEFAULT. Each of the following shall constitute an
Event of Default under this Agreement:
Default on Indebtedness. Failure of Borrower to make any
-----------------------
payment when due on the Indebtedness as provided in the Note
and the Loan Agreement.
Other Defaults. Failure of Grantor or Borrower to comply
--------------
with or to perform any other term, obligation, covenant or
condition contained in this Agreement or in the Loan
Agreement or any of the Related Documents.
Insolvency. The dissolution or termination of Grantor or
----------
Borrower's existence as a going business, the insolvency of
Grantor or Borrower, the appointment of a receiver for any
part of Grantor or Borrower's property, any assignment for
the benefit of creditors, any type of creditor workout, or
the commencement of any proceeding under any bankruptcy or
insolvency laws by or against Grantor or Borrower.
Creditor or Forfeiture Proceedings. Commencement of
----------------------------------
foreclosure or forfeiture proceedings, whether by judicial
proceeding, self-help, repossession or any other method, by
any creditor of Grantor or Borrower or by any governmental
agency against the Collateral or any other collateral
securing the Indebtedness. This includes a garnishment of
any of Grantor or Borrower's deposit accounts with Lender.
However, this Event of Default shall not apply if there is a
good faith dispute by Grantor or Borrower as to the validity
or reasonableness of the claim which is the basis of the
creditor or forfeiture proceeding and if Grantor or Borrower
gives Lender written notice of the creditor or forfeiture
proceeding and deposits with Lender monies or a surety bond
for the creditor or forfeiture proceeding, in an amount
determined by Lender, in its sole discretion, as being an
adequate reserve or bond for the dispute.
Events Affecting Guarantor. Any of the preceding events
--------------------------
occurs with respect to any Guarantor of any of the
Indebtedness or such Guarantor dies or becomes incompetent.
Lender, at its option, may, but shall not be required to,
permit the Guarantor's estate to assume unconditionally the
obligations arising under the guaranty in a manner
satisfactory to Lender, and, in doing so, cure the Event of
Default.
Insecurity. Lender, in good faith, deems itself insecure.
----------
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs
under this Agreement, at any time thereafter, Lender shall have
all the rights of a secured party under the Ohio Uniform
Commercial Code and shall have all the rights and remedies
provided under the Loan Agreement and the Related Documents. In
addition and without limitation, Lender may exercise any one or
more of the following rights and remedies:
Assemble Collateral. Lender may require Grantor to deliver
-------------------
to Lender all or any portion of the Collateral and any and
all certificates of title and other documents relating to
the Collateral. Lender may require Grantor to assemble the
Collateral and make it available to Lender at a place to be
designated by Lender. Lender also shall have full power to
enter upon the property of Grantor to take possession of and
remove the Collateral. If the Collateral contains other
goods not covered by this Agreement at the time of
repossession, Grantor agrees Lender may take such other
goods, provided that Lender makes reasonable efforts to
return them to Grantor after repossession.
Sell the Collateral. Lender shall have full power to sell,
-------------------
lease, transfer, or otherwise deal with the Collateral or
proceeds thereof in its own name or that of Grantor. Lender
may sell the Collateral at public auction or private sale.
Unless the Collateral threatens to decline speedily in value
or is of a type customarily sold on a recognized market,
Lender will give Grantor reasonable notice of the time after
which any private sale or any other intended disposition of
the Collateral is to be made. The requirements of
reasonable notice shall be met if such notice is given at
least ten (10) days before the time of the sale or
disposition. All expenses relating to the disposition of
the Collateral, including without limitation the expenses of
retaking, holding, insuring, preparing for sale and selling
the Collateral, shall become a part of the Indebtedness
secured by this Agreement and shall be payable on demand,
with interest at the Note rate from date of expenditure
until repaid.
Appoint Receiver. To the extent permitted by applicable
----------------
law, Lender shall have the following rights and remedies
regarding the appointment of a receiver: (a) Lender may
have a receiver appointed as a matter of right, (b) the
receiver may be an employee of Lender and may serve without
bond, and (c) all fees of the receiver and his or her
attorney shall become part of the Indebtedness secured by
this Agreement and shall be payable on demand, with interest
at the Note rate from date of expenditure until repaid.
Collect Revenues, Apply Accounts. Lender, either itself or
--------------------------------
through a receiver, may collect the payments, rents, income,
and revenues from the Collateral. Lender may at any time in
its discretion transfer any Collateral into its own name or
that of its nominee and receive the payments, rents, income,
and revenues therefrom and hold the same as security for the
Indebtedness or apply it to payment of the Indebtedness in
such order of preference as Lender may determine. Insofar
as the Collateral consists of accounts, general intangibles,
insurance policies, instruments, chattel paper, choses in
action, or similar property, Lender may demand, collect,
receipt for, settle, compromise, adjust, sue for, foreclose,
or realize on the Collateral as Lender may determine,
whether or not Indebtedness or Collateral is then due. For
these purposes, Lender may, on behalf of and in the name of
Grantor, receive, open and dispose of mail addressed to
Grantor; change any address to which mail and payments are
to be sent; and endorse notes, checks, drafts, money orders,
documents of title, instruments and items pertaining to
payment, shipment, or storage of any Collateral. To
facilitate collection, Lender may notify account debtors and
obligors on any Collateral to make payments directly to
Lender.
Obtain Deficiency. If Lender chooses to sell any or all of
-----------------
the Collateral, Lender may obtain a judgment against
Borrower for any deficiency remaining on the Indebtedness
due to Lender after application of all amounts received from
the exercise of the rights provided in this Agreement.
Borrower shall be liable for a deficiency even if the
transaction described in this subsection is a sale of
accounts or chattel paper.
Other Rights and Remedies. Lender shall have all the rights
-------------------------
and remedies of a secured creditor under the provisions of
the Uniform Commercial Code, as may be amended from time to
time. In addition, Lender shall have and may exercise any
or all other rights and remedies it may have available at
law, in equity, or otherwise.
Cumulative Remedies. All of Lender's rights and remedies,
-------------------
whether evidenced by this Agreement or the Related Documents
or by any other writing, shall be cumulative and may be
exercised singularly or concurrently. Election by Lender to
pursue any remedy shall not exclude pursuit of any other
remedy, and an election to make expenditures or to take
action to perform an obligation of Grantor or Borrower under
this Agreement, after Grantor or Borrower's failure to
perform, shall not affect Lender's right to declare and to
exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions
are a part of this Agreement.
Amendments. This Agreement, together with any Related
----------
Documents, constitutes the entire understanding and
agreement of the parties as to the matters set forth in this
Agreement. No alteration of or amendment to this Agreement
shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the
alteration or amendment.
Applicable Law. This Agreement has been delivered to Lender
--------------
and accepted by Lender in the State of Ohio. If there is a
lawsuit, Grantor and Borrower agree upon Lender's request to
submit to the jurisdiction of the courts of Summit County,
State of Ohio. This Agreement shall be governed by and
construed in accordance with the laws of the State of Ohio.
Attorneys' Fees; Expenses. Grantor and Borrower agree to
-------------------------
pay upon demand all of Lender's costs and expenses,
including attorneys' fees and Lender's legal expenses,
incurred in connection with the enforcement of this
Agreement. Lender may pay someone else to help enforce this
Agreement, and Grantor and Borrower shall pay the costs and
expenses of such enforcement. Costs and expenses include
Lender's attorneys' fees and legal expenses whether or not
there is a lawsuit, including attorneys' fees and legal
expenses for bankruptcy proceedings (and including efforts
to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection
services. Grantor and Borrower also shall pay all court
costs and such additional fees as may be directed by the
court.
Caption Headings. Caption headings in this Agreement are
----------------
for convenience purposes only and are not to be used to
interpret or define the provisions of this Agreement.
Multiple Parties; Corporate Authority. All obligations of
-------------------------------------
Grantor and Borrower under this Agreement shall be joint and
several, and all references to Borrower shall mean each and
every Borrower, and all references to Grantor shall mean
each and every Grantor. This means that each of the persons
signing below as Borrower or Grantor is responsible for ALL
obligations in this Agreement.
Notices. All notices required to be given under this
-------
Agreement shall be given in writing and in the manner
provided in the Loan Agreement. To the extent permitted by
applicable law, if there is more than one Grantor, notice to
any Grantor or Borrower will constitute notice to all
Grantor and Borrowers. For notice purposes, Grantor or
Borrower agrees to keep Lender informed at all times of
Grantor or Borrower's current address(es).
Power of Attorney. Grantor hereby appoints Lender as its
-----------------
true and lawful attorney-in-fact, irrevocably, with full
power of substitution to do the following: (a) to demand,
collect, receive, receipt for, sue and recover all sums of
money or other property which may now or hereafter become
due, owing or payable from the Collateral; (b) to execute,
sign and endorse any and all claims, instruments, receipts,
checks, drafts or warrants issued in payment for the
Collateral; (c) to settle or compromise any and all claims
arising under the Collateral, and, in the place and stead of
Grantor, to execute and deliver its release and settlement
for the claim; and (d) to file any claim or claims or to
take any action or institute or take part in any
proceedings, either in its own name or in the name of
Grantor, or otherwise, which in the discretion of Lender may
seem to be necessary or advisable. This power is given as
security for the Indebtedness, and the authority hereby
conferred is and shall be irrevocable and shall remain in
full force and effect until renounced by Lender.
Severability. If a court of competent jurisdiction finds
------------
any provision of this Agreement to be invalid or
unenforceable as to any person or circumstance, such finding
shall not render that provision invalid or unenforceable as
to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to
be within the limits of enforceability or validity; however,
if the offending provision cannot be so modified, it shall
be stricken and all other provisions of this Agreement in
all other respects shall remain valid and enforceable.
Successor Interests. Subject to the limitations set forth
-------------------
above on transfer of the Collateral, this Agreement shall be
binding upon and inure to the benefit of the parties, their
successors and assigns.
Waiver. Lender shall not be deemed to have waived any
------
rights under this Agreement unless such waiver is given in
writing and signed by Lender. No delay or omission on the
part of Lender in exercising any right shall operate as a
waiver of such right or any other right. A waiver by Lender
of a provision of this Agreement shall not prejudice or
constitute a waiver of Lender's right otherwise to demand
strict compliance with that provision or any other provision
of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Grantor, shall
constitute a waiver of any of Lender's rights or of any of
Grantor's obligations as to any future transactions.
Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any
instance shall not constitute continuing consent to
subsequent instances where such consent is required and in
all cases such consent may be granted or withheld in the
sole discretion of Lender.
BORROWER AND GRANTOR ACKNOWLEDGE HAVING READ ALL THE
PROVISIONS OF THIS COMMERCIAL SECURITY AGREEMENT, AND BORROWER
AND GRANTOR AGREE TO ITS TERMS. THIS AGREEMENT IS DATED AS OF
FEBRUARY 28, 1997.
BORROWER AND GRANTOR:
Chempower, Inc.
By: /s/ Toomas J. Kukk
----------------------------------------
Toomas J. Kukk, Chairman/President/CEO
LENDER:
First National Bank of Ohio
By: /s/ Nicholas V. Browning
----------------------------------------
Nicholas V. Browning, Vice President
Exhibit 10.10
-------------
11011 JONES ROAD LEASE AGREEMENT
BY AND BETWEEN
11011 JONES ROAD JOINT VENTURE GROUP
("LANDLORD")
AND
AMERICAN ECO CORPORATION
("TENANT")
page break
TABLE OF CONTENTS
ARTICLE 1. . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 PREMISES . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2. . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1 TERM. . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 EARLY POSSESSION. . . . . . . . . . . . . . . . . . 1
ARTICLE 3. . . . . . . . . . . . . . . . . . . . . . . . . . 1
3.1 BASE RENT. . . . . . . . . . . . . . . . . . . . . 1
3.2 OPERATING EXPENSES. . . . . . . . . . . . . . . . . 1
3.3 SECURITY DEPOSIT. . . . . . . . . . . . . . . . . . 1
ARTICLE 4. . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.1 USE . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 5. . . . . . . . . . . . . . . . . . . . . . . . . . 2
5.1 TENANT SERVICES. . . . . . . . . . . . . . . . . . 2
5.2 UTILITY SERVICES. . . . . . . . . . . . . . . . . . 2
ARTICLE 6. . . . . . . . . . . . . . . . . . . . . . . . . . 2
6.1 ALTERATIONS. . . . . . . . . . . . . . . . . . . . 2
6.2 TENANT REPAIRS. . . . . . . . . . . . . . . . . . . 2
6.3 CONDITION OF PREMISES. . . . . . . . . . . . . . . 3
ARTICLE 7. . . . . . . . . . . . . . . . . . . . . . . . . . 3
7.1 TENANT INSURANCE. . . . . . . . . . . . . . . . . . 3
7.2 WAIVER OF SUBROGATION. . . . . . . . . . . . . . . 3
7.3 INDEMNITY. . . . . . . . . . . . . . . . . . . . . 4
ARTICLE 8. . . . . . . . . . . . . . . . . . . . . . . . . . 4
8.1 CASUALTY. . . . . . . . . . . . . . . . . . . . . . 4
8.2 END OF TERM CASUALTY. . . . . . . . . . . . . . . . 4
ARTICLE 9. . . . . . . . . . . . . . . . . . . . . . . . . . 4
9.1 CONDEMNATION . . . . . . . . . . . . . . . . . . . 4
ARTICLE 10. . . . . . . . . . . . . . . . . . . . . . . . . . 5
10.1 ENTRY . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 11. . . . . . . . . . . . . . . . . . . . . . . . . . 5
11.1 SUBORDINATION. . . . . . . . . . . . . . . . . . . 5
11.3 QUIET ENJOYMENT . . . . . . . . . . . . . . . . . . 5
ARTICLE 12. . . . . . . . . . . . . . . . . . . . . . . . . . 6
12.1 ASSIGNMENT AND SUBLETTING. . . . . . . . . . . . . 6
12.2 CONTINUED LIABILITY. . . . . . . . . . . . . . . . 7
12.3 CONSENT. . . . . . . . . . . . . . . . . . . . . . 7
12.4 PROCEEDS. . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 13. . . . . . . . . . . . . . . . . . . . . . . . . . 7
13.1 DEFAULT. . . . . . . . . . . . . . . . . . . . . . 7
13.2 RIGHTS UPON DEFAULT. . . . . . . . . . . . . . . . 7
13.3 COSTS. . . . . . . . . . . . . . . . . . . . . . . 8
13.4 INTEREST. . . . . . . . . . . . . . . . . . . . . . 8
13.5 LANDLORD'S LIEN. . . . . . . . . . . . . . . . . . 8
ARTICLE 14. . . . . . . . . . . . . . . . . . . . . . . . . . 8
14.1 CORPORATE RESOLUTIONS; OTHER EVIDENCE OF
AUTHORITY. . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 15. . . . . . . . . . . . . . . . . . . . . . . . . . 9
15.1 ENVIRONMENTAL MATTERS. . . . . . . . . . . . . . . 9
ARTICLE 16. . . . . . . . . . . . . . . . . . . . . . . . . . 9
16.1 AMENDMENT. . . . . . . . . . . . . . . . . . . . . 9
16.2 SEVERABILITY. . . . . . . . . . . . . . . . . . . . 9
16.3 ESTOPPEL LETTERS. . . . . . . . . . . . . . . . . . 9
16.4 LANDLORD'S LIABILITY AND AUTHORITY. . . . . . . . . 9
16.5 HOLDOVER. . . . . . . . . . . . . . . . . . . . . . 9
16.6 SURRENDER. . . . . . . . . . . . . . . . . . . . . 9
16.7 PARTIES AND SUCCESSORS. . . . . . . . . . . . . . . 9
16.8 NOTICE. . . . . . . . . . . . . . . . . . . . . . . 10
16.9 RULES AND REGULATIONS . . . . . . . . . . . . . . . 10
16.10 CAPTIONS . . . . . . . . . . . . . . . . . . . . . 10
16.11 NUMBER AND GENDER. . . . . . . . . . . . . . . . . 10
16.12 GOVERNING LAW. . . . . . . . . . . . . . . . . . . 10
16.13 INABILITY TO PERFORM. . . . . . . . . . . . . . . 10
16.14 USE OF NAME . . . . . . . . . . . . . . . . . . . 10
16.15 BROKER. . . . . . . . . . . . . . . . . . . . . . 10
16.16 MEMORANDUM OF LEASE. . . . . . . . . . . . . . . . 10
16.17 ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . 10
16.18 TIME OF ESSENCE. . . . . . . . . . . . . . . . . . 11
16.19 PARKING. . . . . . . . . . . . . . . . . . . . . . 11
16.21 ATTORNEY'S FEES. . . . . . . . . . . . . . . . . . 11
16.22 LANDLORD ALTERATIONS OR MODIFICATIONS. . . . . . . 11
16.23 NAME CHANGE . . . . . . . . . . . . . . . . . . . 11
16.25 GUARANTY. . . . . . . . . . . . . . . . . . . . . 11
16.26 PURCHASE OPTION. . . . . . . . . . . . . . . . . . 11
page break
11011 JONES ROAD LEASE AGREEMENT
---------------------------------
This Lease is entered into as of the 15th day of August,
1996 between 11011 JONES ROAD JOINT VENTURE GROUP, ("Landlord")
whose address for purposes of notice hereunder is 11011 Jones
Road, Suite 250, Houston, Texas 77070 and AMERICAN ECO
CORPORATION, an Ontario Corporation, ("Tenant"), whose address
prior to the Commencement Date (defined in Section 2.01 hereof)
is 1325 South Creek, Houston, Texas 77084 and whose address after
the Commencement Date shall be 11011 Jones Road, Houston, Texas
77070.
W I T N E S S E T H:
ARTICLE 1.
1.1 PREMISES.
---------- Landlord hereby leases to Tenant, and
Tenant hereby leases from Landlord, for the rent and subject to
the provisions of this Lease, the premises known as 11011 Jones
Road, Houston, Harris County, Texas, said property being more
particularly described as Exhibit A hereto.
ARTICLE 2.
2.1 TERM.
----- Subject to the other provisions hereof, this
Lease shall be for a term of Five (5) years commencing on August
15, 1996 (the "Commencement Date"), and expiring on September 14,
2001 (the "Expiration Date"). Such term, as it may be modified,
is herein called the "Term." Such terms shall also have an
automatic renewal for a second five year period.
2.2 EARLY POSSESSION.
---------------- If prior to the Commencement Date
Tenant shall enter into possession of all or any part of the
Premises, such possession shall be subject to all the provisions
of this Lease, and the Term and the payment of all Rent shall
commence, on the date of such entry, and the total amount of all
Rent due hereunder shall be increased accordingly.
ARTICLE 3.
3.1 BASE RENT.
--------- Tenant, in consideration for this Lease,
agrees to pay to Landlord a base rental ("Base Rent") of
$180,000.00 per year such amount to be paid in equal monthly
installments of $15,000.00. Landlord's address herein provided
in legal tender of the United States of America, without notice,
demand, counterclaim, set-off or abatement, in advance on the
first day of each calendar month throughout the Term, except that
the first such monthly installment is due upon the date of
execution of this Lease by Tenant. The base rent for the second
five year term shall be $198,000.00 to be paid in equal monthly
installment of $15,500.00.
3.2 OPERATING EXPENSES.
------------------ "Operating Expenses" shall mean and
include all amounts, expenses, and costs of whatever nature paid
or incurred because of or in connection with the ownership,
management, operation, repair, maintenance, advertising and
promotion, or security of the Project, all additional facilities
that may be added to the Project, and Landlord's personal
property that may be utilized in connection therewith. Operating
Expenses shall also include real and personal property taxes,
capital improvements, depreciation, interest and principal
payments on mortgage and other non-operating debts of Landlord,
and specific costs for special items or services above Building
Standards.
3.3 SECURITY DEPOSIT.
----------------- Tenant shall deposit with Landlord
on the date Tenant executes this Lease the sum of $15,000.00 as a
"Security Deposit" on the understanding: (a) that the Security
Deposit or any portion thereof may be applied to the curing of
any default, without prejudice to any other remedy or remedies
which the Landlord may have on account thereof, and upon such
application Tenant shall pay Landlord on demand the amount so
applied which shall be added to the Security Deposit so the same
will be restored to its original amount; (b) that Landlord shall
not be obligated to hold the Security Deposit as a separate fund,
but may commingle it with other funds; and (c) that if Tenant is
not in default, the remaining balance of the Security Deposit
shall be returned to Tenant, without interest, within sixty (60)
days after the expiration of the Term provided, however, Landlord
shall have the right to retain and expend such remaining balance
for cleaning and repairing the the Premises if Tenant shall fail
to deliver the Premises at the termination of this Lease in a
neat and clean condition and in as good a condition as existed at
the date of possession of same by Tenant, ordinary wear and tear
only excepted.
ARTICLE 4.
4.1 USE.
---- Tenant shall use and occupy the Premises only for
general office and administrative duties and for no other
purposes. Tenant shall not do or permit anything to be done in
or about the Premises nor bring or keep anything therein that
will in any way increase the existing rate of or affect any fire
or other insurance upon the Project or any of its contents, or
cause cancellation of any insurance policy covering the Project
or any part thereof or any of its contents. Tenant shall not do
or permit anything to be done in or about the Premises that will
in any way obstruct or interfere with the rights of other tenants
or occupants of the Project or injure or annoy them or tend to
lower the first class character of the Building. Tenant shall
not permit any nuisance in, on or about the Premises. Tenant
shall not commit or suffer to be committed any waste in or upon
the Premises. Tenant shall not use the Premises or permit
anything to be done in or about the Premises that will in any way
conflict with any private restrictive covenant, law, statute,
ordinance or any rule or regulation of Landlord or any
governmental or quasi governmental authority now in force or that
may hereafter be enacted or promulgated.
ARTICLE 5.
5.1 TENANT SERVICES.
---------------- The Tenant shall provide services
at the Tenant's expense as follows:
(a) Janitorial services in the Premises.
(b) Water at those points of supply provided for drinking,
toilet, and lavatory purposes.
(c) Normal and customary routine maintenance for all
public, structural, and exterior portions of the
Project according to Landlord's standards.
(d) Electric lighting service for all public portions of
the Project in the manner and to the extent deemed by
Landlord to be in keeping with the standards of a first
class office building in Houston, Texas.
(e) Building security, however, Landlord shall have no
responsibility to prevent, and shall not be liable to
the Tenant for, liability or loss to the Tenant, its
agents, employees and visitors arising out of losses
due to theft, burglary, or damage or injury to persons
or property caused by persons gaining access to the
Building or the Premises, and the Tenant hereby
releases Landlord from all liability relating thereto.
5.2 UTILITY SERVICES.
----------------- The Tenant shall provide and keep
current public utilities/services as may be necessary for normal
building operation.
ARTICLE 6.
6.1 ALTERATIONS.
----------- Tenant shall not make or allow to be
made any alterations, installations, additions or improvements in
or to the Premises, or place safes, vaults or other heavy
furniture or equipment within the Premises, without Landlord's
prior written consent. All alterations, installations, additions
or improvements, other than movable furniture and movable trade
fixtures, made by Tenant to the Premises shall remain upon and be
surrendered with the Premises and become the property of Landlord
at the expiration or termination of this Lease or the termination
of Tenant's right to possession of the Premises. Tenant, at its
sole cost and prior to the expiration or termination of this
Lease, shall remove all of Tenant's property from the Premises
and make, or reimburse Landlord for the cost of, all repairs to
the Premises and/or Project for damage resulting from such
removal. All work shall be completed promptly and in a good and
workmanlike manner and shall be performed in such a manner that
no mechanic's, materialman's or other similar liens shall attach
to Tenant's leasehold estate, and in no event shall Tenant
permit, or be authorized to permit, any such liens or other
claims to be asserted against Landlord or Landlord's rights,
estate and interests with respect to the Project or this Lease.
Landlord may require, at Tenant's sole cost and expense, a lien
and completion bond in an amount equal to the estimated cost of
any improvements, additions or alterations in the Premises.
6.2 TENANT REPAIRS.
-------------- By taking possession of the Premises,
Tenant shall be deemed to have accepted the Premises as being in
good, sanitary order, condition and repair. Tenant shall, at
Tenant's sole cost and expense, keep the Premises in good
condition and repair, damage thereto from causes beyond the
reasonable control of Tenant and ordinary wear and tear damage
excepted. Any injury or damage to the Premises or Project, or
the Appurtenances or fixtures thereof, caused by or resulting
from the act, omission or neglect of Tenant or Tenant's
employees, servants, agents, invitees, assignees, or subtenants
shall be repaired or replaced by Tenant, or at Landlord's option
by Landlord, at the expense of Tenant. If Tenant fails to
maintain the Premises or fails to repair or replace any damage to
the Premises or Project resulting from the negligence or
intentional act of Tenant, its employees, servants, agents,
invitees, assignees or subtenants, Landlord may, but shall not be
obligated to, cause such maintenance, repair or replacement to be
done, as Landlord deems necessary, and Tenant shall immediately
pay to Landlord all costs related thereto plus a charge for
overhead of 15% of such costs.
6.3 CONDITION OF PREMISES.
---------------------- Tenant hereby acknowledges and
agrees that it has inspected the Premises and that to the best of
its knowledge, and based on such inspection, there are no defects
in the facilities provided by Landlord, whether as a part of the
Premises, the Building or the Project, that are vital to the use
of the Premises for their intended commercial purposes as set
forth in this Lease, and Tenant accepts the Premises without any
express or implied representations or warranties by Landlord as
to the fitness, use, suitability, or condition of the Premises or
those portions of the Project used or to be used by Tenant. In
the event that any such defect becomes apparent subsequent to the
date of execution of this Lease, Tenant shall give Landlord
written notice of such defect, and Landlord shall have a
reasonable time thereafter to remedy such defect without any
abatement or offset in Rent then due or to be due and owing to
Landlord. Tenant shall be responsible, and Landlord shall not be
liable to Tenant or to any other party, for any repairs to such
facilities that result from defects caused by an unusual or
abnormal use by Tenant or Tenant's employees, servants, agents,
invitees, assignees or subtenants. Tenant agrees that its
obligation to pay Rent hereunder is not dependent upon the
condition of the Premises or the performance by Landlord of its
obligations hereunder.
ARTICLE 7.
7.1 TENANT INSURANCE.
----------------- Tenant shall insure the Project and
shall maintain liability and other insurance in such amounts as
may be required by Landlord, and in such amounts as Landlord, in
its sole discretion, may deem appropriate. Such insurance shall
be for the sole benefit of Landlord and, if required, Landlord's
mortgagee. Tenant shall, at Tenant's expense, obtain and keep in
force comprehensive or commercial general liability insurance
insuring Landlord and Tenant against any liability arising out of
the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto, including contractual liability
insurance (with respect to Section 7.3 hereof), with insurance
companies approved by Landlord and having a combined single limit
of not less than $1,000,000 per occurrence; together with
workers' compensation insurance having limits not less than those
required by statute and covering all persons employed by Tenant
in the conduct of its operations at the Premises and employers'
liability insurance coverage in the amount of at least
$1,000,000; together with "all risk" property insurance covering
damage to or loss of personal property, fixtures and equipment of
Tenant in such amounts as a prudent tenant of comparable size and
in a comparable business would deem necessary and appropriate.
Tenant shall cause Landlord to be named as an additional insured
under such policies and shall, not less than twenty (20) days
prior to (a) the Commencement Date, and (b) the expiration of old
policies, furnish Landlord with certificates of insurance with
loss payable clauses satisfactory to Landlord. All insurance to
be maintained by Tenant shall, except for workers' compensation
and employers' liability insurance, be primary over any insurance
carried by Landlord. The limit of such insurance shall not,
however, limit the liability of Tenant hereunder. Tenant may
carry such insurance under a blanket policy, provided such
insurance has a Landlord's protective liability endorsement
attached thereto. If Tenant fails to procure and maintain said
insurance, Landlord may, but shall not be required to, procure
and maintain same, but at the expense of Tenant. No policy shall
be cancelable or subject to reduction of coverage except after
thirty (30) days prior written notice to Landlord.
7.2 WAIVER OF SUBROGATION.
---------------------- Whenever (a) any loss, cost,
damage or expense resulting from fire, explosion or any other
casualty or occurrence is incurred by either of the parties to
this Lease in connection with the Premises or the Project, and
(b) such party is then covered (or is required under this Lease
to be covered) in whole or in part by insurance with respect to
such loss, cost, damage or expense, then the party so insured
hereby releases the other party from any liability it may have on
account of such loss, cost, damage or expense to the extent of
any amount recovered by reason of such insurance or any amount
that would have been recovered by such insurance if such
insurance had in fact been obtained as required by this Lease,
and waives any right of subrogation which might otherwise exist
on account thereof, provided that such release of liability and
waiver of the right to subrogation shall not be operative in any
case where the effect thereof is to invalidate such insurance
coverage or increase the cost thereof (provided, that in the case
of increased cost, the other party shall have the right, within
thirty (30) days following written notice, to pay such increased
costs, thereupon keeping such release and waiver in full force
and effect). Landlord and Tenant shall use their respective best
efforts to obtain such a release and waiver of subrogation from
their respective insurance carriers and shall obtain any special
endorsements, if required by their insurer, to evidence
compliance with the aforementioned waiver.
7.3 INDEMNITY.
---------- Tenant hereby indemnifies and holds
Landlord harmless from and against any and all claims arising
from Tenant's use of the Premises for the conduct of its business
or from any activity, work or other thing done, permitted or
suffered by Tenant on or about the Project and shall further
indemnify and hold harmless Landlord from and against any and all
claims arising form any breach or default in the performance of
any obligation on Tenant's part to be performed under the terms
of this Lease, or arising from any act or omission of, or due to
the negligence of, the Tenant, or any officer, agent, employee,
guest or invitee of Tenant, and from and against all costs,
attorney's fees, expenses and liabilities incurred in or related
to any such claim or any action or proceeding brought thereon.
Tenant as a material part of the consideration to Landlord,
hereby assumes all risk of damage to property or injury to
persons including death in, upon or about the Project, from any
cause other than Landlord's gross negligence, and Tenant hereby
waives all claims in respect thereof against Landlord.
ARTICLE 8.
8.1 CASUALTY.
--------- If the Premises or Project, or any portion of
either, shall be damaged by fire or other casualty covered by the
insurance carried by Landlord hereunder and the cost of repairing
such damage shall not be greater than 10% of the then full
replacement cost thereof, then, subject to the following
provisions of this Article, Landlord shall repair the Premises
and/or Project. If the Premises or Project shall be damaged (a)
by fire or other casualty not covered by insurance carried by
Landlord hereunder, (b) by fire or other casualty covered by
insurance carried by Landlord hereunder and Landlord's mortgagee
requires that such insurance proceeds be used to retire the
mortgage debt, or (c) to an extent greater than 10% of the then
full replacement cost thereof, then Landlord shall have the
option (i) to repair or reconstruct the damaged Premises or
Project to substantially the same condition as immediately prior
to such fire or other casualty, or (ii) to terminate this Lease
by so notifying Tenant within one hundred twenty (120) days after
the date of such fire or other casualty, such termination to be
effective as of the date of such fire or other casualty. The
Rent required to be paid hereunder shall be abated in proportion
to the portion of the Premises, if any, which is rendered
untenantable by fire or other casualty hereunder until repairs of
the Premises are completed, or if the Premises are not repaired,
until the Expiration Date hereunder. Other than such rental
abatement, no damages, compensation or claims shall be payable by
Landlord for loss of the use of the whole or any part of the
Premises, Tenant's personal property, or any inconvenience, loss
of business, or annoyance arising from any such repair and
reconstruction. If the damage results from the fault or
negligence of Tenant, its agents, employees, licensees or
invitees, Tenant shall not be entitled to any abatement or
reduction of any Rent or other sums due hereunder, and such
damage shall be repaired by Tenant, or at Landlord's option by
Landlord, at Tenant's expense. If this Lease is terminated as
provided in (c)(ii) above, all Rent shall be apportioned and paid
up to the date of such termination. Landlord shall not be
required to repair or replace any furniture, furnishings, or
other personal property that Tenant may be entitled to remove
from the Premises or any property constructed and installed by or
for Tenant pursuant to Section 6.01 hereof or any installations
in excess of Building Standard.
8.2 END OF TERM CASUALTY.
--------------------- Notwithstanding anything to
the contrary in this Article, Landlord shall not have any
obligation whatsoever to repair, reconstruct or restore the
Premises or the Project when the damage resulting from any
casualty covered under this Article occurs during the last twelve
(12) months of the Term or any renewal term. Any option to renew
this Lease that Tenant may be entitled to exercise shall be null
and void if such option has not been exercised prior to any
casualty that occurs during the last twelve (12) months of the
Term or any renewal term and Landlord elects not to repair,
reconstruct or restore the Premises or Project.
ARTICLE 9.
9.1 CONDEMNATION.
------------- If more than 20% of the Premises should
be taken for any public or quasi-public use, by right of eminent
domain or otherwise, or should be sold in lieu of condemnation,
then either party hereto shall have the right, at its option, to
terminate this Lease as of the date when physical possession of
the Premises is taken by the condemning authority. If 20% or
less of the Premises is so taken or sold or if this Lease is not
terminated upon any taking or sale of greater than 20% of the
Premises, the Rent payable hereunder shall be abated in
proportion to the portion of the Premises which is rendered
untenantable by such condemnation, and Landlord shall, to the
extent Landlord deems feasible, restore the Premises to
substantially its former condition, but Landlord shall not in any
event by required to spend for such work an amount in excess of
the amount actually received by Landlord (after the payment of
any such proceeds to Landlord's mortgagee, if any, pursuant to
the terms of any mortgage) as compensation for such taking. If
any part of the Project other than the Premises may be so taken
or sold, Landlord shall have the right at its option to terminate
this Lease as of the date when physical possession of such part
of the Project is taken by the condemning authority. All amounts
awarded upon taking of any part or all of the Project or the
Premises shall belong to Landlord and Tenant shall not be
entitled to, and expressly assigns all claims, rights and
interests to, any such compensation to Landlord.
ARTICLE 10.
10.1 ENTRY.
------ Landlord, its agents, employees and
representatives, shall have the right to enter the Premises at
any time upon reasonable notice to Tenant under the circumstances
(which notice may be oral and not in compliance with Section
16.08 hereof, but no notice shall be required in the case of
routine maintenance or any emergency) to show the Premises to
prospective Tenants or purchasers or for any purpose that
Landlord may reasonably deem necessary for the operation and
maintenance of the Project. Tenant hereby waives any claim for
damages or for any injury or inconvenience to or interference
with Tenant's business, any loss of occupancy or quiet enjoyment
of the Premises, and any other loss occasioned thereby. For each
of the aforesaid purposes, Landlord shall at all times have and
retain a key with which to unlock all of the doors in, upon and
about the Premises, excluding Tenant's vaults, safes and files.
Landlord shall have the right to use any and all means which
Landlord may deem proper to open the doors in, upon and about the
Premises in any emergency in order to obtain entry to the
Premises without liability to Tenant, except for any failure to
exercise due care for Tenant's property.
ARTICLE 11.
11.1 SUBORDINATION.
-------------- This Lease is and shall be subject and
subordinate to any and all ground or similar leases affecting the
Project, and to all mortgages, deeds of trust, and security
agreements that may now or hereafter encumber or affect the
Project or any interest of Landlord therein and/or the contents
of the Building, and to any advances made on the security thereof
and to any and all increases, renewals, modifications,
consolidations, replacements and extensions of any such leases,
mortgages, deeds of trust and/or security agreements. This
clause shall be self-operative and no further instrument of
subordination need by required by any owner or holder of such
ground lease, mortgage, deed of trust or security agreement.
Tenant agrees to execute and return any estoppel certificate,
consent or agreement reasonably requested by any such lessor,
mortgagee, trustee or secured party in connection with this
Section within ten (10) days after receipt of same, and Tenant
hereby irrevocably appoints Landlord as Tenant's attorney-in-fact
to execute the same. Tenant shall, at the request of Landlord,
any mortgagee of Landlord secured by a lien on the Project, any
lessor to Landlord under a ground lease of the Project, or any
secured party under a security agreement encumbering the interest
of Landlord, furnish such mortgagee, lessor or secured party with
written notice of any default or breach by Landlord at least
sixty (60) days prior to the exercise by Tenant of any rights
and/or remedies of Tenant hereunder arising out of such default
or breach.
11.2 ATTORNMENT.
----------- If any ground or similar such lease,
mortgage, deed of trust or security agreement is enforced by the
ground lessor, the mortgagee, the trustee, or the secured party,
Tenant shall, upon request, attorn to the lessor under such lease
or the mortgagee or purchaser at such foreclosure sale, or any
person or party succeeding to the interest of Landlord as a
result of such enforcement, as the case may be, and execute
instrument(s) confirming such attornment; provided however, that
if this Lease was approved and accepted in writing by such
lessor, mortgagee, trustee or secured party, Tenant's attornment
shall be conditioned upon the agreement by such successor to
Landlord's interest not to disturb Tenant's possession hereunder
during the Term so long as Tenant performs its obligations under
this Lease. In the event of such enforcement and upon Tenant's
attornment as aforesaid, Tenant will automatically became the
tenant of the successor to Landlord's interest without change in
the terms or provisions of this Lease; provided, however, that
such successor to Landlord's interest shall not be bound by (a)
any payment of Rent for more than one month in advance (except
prepayments for security deposits, if any) or (b) any amendments
or modifications of this Lease made without the prior written
consent of such lessor mortgagee.
11.3 QUIET ENJOYMENT.
--------------- Tenant, on paying the Rent and
keeping and performing the conditions and covenants herein
contained, shall and may peaceably and quietly enjoy the Premises
for the Term, subject to the aforesaid underlying leases,
mortgages, deeds of trust and security agreements, all applicable
laws and other governmental and legal requirements, applicable
insurance requirements and regulations, such matters of public
record affecting the Project, and the provisions of this Lease.
It is understood and agreed that this covenant and any and all
other covenants of Landlord contained in this Lease shall be
binding upon Landlord and its successors only with respect to
breaches occurring during its and their respective ownership of
the Landlord's interest hereunder.
ARTICLE 12.
12.1 ASSIGNMENT AND SUBLETTING.
-------------------------- Tenant shall not,
voluntarily, by operation of law, or otherwise, assign, transfer,
mortgage, pledge, or encumber this Lease or sublease the Premises
or any part thereof, or suffer any person other than Tenant, its
employees, agents, servants and invitees to occupy or use the
Premises or any portion thereof, without the express prior
written consent of Landlord. Any attempt to do any of the
foregoing without such written consent shall be null and void and
of no effect, and shall further constitute a Default under this
Lease. If Tenant so requests Landlord's consent, said request
shall be in writing specifying the duration of said desired
sublease or assignment, the date same is to occur, the exact
location of the space affected thereby and the proposed rentals
on a square foot basis chargeable thereunder, and shall be
submitted to Landlord at least sixty (60) days in advance of the
date on which Tenant desires to make such assignment or sublease
or allow such occupancy or use. Upon such request Landlord may,
in its sole discretion, (a) grant such consent subject to
Landlord's approval of the assignee, transferee, subtenant, or
mortgagee, or (b) elect to terminate this Lease with respect to
the Premises or any portion thereof to be affected by such
assignment, sublease or other event specified above, or (c)
suspend this Lease as to the space to be affected by such
assignment, sublease or other event specified above for the
duration specified by Tenant in its notice, in which event Tenant
will be relieved of all obligations hereunder as to such space
during said suspension, including a suspension of the Rent
hereunder in proportion to the portion of the Premises affected
thereby (but after said suspension, if the suspension is not for
the full term hereof, Tenant shall once again become liable
hereunder as to the applicable space). In no event may Tenant
assign this Lease or sublease the Premises or any portion thereof
to any party whose operations in the Project would not be in
keeping with, or would detract from, the operations of other
tenants in the Project. If Tenant is not a public company that
is registered on a national stock exchange or that is required to
register its stock with the Securities and Exchange Commission
under Section 12(g) of the Securities and Exchange Act of 1934,
then any change in a majority of the voting rights or other
controlling rights or interests of Tenant shall be deemed an
assignment for the purposes hereof.
Notwithstanding anything contained in this Section to the
contrary, in the event Landlord does not elect to suspend this
Lease in whole or in part as set forth above, Tenant by giving
written notice to Landlord of Tenant's desire to assign this
Lease or sublet the Premises or any part thereof shall be deemed
to have granted to Landlord (or Landlord's agent, at Landlord's
option) the exclusive right for a period of forty-five (45) days
following receipt by Landlord of Tenant's notice, to sublease on
Tenant's behalf the Premises or such portion thereof as Tenant
proposes to sublet or assign. In the event that Landlord or its
agent obtains a written commitment for a sublease of such space
from a third party within such forty-five (45) day period, then
Landlord or its agent shall have the right to negotiate all terms
and provisions of the sublease (including the commencement date
and term thereof) on behalf of Tenant, provided the rentals
thereunder (on a square foot basis) shall be at least equal in
amount to the lesser of (a) the Rent (on a square foot basis)
proposed by Tenant in its notice to Landlord to be paid by the
assignee or sublessee proposed by Tenant or (b) the Rent (on a
square foot basis) payable by Tenant under this Lease. Tenant
agrees to execute, as sublessor, such sublease as negotiated by
Landlord promptly upon delivery of same to Tenant by Landlord.
Tenant shall thereafter be bound by the terms thereof. Tenant
shall not be required to pay any brokerage commissions to
Landlord or Landlord's leasing agent in connection with the
execution of a sublease under the terms of this paragraph. As
additional rental hereunder, Landlord shall be entitled (and the
sublease shall so provide) to be paid, as it accrues, any profit
to be realized as a result of any sublease entered into under
this paragraph after deduction of and giving Tenant credit for
Tenant's reasonable costs directly associated therewith,
including the reasonable cost of remodelling or otherwise
improving the Premises for such sublessee, amortized over the
remaining term of this Lease, but excluding any free rentals or
the like offered to any such sublessee under this paragraph. If
within the forty-five (45) day period after Landlord receives
Tenant's notice of Tenant's desire to assign this Lease or sublet
the Premises or any part thereof, Landlord fails to notify Tenant
(a) of its election to suspend this Lease in whole or in part as
set forth above or (b) that Landlord has obtained a written
commitment for a sublease from a third party under this
paragraph, then Landlord shall be deemed to have elected the
option set forth in Section 12.1(a) hereof free and clear of
Landlord's rights under this paragraph, subject, however, to
Landlord's subsequent written approval of the proposed assignee
or sublessee as set forth above.
In any situation in which Landlord consents to an assignment
or sublease hereunder, Tenant shall promptly deliver to Landlord
a fully executed copy of the final sublease agreement or
assignment instrument and all ancillary agreements relating
thereto. No assignment shall be effective unless the assignee
has agreed within the assignment instrument to assume the
obligations of Tenant hereunder and to be personally bound by all
of the covenants, terms and conditions hereof on the part of
Tenant to be performed or observed hereunder.
12.2 CONTINUED LIABILITY.
------------------- Tenant shall, despite any permitted
assignment or sublease, remain directly and primarily liable for
the performance of all of the covenants, duties, and obligations
of Tenant hereunder, and Landlord shall be permitted ot enforce
the provision of this Lease against Tenant or any assignee or
sublessee without demand upon or proceeding in any way against
any other person.
12.3 CONSENT.
-------- Consent by Landlord to a particular
assignment or sublease shall not be deemed a consent to any other
or subsequent transaction. If this Lease is assigned or if the
Premises are subleased without the permission of Landlord, then
Landlord may nevertheless collect Rent from the assignee or
sublessee and apply the net amount collected to the Rent payable
hereunder, but no such transaction or collection of Rent or
application thereof by Landlord shall be deemed a waiver of any
provision hereof or a release of Tenant from the performance of
the obligations of the Tenant hereunder.
12.4 PROCEEDS.
-------- All cash or other proceeds of any assignment,
sale or sublease of Tenant's interest in this Lease, whether
consented to by Landlord or not, shall be paid to Landlord
notwithstanding the fact that such proceeds exceed the Rent
called for hereunder, and Tenant hereby assigns all rights it
might have or ever acquire in any such proceeds to Landlord.
ARTICLE 13.
13.1 DEFAULT.
-------- Each of the following shall constitute a
"Default" by Tenant:
(a) The failure of Tenant to pay the Rent or any part
thereof when due;
(b) Tenant shall become insolvent or unable to pay its
debts as they become due, or Tenant notifies Landlord that it
anticipates either condition;
(c) Tenant takes any action to, or notifies Landlord that
Tenant intends to, file a petition under any section or chapter
of the United States Bankruptcy Code, as amended from time to
time, or under any similar law or statute of the United States or
any state thereof; or a petition shall be filed against Tenant
under any such statute or Tenant notifies Landlord that it knows
such a petition will be filed; or the appointment of a receiver
or trustee to take possession of substantially all of Tenant's
assets located at the Premises or of Tenant's interest in this
Lease; or the attachment, execution or other judicial seizure of
substantially all of Tenant's assets located at the Premises or
of Tenant's Interest in this Lease;
(d) Tenant shall fail to fulfill or perform, in whole or in
part, any of its obligations under this Lease (other than the
payment of Rent) and such failure or nonperformance shall
continue for a period of fifteen (15) days after written notice
thereof has been given by Landlord to Tenant;
(e) Tenant shall vacate or abandon the Premises or any
significant portion thereof;
(f) Tenant shall fail to take possession of the Premises
when Landlord notifies Tenant that the Premises are ready for
occupancy;
(g) The occurrence of any event or condition having a
material and adverse effect on the assets, liabilities, financial
condition, business or operations of Tenant as they exist on the
date of this Lease, or the ability of Tenant to meet its
obligations under this Lease on a timely basis as provided
herein;
(h) Any representation or warranty by Tenant in this Lease
or in any certificate, statement or other document furnished
pursuant to or under this Lease, including, without limitation,
financial statements, proves to be or becomes incorrect in any
material respect; or
(i) A default occurs under the provisions of Sections 5.2
or 12.1 of this Lease.
13.2 RIGHTS UPON DEFAULT.
------------------- If a Default by Tenant occurs, then
at any time thereafter, with or without notice or demand,
Landlord may exercise any and all rights and remedies available
to Landlord under this Lease, at law or in equity, including
without limitation, termination of this Lease and termination of
Tenant's right to possession without terminating the Lease. In
the event of a Default, Landlord may, without additional notice
and without court proceedings, re-enter and repossess the
Premises and remove all persons and property therefrom, and
Tenant hereby agrees to surrender possession of the Premises,
waives any claim arising by reason thereof or by reason of
issuance of any distress warrant or writ of sequestration, and
agrees to hold Landlord harmless from any such claims. If
Landlord elects to terminate this Lease, it may treat the Default
as an entire breach of this Lease and Tenant shall immediately
become liable to Landlord for damages equal to the total of (a)
the cost of recovering, reletting, including, without limitation,
the cost of leasing commissions attributable to the unexpired
portion of the Term of this Lease, and remodeling the Premises,
(b) all unpaid Rent and other amounts earned or due through such
termination, including interest thereon at the rate specified in
Section 13.4 hereof, plus (c) the present value (discounted at
the same rate) of the fair market rental value of the Premises
for said period and (d) any other sum of money and damages owed
by Tenant to Landlord. If landlord elects to terminate Tenant's
right to possession of the Premises without terminating this
Lease, Landlord may (but shall not be obligated to) rent the
Premises or any part thereof for the account of Tenant to any
person or persons for such rent and for such terms and conditions
as Landlord deems appropriate, and Tenant shall be liable to
Landlord for the amount, if any, by which the Rent for the
unexpired balance of the Term exceeds the net amount, if any,
received by Landlord from such reletting, being the gross amount
so received by Landlord less the costs of repossession,
reletting, remodeling, and other expenses incurred by Landlord.
Such sum or sums shall be paid by Tenant in monthly installments
on the first day of each month of the Term. In no case shall
Landlord be liable for failure to relet the Premises or to
collect the rent due under such reletting, and in no event shall
Tenant be entitled to any excess rents received by Landlord. All
rights and remedies of Landlord shall be cumulative and not
exclusive.
13.3 COSTS.
------ If a Default by Tenant occurs, then Tenant
shall reimburse Landlord on demand for all costs reasonably
incurred by Landlord in connection therewith including, but no
limited to, reasonable attorney's fees, court costs, and related
costs, plus interest thereon from the date such costs are paid by
Landlord until Tenant reimburses Landlord, at the rate specified
in Section 13.4 hereof.
13.4 INTEREST.
-------- All late payments of Rent, costs or other
amounts due from Tenant under this Lease shall bear interest from
the date due until paid at the rate of 12% per annum; provided,
however, in no event shall the rate of interest hereunder exceed
the maximum nonusurious rate of interest (the "Maximum Rate")
permitted by the applicable laws of the State of Texas or the
United States of America, whichever shall permit the higher
nonusurious rate, and as to which Tenant could not successfully
assert a claim or defense of usury, and to the extent that the
Maximum Rate is determined by reference to the laws of the State
of Texas, the Maximum Rate shall be the indicated rate ceiling
(as defined and described in Texas Revised Civil Statutes,
Article 5069-1.04, as amended) at the applicable time in effect.
13.5 LANDLORD'S LIEN.
---------------- Landlord reserves (and is hereby
granted) a first and superior lien and security interest (which
shall be in addition to and not in lieu of the statutory
landlord's lien) on all fixtures, equipment, and personal
property (tangible and intangible) now or hereafter placed by
Tenant in or on the Premises to secure all sums due by Tenant
hereunder, which lien and security interest may be enforced by
Landlord in any manner provided by law, including, without
limitation, under and in accordance with the Texas Uniform
Commercial Code. The provisions of this Section shall constitute
a security agreement under the Texas Uniform Commercial Code and
Tenant shall execute and Landlord shall file, where appropriate
and at Tenant's expense, all documents, including Financing
Statements in the form attached hereto as Exhibit D and made a
part hereof for all purposes, required to perfect the security
interest herein granted in accordance with the Texas Uniform
Commercial Code. Landlord may at its election at any time file a
copy of this Lease as a financing statement. Unless otherwise
provided by law and for the purpose of exercising any right
pursuant to this Section, Landlord and Tenant agree that
reasonable notice shall be met if such notice is given by five
days' written notice, certified mail, return receipt requested,
to Tenant by Landlord at the address specified herein.
ARTICLE 14.
14.1 CORPORATE RESOLUTIONS; OTHER EVIDENCE OF AUTHORITY.
---------------------------------------------------
If Tenant is a corporation, Tenant shall, simultaneously
with the execution and delivery of this Lease, deliver a fully
executed Certificate of the Secretary with attached Resolutions
of the Corporate Board substantially in the form attached hereto
as Exhibit E. If Tenant is a partnership or a joint venture,
Tenant shall, simultaneously with the execution and delivery of
this Lease, deliver to Landlord a copy of Tenant's partnership or
joint venture agreement certified as being true and complete and
such other documents as Landlord or counsel for Landlord may
request evidencing the authority of a partner of joint venturer
of Tenant to sign on behalf of Tenant.
ARTICLE 15.
15.1 ENVIRONMENTAL MATTERS.
--------------------- Tenant shall prevent the
presence, use, generation, release, discharge, storage, disposal,
or transportation of any Hazardous Materials on, under, in,
above, to, or from the Premises other than in strict compliance
with all applicable federal, state, and local laws, regulations,
and orders. For the purposes of this section, "Hazardous
Materials" shall refer to any substances, materials, and wastes
that are or become regulated as hazardous or toxic substances
under any applicable local, state, or federal law, regulation, or
order. Tenant shall indemnify, defend, and hold Landlord
harmless from and against:
(a) Any loss, cost, claim or liability arising out of any
investigation, monitoring, clean-up, containment, removal,
storage, or restoration work ("Remedial Work") required by or
incurred by Landlord or any nongovernmental entity or person in a
reasonable belief that such work is required by any applicable
federal, state, or local law, governmental agency, or political
subdivision; and
(b) Any claims of third parties for loss, injury, expense,
or damage arising out of the presence, release, or discharge of
any hazardous Materials on, under, in, above, to, or from the
Premises. In the event any Remedial Work is so required under
any applicable federal, state or local law, Tenant shall perform
or cause to be performed the Remedial Work in compliance with
such law, regulation, or order. All Remedial Work shall be
performed by one or more contractors under the supervision of a
consulting engineer, each selected by Tenant and approved in
advance in writing by Landlord. In the event Tenant shall fail
to commence the Remedial Work in a timely fashion or fail to
prosecute diligently the Remedial Work to completion, Landlord
may, but shall not be required to, cause the Remedial Work to be
performed, subject fully to the indemnification provisions of
this article. This Article shall survive the termination of this
Lease.
ARTICLE 16.
16.1 AMENDMENT.
---------- Any agreement hereafter made between
Landlord and Tenant shall be ineffective to modify, release, or
otherwise affect this Lease, in whole or in part, unless such
agreement is in writing and signed by the party to be bound
thereby.
16.2 SEVERABILITY.
------------- If any term or provision of this Lease
shall, to any extent, be held invalid or unenforceable by a final
judgment of a court of competent jurisdiction, the remainder of
this Lease shall not be affected thereby.
16.3 ESTOPPEL LETTERS.
---------------- Tenant shall promptly upon request
from Landlord execute and acknowledge a certificate containing
such information as may be reasonably requested for the benefit
of Landlord, any prospective purchaser or any current or
prospective mortgagee of all or any portion of the Project.
16.4 LANDLORD'S LIABILITY AND AUTHORITY.
---------------------------------- The liability of
Landlord to Tenant for any default by Landlord under the terms of
this Lease shall be limited to the interest of Landlord in the
Project. Landlord, its officers, directors, partners, joint
venturers, and/or employees shall not be personally liable for
any judgment or deficiency, and Tenant agrees to look solely to
Landlord's interest in the Project for the recovery of any
judgment against the Landlord.
16.5 HOLDOVER.
--------- If Tenant shall remain in possession of the
Premises after the Expiration Date or earlier termination of this
Lease, then Tenant shall be deemed a tenant-at-will whose tenancy
is terminable at any time. In such event, Tenant shall pay Rent
at two times the daily rental rate prevailing on the date of such
termination or expiration, but otherwise shall be subject to and
shall perform all of the obligations of Tenant under this Lease.
Additionally, Tenant shall pay to Landlord all damages sustained
by Landlord on account of such holding over by Tenant.
16.6 SURRENDER.
---------- Upon the expiration or earlier
termination of the Term, Tenant shall peaceably quit and
surrender the Premises in good order and condition, excepting
ordinary wear and tear, but subject to Sections 6.1 and 6.2
hereof. All obligations of Tenant for the period of time prior
to the expiration or earlier termination of the Term shall
survive such expiration or termination.
16.7 PARTIES AND SUCCESSORS.
----------------------- Subject to the limitations and
conditions set forth elsewhere herein, this Lease shall bind and
inure to the benefit of the respective heirs, legal
representatives, successors, and permitted assigns and/or
sublessees of the parties hereto. The term "Landlord", as used
in this Lease, so far as the performance of any covenants or
obligations on the part of Landlord under this Lease are
concerned, shall mean only the owner of the Project at the time
in question, so that in the event of any transfer of title to the
Project, the party by whom any such transfer is made shall be
relieved of all liability and obligations of the Landlord arising
under this Lease from and after the date of such transfer.
16.8 NOTICE.
-------- Except as otherwise provided herein, any
statement, notice, or other communication that Landlord or Tenant
may desire or be required to give to the other shall be deemed
sufficiently given or rendered if hand delivered, or if sent by
registered or certified mail, return receipt requested, addressed
at the address(es) first hereinabove given or at such other
addresses(es) as the other party shall designate from time to
time by prior written notice, and such notice shall be effective
when the same is received or mailed as herein provided.
16.9 RULES AND REGULATIONS.
--------------------- Tenant, its servants,
employees, agents, visitors, invitees, and licensees, shall
observe faithfully and comply strictly with the Rules and
Regulations set forth in Exhibit B attached hereto and made a
part hereof for all purposes, and shall abide by and conform to
such further rules and regulations as Landlord may from time to
time reasonably make, amend or adopt, after Tenant receives a
copy thereof.
16.10 CAPTIONS.
-------- The captions in this Lease are inserted
only as a matter of convenience and for reference and they in no
way define, limit, or describe the scope of this Lease or the
intent of any provision hereof.
16.11 NUMBER AND GENDER.
------------------ All genders used in this Lease
shall include the other genders, the singular shall include the
plural, and the plural shall include the singular, whenever and
as often as may be appropriate.
16.12 GOVERNING LAW.
-------------- This Lease shall be governed by and
construed in accordance with the laws of the State of Texas.
16.13 INABILITY TO PERFORM.
--------------------- Notwithstanding Section
16.18 hereof, whenever a period of time is herein prescribed for
the taking of any action by Landlord, Landlord shall not be
liable or responsible for, and there shall be excluded from the
computation of such period of time, any delays due to strikes,
riots, acts of God, shortages of labor or materials, war,
governmental laws, regulations or restrictions, or any other
cause whatsoever beyond the control of Landlord, and such
nonperformance or delay in performance by Landlord shall not
constitute a breach or default by Landlord under this Lease nor
give rise to any claim against Landlord for damages or constitute
a total or partial eviction, constructive or otherwise.
16.14 USE OF NAME.
----------- Tenant shall not, except to
designate Tenant's business address (and then only in a
conventional manner and without emphasis or display), use the
name or mark "11011 Jones Road" or any other name that Landlord
may use for the Building pursuant to Section 16.23 hereof for any
purpose whatsoever.
16.15 BROKER.
------- Tenant represents and warrants that
Tenant has dealt with, and only with N/A as
-----------------------
broker in connection with this Lease and that, insofar as Tenant
knows, no other broker negotiated this Lease or is entitled to
any commission in connection herewith. Tenant shall indemnify
and hold harmless Landlord from and against all claims (and costs
of defending against and investigating such claims) of any other
broker(s) or similar parties claiming under Tenant in connection
with this Lease.
16.16 MEMORANDUM OF LEASE.
------------------- Without the prior written
consent of Landlord (which may be granted or withheld in
Landlord's sole discretion), Tenant shall not record this Lease
or a memorandum or other instrument with respect to this Lease.
Upon the date of execution of this Lease, or at any time
thereafter, and at the request of Landlord, Tenant and Landlord
shall execute a memorandum in recordable form setting forth the
material terms and conditions of this Lease.
16.17 ENTIRE AGREEMENT.
----------------- This Lease, including all
Exhibits attached hereto (which Exhibits are hereby incorporated
herein and shall constitute a portion hereof), contains the
entire agreement between Landlord and Tenant with respect to the
subject matter hereof. Tenant hereby acknowledges and agrees
that neither Landlord nor Landlord's agents or representatives
have made any representations, warranties, or promises with
respect to the Project, the Premises, Landlord's services, or any
other matter or thing except as herein expressly set forth, and
no rights, easements, or licenses are acquired by Tenant by
implication or otherwise except as expressly set forth in this
Lease. The taking of possession of the Premises by Tenant shall
be conclusive evidence, as against Tenant, that Tenant accepts
the Premises and the Project, and that same were in good and
satisfactory condition at the time such possession was so taken.
Further, the terms and provisions of this Lease shall not be
construed against or in favor of a party hereto merely because
such party is the "Landlord" or the "Tenant" hereunder or such
party or its counsel is the draftsman of this Lease.
16.18 TIME OF ESSENCE.
---------------- Time is of the essence of this
Lease and each and all of its provisions in which performance is
a factor.
16.19 PARKING.
-------- Tenant shall have the right to use the
parking facilities of the Building, subject to the monthly rates,
rules and regulations, and any other charges of Landlord for such
parking facilities, and the failure of Tenant to timely pay such
monthly rates and charges shall constitute a default by Tenant
under this Lease, all as more particularly set forth on Exhibit C
hereto.
16.20 TENANT TAXES.
------------- Tenant shall pay, or cause to be
paid, before delinquency, any and all taxes levied or assessed
and which become payable during the Term upon all of Tenant's
leasehold improvements, equipment, furniture, fixtures and
personal property located in the Premises, except that which has
been paid for by Landlord and is the standard of the Building.
16.21 ATTORNEY'S FEES.
--------------- In the event Tenant defaults
in the performance of any of the terms, agreements or conditions
contained in this Lease and Landlord places the enforcement of
this Lease, or any part thereof, or the collection of any Rent
due or to become due hereunder, or recovery of the possession of
the Premises, in the hands of any attorney who files suit upon
the same, the Tenant shall pay Landlord's reasonable attorney's
fees.
16.22 LANDLORD ALTERATIONS OR MODIFICATIONS.
--------------------------------------
Notwithstanding anything herein to the contrary, Landlord
expressly reserves the right in its sole discretion to
temporarily or permanently change the location of, close, block
or otherwise alter any entrances, corridors, skywalks, tunnels,
doorways, or walkways leading to or providing access to the
Building or any part thereof or otherwise restrict the use of
same, provided such acts do not unreasonably impair Tenant's
access to the Premises. Landlord shall not incur any liability
whatsoever to Tenant as a consequence thereof and such acts shall
not be deemed to be a breach of any of Landlord's obligations
hereunder. Landlord agrees to exercise good faith in notifying
Tenant within a reasonable time in advance of any alterations,
modification or other acts of Landlord under this Section.
16.23 NAME CHANGE.
------------ Landlord and Tenant covenant and
agree that Landlord hereby reserves and shall have the right at
any time and from time to time to change the name of the Building
as Landlord may deem advisable, and Landlord shall not incur any
liability whatsoever to Tenant as a consequence thereof.
16.24 SUBSTITUTION OF PREMISES.
------------------------ In the event Landlord
determines to utilize the Premises for other purposes during the
Term, Tenant agrees to relocate to other space in the Building
designated by Landlord, provided such other space is of equal or
larger size than the Premises, unless Tenant agrees to relocate
to smaller space. Landlord shall pay all out-of-pocket expenses
of any such relocation, including the expenses of moving and
reconstruction of all Tenant furnished and Landlord furnished
improvements. In the event of such relocation, this Lease shall
continue in full force and effect without any change in the terms
or conditions of this Lease, but with the new location
substituted for the old location set forth in Section 1.01
hereof.
16.25 GUARANTY.
--------- The Guaranty (the "Guaranty") for this
Lease is attached hereto as Exhibit D and made a part hereof for
all purposes. This Lease shall not be affected and Tenant's
obligations under this Lease shall not be diminished or impaired
by the failure of any party shown on such Guaranty to execute
such Guaranty. Each party executing the Guaranty is herein
referred to individually as a "Guarantor", and collectively
referred to as the "Guarantors".
16.26 PURCHASE OPTION.
---------------- Provided that the Tenant is
not in default, Tenant may at any time prior to the expiration of
the one year anniversary of the Lease, have the option to
purchase the Premises for a purchase price equal to $1,800,000.00
payable in cash at closing. Tenant shall give notice to Landlord
of its intent to exercise this option in writing at any time
prior to the expiration of the term of this Lease and a closing
shall be held within thirty (30) days after the date of such
notice. The parties agrees to enter into a Real Estate Sales
Agreement which will contain the normal and customary warranties,
representation, covenants, prorations and allocations of expenses
as are generally provided in the Real Estate Sales Agreement for
similar properties in Harris County, Texas as of the closing
date. At closing Tenant shall be given credit in the sum of
$15,000.00 multiplied times the number of months of rent actually
paid by Tenant to Landlord hereunder prior to the closing date.
In the event this Lease term expires without Tenant exercising
this Purchase Option, this Purchase Option shall also express as
of such termination date.
EXECUTED to be effective as of the date hereinabove first
set forth.
LANDLORD:
11011 JONES ROAD JOINT VENTURE GROUP
By:_____________________________________
Name: Gina D'Albis
-----------------------------------
Its: Managing Venturer
-----------------------------------
TENANT:
AMERICAN ECO CORPORATION
By:__________________________________________
Name: Michael E. McGinnis
----------------------------------------
Its: President
----------------------------------------
EXHIBIT 10.11.1
---------------
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT, made effective the 1st day of December, 1995 (the
"Effective Date") between American Eco Corporation ("Company"), having its
principal office at 1325 South Creek Drive, Suite 100, Houston, Texas
77084; and Michael E. McGinnis, an individual ("Employee") residing at
20415 Chapel Glen Court, Katy, Texas 77450.
WHEREAS, Company desires to continue to retain the services of
Employee to serve as the President and Chief Executive Officer of Company;
and
WHEREAS, Employee is willing to continue to serve as the President
and Chief Executive Officer of Company, all upon the terms and subject to
the conditions hereinafter set forth; and
NOW, THEREFORE, in consideration of the premises, and the mutual
covenants herein contained, the parties hereby agree as follows:
A. EMPLOYMENT.
----------
1. Throughout the effective term of this Agreement, Company
shall employ Employee and Employee shall render services to Company and
the businesses heretofore and hereafter conducted by Company in the
capacity and with the title of President and Chief Executive Officer of
Company. Employee shall perform all services, acts or things necessary or
advisable to manage, supervise and conduct the business of Company,
subject to the policy set by the Board of Directors. Employee shall have
full authority to act on behalf of the Company, except to the extent
limited by the Bylaws of the Company.
2. Throughout the period of his employment hereunder, Employee
shall devote his business time, attention, knowledge and skills,
faithfully, diligently and to the best of his ability, to the active
performance of his duties hereunder.
B. TERM OF EMPLOYMENT; TERMINATION OF AGREEMENT.
--------------------------------------------
1. Subject to the earlier termination of this Agreement in
accordance with the terms hereof, the term of this Agreement shall
commence, effective as of December 1, 1995 (the "Commencement Date") and
the term of this Agreement shall continue through and include November 30,
2000 (the "Termination Date").
2. Anything contained in Section 1 to the contrary
notwithstanding, this Agreement may be terminated at the option of Company
for "Cause" (as herein defined), effective upon the giving of written
notice of termination to Employee. As herein used, the term for "Cause"
shall mean and be limited to:
(a) any act committed by Employee against Company, its parent
or subsidiaries or divisions constituting: (A) fraud, (B)
misappropriation of corporate opportunity, (C) self-dealing, (D)
embezzlement of funds, (E) felony conviction for conduct involving moral
turpitude or other criminal conduct adversely affecting the operations of
Company, or its parent or subsidiaries or divisions, or (F) the continued
disregard by Employee of the reasonable directions and policies of the
Board of Directors of Company, provided that such disregard or non-
compliance by Employee continues for a period of sixty days after written
notice thereof is delivered to the Employee by the Board of Directors of
Company; or
(b) the breach or default by Employee in the performance of any
material covenant on the part of Employee to be performed under this
Agreement; or
(c) chronic alcoholism or any other form of addition which
impairs Employee's ability to perform his duties hereunder.
3. Anything contained in Section 1 to the contrary
notwithstanding, this Agreement may be terminated by Company (i) upon the
death of Employee, or (ii) on thirty (30) days' prior written notice to
Employee, in the event that Employee shall be physically or mentally
disabled or impaired so as to prevent him from continuing the normal and
proper performance of his duties and responsibilities hereunder for a
period of three (3) consecutive months.
The initial determination as to whether Employee is disabled or
impaired shall be made by the physician regularly treating the condition
causing the disability. Company shall have the right to require Employee
to be examined by a physician duly licensed to practice medicine and
surgery in the State of Texas to determine such physician's opinion as to
Employee's disability. If such physician's opinion differs from that of
the physician treating Employee, or a physician thereafter retained by
Employee, they shall forthwith select a third physician so licensed whose
opinion, after examination and review of available information, shall be
conclusive and binding upon all parties thereto. All costs of the
physician regularly treating or thereafter retained by Employee shall be
paid by Employee. All costs of the physician retained by Company shall be
paid by Company. If a third physician is required, then the costs of that
physician shall be paid by Company.
4. Upon any termination of this Agreement by Company as a
result of Employee's death or permanent disability pursuant to Section 3,
Company shall be liable for, and shall pay or shall cause to be paid to
Employee or his personal representative, as the case may be, Employee's
Base Salary for an additional twenty-four (24) month period from the date
of termination less (in the case of permanent disability) any health and
disability insurance payments made to or on behalf of Employee during such
twenty-four (24) month period.
5. Upon any termination of this Agreement by Company for Cause
pursuant to Section 2 above, neither Company nor any shareholder,
subsidiary or division thereof shall be liable for or shall pay or cause
to be paid to Employee any further remuneration, compensation or other
benefits hereunder.
6. If Company terminates Employee for any reason other than as
-----
provided: (a) in Section 2, (b) in Section 3, or (c) as a result of
Employee's voluntary resignation of employment (not constituting a
constructive discharge), Company shall be obligated to pay or shall cause
to be paid to Employee the Base Salary, as and when the same would have
otherwise become due and payable hereunder until the earlier to occur of
(i) twenty-four (24) months after the date of termination; (ii) the date
that Employee obtains full time re-employment, unless such re-employment
is at a rate of compensation that is less than 80% of the Base Salary, in
which event Company shall pay to Employee the difference between the Base
Salary and the new compensation, until the earlier of the dates described
in clauses (i) and (iii) hereof; or (iii) the Termination Date.
7. Notwithstanding any termination of this Agreement, whether
with cause or without cause the provisions of Section D, below, shall
remain effective and binding on the parties to this Agreement.
C. COMPENSATION; EXPENSES; FRINGE BENEFITS.
---------------------------------------
1. BASE SALARY. As compensation for his services to be
-----------
rendered hereunder, Company shall pay or cause to be paid to Employee for
the period commencing as of the Commencement Date and ending on the
Termination Date, a salary at the rate of Ten Thousand Eight Hundred
Thirty-Three and No/100 ($10,833.00) Dollars per month, payable in
accordance with standard company policy.
2. EXPENSES. In addition to the remuneration set forth above,
--------
throughout the period of Employee's employment hereunder, Company shall
also reimburse, or cause to be reimbursed to Employee, upon presentment by
Employee to Company, as applicable, of appropriate receipts and vouchers
therefor, for any reasonable business expenses, including air and other
travel expenses and customer development expenses, incurred by Employee in
connection with the performance of his duties and responsibilities
hereunder.
3. FRINGE BENEFITS. Company shall also make available, or cause
---------------
to be made available, to Employee, throughout the period of his employment
hereunder, such benefits, including any disability, hospitalization,
medical benefit plan, pension plan or other benefits or policy, as are put
into effect by Company for its other executive employees.
4. AUTOMOBILE ALLOWANCE. In addition to the compensation set
--------------------
forth above, Employee shall be provided a car or paid a car allowance of
Seven Hundred Fifty and No/100 ($750.00) Dollars per month. This amount
shall be paid on the first day of each month, and the Company shall also
reimburse Employee for all actual expenses associated with operating and
maintaining Employee's vehicle. Employee shall submit receipts or other
evidence of such expenditures, and Company shall pay these amounts to
Employee within thirty (30) days of receipt of the invoices.
5. STOCK OPTION GRANTS. In addition to the compensation set
-------------------
forth above, Company shall issue to Employee an option to purchase twenty
thousand (20,000) shares of the common stock of the Company per annum
pursuant to the currently effective Employee Stock Option Plan, as
approved by the Toronto Stock Exchange. Employee's vesting rights and
other rights and privileges with respect to this stock option shall be
governed by the terms and provisions of said stock option plan, a copy of
which has been delivered to Employee for his review. The stock option set
forth herein is not assignable by Employee.
6. ANNUAL BONUS. In addition to the compensation set forth
------------
above, Employee shall be entitled to participate in an annual bonus pool
equal to five percent (5%) of the net profits of Company, payable within
ninety (90) days of closing of the Company's fiscal year. Term "Net
Profit" shall mean the consolidated taxable income of Company for the
fiscal year of the Company, determined in accordance with generally
accepted accounting principles, by the certified public accounts retained
by Company to perform its annual audit. The distribution of the annual
bonus pool shall be at the discretion of the President and Chief Executive
Officer.
7. VACATION, HOLIDAY, AND SICK LEAVE. Employee shall be entitled
--------------------------------
to annual vacations, holidays, and sick leave in accordance with the
policies and procedures established and in effect from time to time for
the Company's Employees.
D. CONFIDENTIALITY; NON-COMPETITION.
--------------------------------
1. CONFIDENTIALITY INFORMATION; PERSONAL RELATIONSHIPS.
---------------------------------------------------
Employee agrees that for so long as he is employed by Company (the
"Restrictive Period"), he shall keep secret and retain in strictest
confidence all confidential matters of the Company, its clients and
suppliers, and the "know-how", trade secrets, confidential client lists,
details of client, subcontractor or consultant contracts, pricing
policies, operational methods, marketing plans or strategies, project
development, acquisition or bidding techniques or plans, business
acquisition plans, new personnel acquisition plans, technical processes,
inventions and research projects of Company learned by Employee and
directly or indirectly resulting from his employment by Company, unless
(i) such information is generally available to the public without
restriction, (ii) Employee obtains confidentiality agreements with respect
to such confidential information, (iii) such information is provided to a
customer or supplier of the Company in the ordinary course of business,
(iv) such disclosure is approved by the President or the Board of
Directors of Company, or (v) Employee is under compulsion of either a
court order or a governmental agency's or authority's inquiry, order or
request to so disclose such information.
2. PROPERTY OF COMPANY.
-------------------
(a) Except as otherwise provided herein, all lists, records and
other non-personal documents of papers (and all copies thereof), including
such items stored in computer memories, on microfiche or by any other
means, made or complied by or on behalf of Employee, or made available to
Employee relating to Company are and shall be the property of Company,
shall be delivered to Company on the date of termination of this
Agreement.
(b) All inventions, including any procedures, formulas,
methods, processes, uses, apparatuses, patterns, designs, drawings,
devises or configurations of any kind, any and all improvements to them
which are developed, discovered, made, or produced, trade secrets, or
information used by Company shall be the exclusive property of Company,
and shall be delivered to Company as applicable, on the earlier of the
expiration or the termination of this Agreement.
(c) All Company names, logos, trademarks, copyrights, slogans,
insignias and the like shall be the exclusive property of Company, and
Employee shall not be entitled to use, divert, imitate, duplicate or
otherwise deal with said property or property rights, without the prior
written consent of Company; provided, however, that Employee and Company
-------- -------
agree that in the event the Company at any time during the term of this
Employment Agreement adopts or utilizes the name of Employee in its
advertising or promotional materials, that Employee shall have the right
at any time during or after the termination of this Employment Agreement
to require Company to cease using Employee's name or likeness in
connection with any such advertising or marketing promoting the Company or
its products.
3. EMPLOYEES OF COMPANY. Upon termination of this contract by
--------------------
either party for any reason, with or without cause, Employee shall not,
directly or indirectly, during the course of his employment or for a
period of twenty-four (24) months after such termination, solicit any
employee of Company, or encourage any such employee to leave such
employment without the prior written approval of Company as applicable.
E. DEFAULT. In the event that either party hereto shall breach any
-------
of the terms of this Agreement, Company shall be reimbursed by such
defaulting party for all costs and expenses, including reasonably
attorneys' fees, incurred by the non-defaulting party in enforcing the
terms of this Agreement and/or recovering damages as a result of any such
breach.
F. BINDING EFFECT. This contract is a personal services agreement
--------------
between Company and Employee. Accordingly, Employee is not authorized to
voluntarily or involuntarily transfer or assign any of his contractual
rights contained herein, and any such attempted voluntary or involuntary
transfer or assignment shall be null and void and shall cause an immediate
termination of this agreement. Except for this restriction upon
signability, all of the terms and conditions of this Agreement shall be
binding upon and inure to the benefit of Employee and Company and any
successor-in-interest to any of them.
G. NOTICES. Except as herein provided, any notice, request, demand
-------
or other communication required or permitted under this Agreement shall be
in writing and shall be deemed to have been given when delivered
personally or when mailed by certified mail, return receipt requested,
addressed to the party at the address of such party first set forth above,
or at such other address as such party may hereafter have designated by
notice.
If to Company at the address first above written with copies to:
American ECO Corporation
Attention: Vice President
1325 South Creek Drive, Suite 100
Houston, Texas 77084
or to any other address as shall be designated from time to time by
Company.
If to Employee at the address first above written.
H. INDEMNIFICATION. The Company shall indemnify, hold harmless and
---------------
protect Employee, his heirs, executors, administrators and legal
representatives, from and against all or any portion of any expenses,
including reasonable attorney's fees incurred by Employee, actually and
necessarily incurred by him in connection with or arising out of any
action, suit or proceeding in which he may be involved by reason of his
being or having been an officer and representative of Company, whether or
not he continues to be an officer or representative of the Company at the
time such claim is prosecuted against Employee, such expenses to include
the cost of reasonable settlements and the satisfaction of final, non-
appealable judgments against Employee, in connection with the matters
covered hereby. However, Company shall not indemnify Employee with
respect to matters as to which Employee shall be finally adjudged in any
such action, suit or proceeding to be guilty of negligence or misconduct
in the performance of his duties as an officer of Company or in which
Employee is found to be in material breach this Agreement. The foregoing
rights of indemnification shall not be exclusive of any other rights to
which Employee may be entitled as a matter of law, by agreement, by
approval of the Board of Directors of Company, or otherwise.
I. MISCELLANEOUS.
-------------
1. Neither this Agreement nor any of the terms or conditions
hereof may be waived, amended or modified except by means of a written
instrument duly executed by the party to be charged herewith.
2. The captions and paragraph headings used in the Agreement
are for convenience of reference only, and shall not affect the
construction or interpretation of this Agreement or any of the provisions
hereof.
3. This Agreement, and all matters or disputes relating to the
validity, construction, performance or enforcement hereof, shall be
governed and construed under the laws of the Province of Ontario, Canada.
4. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original hereof, but
all of which together shall constitute one and the same instrument.
5. ANY DISPUTE INVOLVING THE INTERPRETATION OR APPLICATION OF
THIS AGREEMENT SHALL BE RESOLVED BY FINAL AND BINDING ARBITRATION BEFORE
ONE OR MORE ARBITRATORS UNLESS MUTUALLY AGREED TO OTHERWISE. THE AWARD OF
SUCH ARBITRATOR(S) MAY BE ENFORCED IN ANY COURT OF COMPETENT JURISDICTION
IN THE PROVINCE OF ONTARIO.
6. This Agreement is intended for the sole and exclusive
benefit of the parties hereto and their respective heirs, executors,
administrators, personal representatives, successors, and permitted
assigns, and no other person or entity shall have any right to rely on
this Agreement or to claim or derive any benefit herefrom absent the
express written consent of the party to be charged with such reliance or
benefit.
7. In the event this Agreement is terminated by Company for
Cause, in addition to the other rights and remedies that Company shall
have in accordance with the terms of this Agreement, Company shall have
the right to immediately declare due and payable all loans and advances
made or guaranteed by Company or its shareholders to Employee, at which
time Employee shall be required to repay in full said loans and advances,
including all accrued interest thereon, in accordance with the terms and
provisions of the loan documents evidencing said loans and/or advances.
The Company shall have the right to offset and credit against the accrued
interest and unpaid principal balance of such loans, all accrued and
unpaid salary, commissions and/or profit sharing distributions accrued but
unpaid to Employee prior to the date of termination.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on and as of the date first set forth above.
COMPANY:
ATTEST: AMERICAN ECO CORPORATION
/s/ illegible By: /s/ Ronald Mann
-------------------- -------------------------------
Its: Director
------------------------------
EMPLOYEE:
/s/ Michael E. McGinnis
-----------------------------------
MICHAEL E. MCGINNIS
<PAGE>
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
This First Amendment is made to that certain Employment Agreement by
and between American Eco Corporation ("Company") and Michael E. McGinnis
("Employee"), as of the 1st day of May , 1996.
----- -------------------
WHEREAS, Company and Employee heretofore entered into a certain
Employment Agreement dated December 1, 1995, a true copy of which is
attached hereto and incorporated herein by reference; and
WHEREAS, it is the desire of Company and Employees to amend the
Employment Agreement in a manner hereinafter set forth and to ratify and
confirm the continuing binding effect of the Employment Agreement upon
both parties, as herein amended;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained below, the parties agree as follows:
1. Section C-1 of the Employment Agreement shall be amended in its
entirety to read and state as follows:
"C.1. Base Salary. As compensation for his services to be
rendered
-----------
hereunder, Company shall pay or cause to be paid to Employee the following
base salary:
(a) for the period commencing on the Commencement Date and
ending on April 30, 1996, a salary at the rate of
$10,833.00 per month;
(b) commencing on May 1, 1996, and continuing through the
Termination Date, a salary at the rate of $250,000.00 per
year.
The base salary may from time to time be upwardly adjusted by action
of the Board of Directors of the Company, and any resolution of the Board
duly entered in the minutes of the Company's corporate minute book shall
be deemed to constitute an amendment to this Employment Agreement.
However, the Company shall not have the right to reduce the base salary
without Employee's written consent.
2. Except as amended herein, the terms and provisions of the Employment
Agreement are hereby ratified and confirmed by the parties as being
in full force and effect and fully binding upon the parties.
3. Capitalized terms not otherwise defined herein shall have the same
meanings ascribed to them in the Employment Agreement.
EXECUTED, in multiple counterparts, at Houston, Texas, effective as
of the date first above written.
AMERICAN ECO CORP.
By: /s/ J.C. Pennie
-------------------------------
Its:Director, Vice-Chairman
------------------------
/s/ Michael E. McGinnis
-----------------------------
MICHAEL E. MCGINNIS
Exhibit 10.11.2
----------------
EMPLOYMENT AGREEMENT
---------------------
AGREEMENT, made effective the 1st day of October, 1996 (the
"Effective Date") between American Eco Corporation, an Ontario
Company ("Company"), having its principal office at 11011 Jones
Road, Houston, Texas 77070; and Frank Fradella, an individual
("Employee") residing at _________________________,
_________________, Massachusetts ______________________.
WHEREAS, Company desires to retain the services of Employee
to serve as an Executive Vice President and Chief Operating
Officer of Company; and
WHEREAS, Employee is willing to serve as an Executive Vice
President and Chief Operating Officer of Company, all upon the
terms and subject to the conditions hereinafter set forth; and
NOW, THEREFORE, in consideration of the premises, and the
mutual covenants herein contained, the parties hereby agree as
follows:
A. Employment.
-----------
1. Throughout the effective term of this Agreement,
Company shall employ Employee and Employee shall render services
to Company, its subsidiaries and affiliates, and the businesses
heretofore and hereafter conducted by Company in the capacity and
with the title of Executive Vice President and Chief Operating
Officer of Company. Employee shall perform all services, acts or
things necessary or advisable to manage, supervise and conduct
the day-to-day operations of Company, its subsidiaries and
affiliates, such duties to include, without limitation, the
responsibility for and management of strategic planning,
budgeting, insurance and risk evaluation, human resources, job
cost and inventory accounting systems, and hiring and termination
of operational personnel, including the chief executives of all
subsidiaries, subject to the policies established from time to
time by the Chief Executive Officer or by the Board of Directors.
Employee shall have full authority to act on behalf of the
Company, except to the extent limited by the Bylaws of the
Company.
2. Throughout the period of his employment hereunder,
Employee shall devote all of his business time, attention,
knowledge and skills, faithfully, diligently and to the best of
his ability, to the active performance of his duties hereunder.
B. Term of Employment: Termination of Agreement.
--------------------------------------------
1. Subject to the earlier termination of this
Agreement in accordance with the terms hereof, the term of this
Agreement shall commence, effective as of October 1, 1996 (the
"Commencement Date") and the term of this Agreement shall
continue through and include September 30, 2001 (the "Termination
Date").
2. Anything contained in Section 1 to the contrary
notwithstanding, this Agreement may be terminated at the option
of Company for "Cause" (as herein defined), effective upon the
giving of written notice of termination to Employee. As herein
used, the term for "Cause" shall mean and be limited to:
(a) any act committed by Employee against
Company, its subsidiaries, divisions or affiliates constituting:
(A) fraud, (B) misappropriation of corporate opportunity, (C)
self-dealing, (D) embezzlement of funds, (E) criminal felony
conviction, or (F) the continued disregard by Employee of the
reasonable directions and policies of the Chief Executive Officer
or the Board of Directors of Company, provided that such
disregard or non-compliance by Employee continues for a period of
five (5) days after written notice thereof is delivered to the
Employee by the Chief Executive Officer or the Board of Directors
of Company; or
(b) the breach or default by Employee in the
performance of any material covenant on the part of Employee to
be performed under this Agreement; or
(c) chronic alcoholism or any other form of
addiction which impairs Employee's ability to perform his duties
hereunder.
3. Anything contained in Section 1 to the contrary
notwithstanding, this Agreement may be terminated by Company (i)
upon the death of Employee, or (ii) on ten (10) days' prior
written notice to Employee, in the event that Employee shall be
physically or mentally disabled or impaired so as to prevent him
from continuing the normal and proper performance of his duties
and responsibilities hereunder for a period of three (3)
consecutive months.
The initial determination as to whether Employee is
disabled or impaired shall be made by the physician regularly
treating the condition causing the disability. Company shall
have the right to require Employee to be examined by a physician
duly licensed to practice medicine and surgery in the State of
Texas to determine such physician's opinion as to Employee's
disability. If such physician's opinion differs from that of the
physician treating Employee, or a physician thereafter retained
by Employee, they shall forthwith select a third physician so
licensed whose opinion, after examination and review of available
information, shall be conclusive and binding upon all parties
thereto. All costs of the physician regularly treating or
thereafter retained by Employee shall be paid by Employee. All
costs of the physician retained by Company shall be paid by
Company. If a third physician is required, then the costs of
that physician shall be paid by Company.
4. Upon any termination of this Agreement by Company
as a result of Employee's death or permanent disability pursuant
to Section 3, Company shall be liable for, and shall pay or shall
cause to be paid to Employee or his personal representative, as
the case may be, Employee's Base Salary for an additional six (6)
months period from the date of termination less (in the case of
permanent disability), any health and disability insurance
payments made to or on behalf of Employee during such six (6)
month period.
5. Upon any termination of this Agreement by Company
for Cause pursuant to Section 2, above, neither Company nor any
shareholder, subsidiary or division thereof shall be liable for
or shall pay or cause to be paid to Employee any further
remuneration, compensation or other benefits hereunder.
6. If Company terminates Employee for any reason
other
-----
-
than as provided: (a) in Section 2, (b) in Section 3, or (c) as
a result of Employee's voluntary resignation of employment (not
constituting a constructive discharge), Company shall be
obligated to pay or shall cause to be paid to Employee the Base
Salary, as and when the same would have otherwise become due and
payable hereunder for a period of six (6) months after the date
of termination, unless Employee is re-employed or earns business
income prior to six (6) months after the termination date, in
which event the Company's obligations hereunder shall be reduced
by the amount of such compensation or business income. In
addition, the balance of the promissory note, described in
Section 1-7, below, shall be forgiven by Company and Employee
shall be released from liability for re-payment of said
promissory note.
7. This contract may be terminated by Employee at any
time by giving sixty (60) days prior written notice of
termination to the Company. In such event, Employee shall be
entitled to the Base Salary earned by the Employee prior to the
date of termination, computed pro rata up to and including the
Termination Date. Employee shall not be entitled to any other
compensation after the date of termination. All unexercised
stock options as the Termination Date shall be tested or
forfeited as provided in the Company's stock option plan.
8. Notwithstanding any termination of this Agreement,
whether with cause or without cause, and whether by Company or by
Employee, the provisions of Section D, below, shall remain
effective and binding on the parties to this Agreement.
C. Compensation; Expenses; Fringe Benefits.
----------------------------------------
1. Base Salary.
----------- As compensation for his services to
be rendered hereunder, Company shall pay or cause to be paid to
Employee for the period commencing as of the Commencement Date
and ending on the Termination Date, a salary at the rate of
Twenty Thousand Eight Hundred Thirty-Three and 33/100
($20,833.33) Dollars per month, payable in arrears on the 15th
day and last day of each month (said payment being hereinafter
referred to as the "Base Salary"). The Base Salary described
herein may from time to time during the term of this Agreement be
increased, by action of the Chief Executive Officer or the Board
of Directors of Company, but no such action shall ever operate to
decrease the amount of Base Salary described herein, without the
written consent of Employee.
2. Expenses.
---------- In addition to the remuneration set
forth above, throughout the period of Employee's employment
hereunder, Company shall also reimburse, or cause to be
reimbursed to Employee, upon presentment by Employee to Company,
as applicable, of appropriate receipts and vouchers therefor, for
any reasonable business expenses, including air and other travel
expenses, incurred by Employee in connection with the performance
of his duties and responsibilities hereunder;
3. Fringe Benefits.
--------------- Company shall also make
available, or cause to be made available, to Employee, throughout
the period of his employment hereunder, such benefits, including
any disability, hospitalization, medical benefit plan, pension
plan or other benefits or policies, as are put into effect by
Company for its other executive employees.
4. Vehicle Allowance.
------------------ In addition to the
compensation set forth above, Employee shall be paid a vehicle
allowance of Seven Hundred Fifty and No/100 ($750.00) Dollars per
month. This amount shall be paid on the first day of each month,
and the Company shall also reimburse Employee for all actual
expenses associated with operating Employee's vehicle for
Business Purposes. Employee shall submit receipts or other
evidence of such expenditures, and Company shall pay these
amounts to Employee within thirty (30) days of receipt of the
invoices.
5. Relocation Expenses.
-------------------- Company shall reimburse
Employee for all reasonable expenses incurred by Employee in
relocating his home to Houston, Texas, such expenses to include,
without limitation, all physical moving costs, real estate
brokerage fees (up to 6% of the sales price of Employee's
existing home) and all expenses incurred by Employee and his wife
in traveling to Houston, Texas in order to purchase a new home.
6. Stock Option Grants.
-------------------- In addition to the
compensation set forth above, Company shall issue to Employee an
option to purchase fifty thousand (50,000) shares of Company's
common stock, pursuant to the currently effective Employee Stock
Option Plan, as approved by the Toronto Stock Exchange.
Employee's vesting rights and other rights and privileges with
respect to this stock option shall be governed by the terms and
provisions of said stock option plan, a copy of which has been
delivered to Employee for his review. The stock option set forth
herein is not assignable by Employee.
7. Bonuses.
-------- (a) Employee shall be entitled to
receive a non-discretionary annual bonus (the "Minimum Annual
Bonus") in the amount of Seventy Thousand and No/100 ($70,000.00)
Dollars per year, payable on or before each anniversary date of
this Employment Agreement. There shall be no conditions
precedent to the payment by Company to Employee of the Minimum
Annual Bonus, other than the requirement that Employee be in the
employment of Company, as of said anniversary date, unless such
employment has been terminated in the manner provided in Section
B-6. of this Agreement.
(b) In addition to the Minimum Annual Bonus,
described above, Employee shall be entitled to participate in the
executive bonus pool, which is equal to five percent (5%) of the
Net Profit of Company, payable within ninety (90) days of closing
of the Company's fiscal year. The amount of Employee's
participation in the pool shall be determined in the sole
discretion of the Chief Executive Officer. The term "Net Profit"
shall mean the consolidated net income of Company, after tax, for
the fiscal year of the Company, determined in accordance with
generally accepted accounting principles, by the certified public
accounts retained by Company to perform its annual audit.
8. Vacation, Holiday, and Sick Leave.
---------------------------------- Employee shall
be entitled to _________ paid vacation days annually, effective
as of the Commencement Date of this Agreement.
9. Initial Bonus.
-------------- As partial consideration for
Employee's agreement to become employed by the Company pursuant
to the provisions of this Agreement, Company agrees to pay
Employee a signing bonus in the amount of Two Hundred Fifty
Thousand and No/100 ($250,000.00) Dollars, which shall be payable
to Employee in full on or before November _____, 1996.
D. Confidentiality; Non-Competition.
----------------------------------
1. Confidentiality Information; Personal
Relationships. -----------------------------------
-----------------
Employee agrees that he shall during and after termination of
employment with Company, keep secret and retain in strictest
confidence all confidential matters of the Company, its clients
and suppliers, and the "know-how", trade secrets, confidential
client lists, details of client, subcontractor or consultant
contracts, pricing policies, operational methods, marketing plans
or strategies, project development, acquisition or bidding
techniques or plans, business acquisition plans, new personnel
acquisition plans, technical processes, inventions and research
projects of Company learned by Employee and directly or
indirectly resulting from his employment by Company, unless (i)
such information is generally available to the public without
restriction, (ii) Employee obtains confidentiality agreements
with respect to such confidential information, (iii) such
information is provided to a customer or supplier of the Company
in the ordinary course of business, (iv) such disclosure is
approved by the Chief Executive Officer or (v) Employee is under
compulsion of either a court order or a governmental agency's or
authority's inquiry, order or request to so disclose such
information.
2. Property of Company.
--------------------
(a) Except as otherwise provided herein, all
lists, records and other non-personal documents or papers (and
all copies thereof), including such items stored in computer
memories, on microfiche or by any other means, made or compiled
by or on behalf of Employee, or made available to Employee
relating to Company are and shall be the property of Company, and
shall be delivered to Company on the date of termination of this
Agreement.
(b) All inventions, including any procedures,
formulas, methods, processes, uses, apparatuses, patterns,
designs, drawings, devises or configurations of any kind, any and
all improvements to them which are developed, discovered, made,
or produced, trade secrets, or information used by Company are
the exclusive property of Company, and shall be delivered to
Company, on the earlier of the expiration or the termination of
this Agreement.
(c) All Company names, logos, trade marks, copy
rights, slogans, insignias and the like are the exclusive
property of Company, and Employee shall not be entitled to use,
divert, imitate, duplicate or otherwise deal with said property
or property rights, without the prior written consent of Company;
provided,
--------
however, that Employee and Company agree that in the event the
-------
Company at any time during the term of this Employment Agreement
adopts or utilizes the name of Employee in its advertising or
promotional materials, that Employee shall have the right at any
time during or after the termination of this Employment Agreement
to require Company to cease using Employee's name or likeness in
connection with any such advertising or marketing materials
promoting the Company or its products.
3. Employees of Company.
-------------------- Upon termination of this
contract by either party for any reason, with or without cause,
Employee shall not, directly or indirectly, during the course of
his employment or for a period of twenty-four (24) months after
such termination, solicit any employee of Company, or encourage
any such employee to leave such employment without the prior
written approval of Company as applicable.
4. Restrictive Covenants.
---------------------- (a) E m p l o y e e
acknowledges and agrees that: (i) the business contacts,
customers, suppliers, technology, know-how, trade secrets,
marketing techniques and other aspects of the business of
Company, its affiliates and its successors and assigns are of
value to Company, and provide Company with substantial
competitive advantage in the operation of business, and (ii) by
virtue of his current relationship with Company, Employee has
knowledge and possesses confidential information concerning the
business procedures, existing and potential customer base and
operations of Company.
(b) In consideration of the receipt of the Base Salary
(as defined above), it is hereby agreed that (A) in the event
Company terminates this Agreement without Cause (as defined
herein), for the period riding on the date that Employee is
entitled to receive his last remaining employee severance
payment, described in Section B-6, above, or (B) in the event the
employment of Employee is terminated voluntarily by Employee
Without Cause or by Company for Cause, for the period ending
three (3) years following Employee's termination of employment
with Company, Employee shall not, directly or indirectly, for
himself, nor through or on behalf of any other person or entity:
(i) divulge, transmit or otherwise disclose or
cause to be divulged, transmitted or otherwise disclosed, any
business contacts, customer lists technology, know-how, trade
secrets, marketing techniques, contracts or other confidential or
proprietary information of Company or its successors or assigns
of whatever nature; and/or
(ii) except as set forth in sub-paragraph (c),
hereinbelow, in any way assist, loan money to, consult with,
invest, carry on, engage in or become involved with (whether as
an employee, agent, officer, director, stockholder, manager,
partner, joint venturer, lender, participant, consultant or
otherwise), any business enterprise (other than Company or its
subsidiaries or any affiliated corporation, successors or
assigns, if any) which: (a) is or shall be located or operating,
or soliciting or servicing customers located or operating, within
the geographical borders of the United States of America
(collectively, the "Territory"), and (b) is or shall become
engaged in any business in competition with the business of
Company or its successors or assigns. As used herein, the term
"business in competition with the business of Company or its
successors or assigns" environmental remediation and compliance
services, disposal services, demolition and dismantlement
services, industrial and/or commercial mechanical contracting
services, and any such other services or activities owned by or
being conducted by Company, its subsidiaries or affiliates, as of
the date of termination or expiration of this Agreement. The
provisions of this subparagraph 4(b)(ii) only shall not preclude
or prohibit ownership of not more than five percent (5%) of the
outstanding shares of a publicly held corporation if such
ownership does not involve managerial or operational
responsibility; this exception shall have no applicability to any
restrictions or covenants imposed anywhere in this Agreement
except specifically with respect to this subparagraph D-4(b)(ii).
E. Default.
-------- In the event that either party hereto shall
breach any of the terms of this Agreement, Company shall be
reimbursed by such defaulting party for all costs and expenses,
including reasonable attorneys' fees, incurred by the non-
defaulting party in enforcing the terms of this Agreement and/or
recovering damages as a result of any such breach.
F. Binding Effect.
--------------- This contract is a personal
services agreement between Company and Employee. Accordingly,
Employee is not authorized to voluntarily or involuntarily
transfer or assign any of his contractual rights contained
herein, and any such attempted voluntary or involuntary transfer
or assignment shall be null and void and shall cause an immediate
termination of this agreement. Except for this restriction on
assignability, all of the terms and conditions of this Agreement
shall be binding upon and inure to the benefit of Employee and
Company and any successor-in-interest to any of them.
G. Notices.
--------- Except as herein provided, any notice,
request, demand or other communication required or permitted
under this Agreement shall be in writing and shall be deemed to
have been given when delivered personally or when mailed by
certified mail, return receipt requested, addressed to the party
at the address of such party first set forth above, or at such
other address as such party may hereafter have designated by
notice.
If to Company at the address first above written with
copies to:
Mr. Michael E. McGinnis, President
American ECO Corporation
1325 South Creek Drive, Suite 100
Houston, Texas 77084
or to any other address as shall be designated from time to time
by Company
If to Employee at the address first above written or to
any other address as shall be designed from time to time by
Employee.
H. Indemnification.
---------------- The Company shall indemnify, hold
harmless and protect Employee, his heirs, executors,
administrators and legal representatives, from and against all or
any portion of any expenses, including reasonable attorney's
fees, incurred by Employee, actually and necessarily incurred by
him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his being or
having been an officer and representative of Company, whether or
not he continues to be an officer or representative of the
Company at the time such claim is prosecuted against Employee,
such expenses to include the cost of reasonable settlements and
the satisfaction of final, non-appealable judgments against
Employee, in connection with the matters covered hereby.
However, Company shall not indemnify Employee with respect to
matters as to which Employee shall be finally adjudged in any
such action, suit or proceeding to be guilty of negligence or
misconduct in the performance of his duties as an officer of
Company or in which Employee is found to be in material breach
this Agreement. The foregoing rights of indemnification shall
not be exclusive of any other rights to which Employee may be
entitled as a matter of law, by agreement, by approval of the
Board of Directors of Company, or otherwise.
I. Miscellaneous.
--------------
1. Neither this Agreement nor any of the terms or
conditions hereof may be waived, amended or modified except by
means of a written instrument duly executed by the party to be
charged herewith.
2. The captions and paragraph headings used in the
Agreement are for convenience of reference only, and shall not
affect the construction or interpretation of this Agreement or
any of the provisions hereof.
3. This Agreement, and all matters or disputes
relating to the validity, construction, performance or
enforcement hereof, shall be governed and construed under the
laws of the State of Texas, performable in Harris County, Texas.
4. Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original
hereof, but all of which together shall constitute one and the
same instrument.
5. ANY DISPUTE INVOLVING THE INTERPRETATION OR
APPLICATION OF THIS AGREEMENT SHALL BE RESOLVED BY FINAL AND
BINDING ARBITRATION BEFORE ONE OR MORE ARBITRATORS DESIGNATED BY
THE AMERICAN ARBITRATION ASSOCIATION IN HOUSTON, TEXAS UNLESS
MUTUALLY AGREED TO OTHERWISE. THE AWARD OF SUCH ARBITRATOR(S)
MAY BE ENFORCED IN ANY COURT OF COMPETENT JURISDICTION IN THE
STATE OF TEXAS.
6. This Agreement is intended for the sole and
exclusive benefit of the parties hereto and their respective
heirs, executors, administrators, personal representatives,
successors, and permitted assigns, and no other person or entity
shall have any right to rely on this Agreement or to claim or
derive any benefit herefrom absent the express written consent of
the party to be charged with such reliance or benefit.
7. Company has agreed to advance a loan to Employee
in the original principal amount of Three Hundred Fifty Thousand
and No/100 ($350,000.00) Dollars, said loan to be repaid by
Employee in accordance with the terms and provisions of a certain
promissory note evidencing said loan, and a copy of said
promissory note is attached hereto and incorporated herein by
reference. Notwithstanding any other provision contained in said
promissory note to the contrary, it is agreed that in the event
this agreement is terminated by Company for Cause, in addition to
the other rights and remedies that Company shall have in
accordance with the terms of this Agreement, Company shall have
the right to immediately declare due and payable, all loans and
advantages made by Company to Employee, at which time Employee
shall be required to repay in full said loans and advances
including the loan evidenced by the promissory note referred to
herein. The Company shall have the right to offset and credit
against the unpaid principal balance of such loans, all accrued
and unpaid salary, bonuses, and/or profit sharing distributions
accrued but unpaid to Employee as of the date of termination.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on and as of the date first set forth above.
COMPANY:
ATTEST: AMERICAN ECO CORPORATION
_________________________________
BY:_____________________________
ITS:____________________________
EMPLOYEE:
________________________________
FRANK FRADELLA
Exhibit 10.11.3
---------------
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT, made effective the 1st day of August, 1996 (the "Effective
Date") between American ECO Corporation ("Company"), having its principal
office at 11011 Jones Road, Houston, Texas, 77070; and David L. Norris, an
individual ("Employee") residing at 145 Santa Louisa, Irvine, California,
92606.
WHEREAS, Company desires to employ the services of the Employee as a
Consultant from August 1, 1996 until August 19, 1996 and then as the
President and Chief Executive Officer of EIF Holding, Inc. and Vice
President of American ECO Corporation, the parties of this Agreement hereby
agree as follows:
A. Employment:
----------
1. Throughout the effective term of this agreement, Company shall
employ Employee and Employee shall render services to Company and the
businesses heretofore and hereafter conducted by Company in the capacity as
consultant from August 1, 1996 to August 19, 1996 and then as Vice
President of American ECO Corporation and President and Chief Executive
Officer of EIF Holding, Inc. Employee shall perform all services, acts or
things necessary or advisable to consultant, manage, supervise and conduct
the business of Company, subject to the policy set by the Board of
Directors. Employee shall have full authority to act on behalf of the
Company, except to the extent limited by the Bylaws of the Company. The
Company and the Employee agree that no press release or public statement
will be made regarding this employment agreement until August 19, 1996,
without the consent of both parties.
2. Throughout the period of his employment hereunder, Employee shall
devote his business time, attention, knowledge and skills, faithfully,
diligently and to the best of his ability, to the active performance of his
duties hereunder, with consideration being given to duties that the
Employee may need to perform for his previous employer during the
consulting time period of this agreement.
B. TERM OF EMPLOYMENT; TERMINATION OF AGREEMENT:
--------------------------------------------
1. Subject to the earlier termination of this Agreement in
accordance with the terms hereof, the term of this Agreement shall
commence, effective as of August 1, 1996 (the "Commencement Date") and the
term of this Agreement shall continue through and include December 31, 2000
(the "Termination Date").
2. Anything contained in Section 1 to the contrary notwithstanding,
this Agreement may be terminated at the option of Company for "Cause" (as
herein defined), effective upon the giving of written notice of termination
to Employee. As herein used, the term for "Cause" shall mean and be
limited to:
(a) Any act committed by Employee against Company, its parent or
subsidiaries or divisions constituting: (A) fraud, (B) misappropriation of
corporate opportunity, (C) self-dealing, (D) embezzlement of funds, (E)
felony conviction for conduct involving moral turpitude or other criminal
conduct adversely affecting the operations of Company, or its parent or
subsidiaries or divisions, or (F) the continued disregard by Employee of
the reasonable directions and policies of the Board of Directors of the
Company, provided that such disregard or noncompliance by Employee
continues for a period of sixty days after written notice thereof is
delivered to the Employee by the Board of Directors of Company; or
(b) the breach or default by Employee in the performance of any
material covenant on the part of Employee to be performed under this
Agreement; or
(c) chronic substance abuse or any other form of addiction which
impairs Employee's ability to perform his duties hereunder.
3. Anything contained in Section 1 to the contrary notwithstanding,
this Agreement may be terminated by Company (i) upon the death of Employee,
or (ii) on thirty (30) days' prior written notice to Employee, in the event
that Employee shall be physically or mentally disabled or impaired so as to
prevent him from continuing the normal and proper performance of his duties
and responsibilities hereunder for a period of three (3) consecutive
months.
The initial determination as to whether Employee is disabled or
impaired shall be made by the physician regularly treating the condition
causing the disability. Company shall have the right to require Employee
to be examined by a physician duly licensed to practice medicine and
surgery in the State of Texas to determine such physician's opinion as to
Employee's disability. If such physician's opinion differs from that of
the physician treating Employee, or a physician thereafter retained by
Employee, they shall forthwith select a third physician so licensed whose
opinion, after examination and review of available information, shall be
conclusive and binding upon all parties, thereto. All costs of the
physician retained by Company shall be paid by Company. If a third
physician is required, then the costs of that physician shall be paid by
Company.
4. Upon any termination of this Agreement by Company as a result of
Employee's death or permanent disability pursuant to Section 3, Company
shall be liable for, and shall pay or shall cause to be paid to Employee or
his personal representative, as the case may be, Employee's Base Salary for
an additional twenty-four (24) month period from the date of termination
less (in the case of permanent disability), any health and disability
insurance payments made to or on behalf of Employee during such twenty-four
(24) month period.
5. Upon any termination of this Agreement by Company for Cause
pursuant to Section 2 above, neither Company nor any shareholder,
subsidiary or division thereof shall be liable for or shall pay or cause to
be paid to Employee any further remuneration, compensation or other benefit
hereunder.
6. If Company terminates Employee for any result other than as
-----
provided: (a) in Section 2, (b) in Section 3, or (c) as a result of
Employee's voluntary resignation of employment (not constituting a
constructive discharge), Company shall be obligated to pay or shall cause
to be paid to Employee the Base Salary, as and when the same would have
otherwise become due and payable hereunder until the earlier to occur of
(i) twenty-four (24) months after the date of termination; (ii) the date
that Employee obtains full time reemployment, unless such reemployment is
at a rate of compensation that is less than 80% of the Base Salary, in
which event Company shall pay to Employee the difference between the Base
Salary and the new compensation, until the earlier of the dates described
in clauses (i) and (iii) hereof; or (iii) the Termination Date.
7. Notwithstanding any termination of this Agreement, whether with
cause or without cause the provisions of Section D, below, shall remain
effective and binding on the parties to this Agreement.
C. COMPENSATION; EXPENSES; FRINGE BENEFITS.
---------------------------------------
1. BASE SALARY. As compensation for his services to be rendered
-----------
hereunder, Company shall pay or cause to be paid to Employee for the period
commencing as of the Commencement Date and ending on the Termination Date,
a salary at the rate of Fourteen Thousand Five Hundred Eighty-Four dollars
and 00/100 (14,584.00) Dollars per month, payable in accordance with
standard company policy.
2. EXPENSES. In addition to the renumeration set forth above,
--------
throughout the period of Employee's employment hereunder, Company shall
also reimburse, or cause to be reimbursed to Employee, upon presentment by
Employee to Company, as applicable, of appropriate receipts and vouchers
therefore, for any reasonable business expenses, including air and other
travel expenses and customer development expenses, incurred by Employee in
connection with the performance of his duties and responsibilities
hereunder;
3. FRINGE BENEFITS. Company shall also make available, or cause to
---------------
be made available, to Employee, throughout the period of his employment
hereunder, such benefits, including any disability, hospitalization,
medical benefit plan, pension plan or other benefits or policy, as are put
into effect by Company for its other executive employees.
4. AUTOMOBILE ALLOWANCE. In addition to the compensation set forth
--------------------
above, Employee shall be provided a car or paid a car allowance of Seven
Hundred and no/100 ($700.00) Dollars per month. This amount shall be paid
on the first day of each month, and the company shall also reimburse
Employee for all actual expenses associated with operating and maintaining
Employee's vehicle. Employee shall submit receipts or other evidence of
such expenditures, and Company shall pay these amounts to Employee within
thirty (30) days of receipt of the invoices.
5. STOCK OPTION GRANTS. In addition to the compensation set forth
-------------------
above, Company shall issue to Employee an option to purchase Twenty Five
Thousand (25,000) shares of the common stock of the Company per annum based
on performance which will be both financial and goal oriented and Three
Hundred Thousand (300,000) share options of EIF Holding, Inc. upon
employment and approval by The Board of Directors. The stock option grants
detailed above are pursuant to the currently effective Employee Stock
Option Plan, as approved by the Toronto Stock Exchange. Employee's vesting
rights and other rights and privileges with respect to this stock option
shall be governed by the terms and provisions of said stock option plan, a
copy of which has been delivered to Employee for his review. The stock
option set forth herein is not assignable by Employee.
6. ANNUAL BONUS. In addition to the compensation set forth above,
------------
Employee shall be entitled to participate in an annual bonus pool equal to
five percent (5%) of the net profits of Company, payable within (90) days
of closing of the Company's fiscal year, and will also be considered for
the annual bonus program of EIF Holding, Inc. Term "Net Profit" shall mean
the consolidated taxable income of Company for the fiscal year of the
Company, determined in accordance with generally accepted accounting
principles, by the certified public accountants retained by Company to
perform its annual audit. The distribution of the annual bonus pool shall
be at the discretion of the President and Chief Executive Officer of
American ECO Corporation for the Company.
7. VACATION, HOLIDAY, AND SICK LEAVE. Employee shall be entitled to
---------------------------------
annual vacations, holidays and sick leave in accordance with the policies
and procedures established and in effect from time to time for the
Company's Employees but not less than three (3) weeks paid vacation per
annum.
D. CONFIDENTIALITY INFORMATION; PERSONAL RELATIONSHIPS. Employee
---------------------------------------------------
agrees that for so long as he is employed by Company (the "Restrictive
period"), he shall keep secret and retain in strictest confidence all
confidential matters of the Company, its clients and suppliers, and the
"know-how", trade secrets, confidential client lists, details of client,
subcontractor or consultant contracts, pricing policies, operational
methods, marketing plans or strategies, project development, acquisition or
bidding techniques or plans, business acquisition plans, new personnel
acquisition plans, technical processes, inventions and research projects of
Company learned by Employee and directly or indirectly resulting from his
employment by Company, unless (i) such information is generally available
to the public without restriction, (ii) Employee obtains confidentiality
agreements with respect to such confidential information, (iii) such
information is provided to a customer or supplier of the Company in the
ordinary course of businesses, (iv) such disclosure is approved by the
President or the Board of Directors of Company, or (v) Employee is under
compulsion of either a court order or a governmental agency's or
authority's inquiry, order or request to so disclose such information.
2. PROPERTY OF COMPANY.
-------------------
(a) Except as otherwise provided herein all lists, records and
other non-personal documents of paper (and all copies thereof), including
such items stored in computer memories, on microfiche or by any other
means, made or compiled by or on behalf of Employee, or made available to
Employee relating to Company are and shall be the property of Company,
shall be delivered to Company on the date of termination of this Agreement.
(b) All inventions, including any procedures, formulas, methods,
processes, uses, apparatuses, patterns, designs, drawings, devises or
configurations of any kind, any and all improvements to them which are
developed, discovered, made or produced, trade secrets, or information used
by Company shall be the exclusive property of Company, and shall be
delivered to Company as applicable, on the earlier of the expiration or the
termination of this Agreement.
(c) All Company names, logos, trade marks, copy rights, slogans,
insignias and the like shall be the exclusive property of Company, and
Employee shall not be entitled to use, divert, imitate, duplicate or
otherwise deal with said property or property rights, without prior written
consent of Company; provided, however, that Employee and Company agree that
------------------
in the event the Company at any time during the term of this Employment
Agreement adopts or utilizes the name of Employee in its advertising or
promotional materials, that Employee shall have the right at any time
during or after the termination of this Employment Agreement to require
Company to cease using Employee's name or likeness in connection with any
such advertising or marketing materials promoting the Company or its
products.
3. EMPLOYEE OF COMPANY. Upon termination of this contract by either
-------------------
party for any reason, with or without cause, Employee shall not, directly
or indirectly, during the course of his employment or for a period of
twenty-four (24) months after such termination, solicit any employee of
Company, or encourage any such employee to leave such employment without
the prior written approval of Company as applicable.
E. DEFAULT. In the event that either party hereto shall breach any
-------
of the terms of this Agreement, Company shall be reimbursed by such
defaulting party for all costs and expenses, including reasonable
attorney's fees, incurred by the non defaulting party in enforcing the
terms of this Agreement and/or recovering damages as a result of any such
breach.
F. BINDING EFFECT. This contract is a personal services agreement
--------------
between Company and Employee. Accordingly, Employee is not authorized to
voluntarily or involuntarily transfer or assign any of his contractual
rights contained herein, and any such attempted voluntary or involuntary
transfer or assignment of this agreement. Except for this restriction upon
sign ability, all of the terms and conditions of this Agreement shall be
binding upon and inure to the benefit of Employee and Company and any
successor-in-interest to any of them.
G. NOTICES. Except as herein provided, any notice, request, demand
-------
or other communication required or permitted under this Agreement shall be
in writing and shall be deemed to have been given when delivered personally
or when mailed by certified mail, return receipt requested, addressed to
the party at the address of such party first set forth above, or at such
other address as such party may hereafter have designated by notice.
If to the Company at the address first above written with copies
to:
American Eco Corporation
Attention: Michael E. McGinnis, President and CEO
11011 Jones Road
Houston, Texas 77070
or to any other address as shall be designated from time to time by
Company.
H. INDEMNIFICATION. The Company shall indemnify, hold harmless and
---------------
protect Employee, his heirs, executors, administrators and legal
representatives, from and against all or any portion of any expenses,
including reasonable attorney's fees incurred by Employee, actually and
necessarily incurred by him in connection with or arising out of any
action, suit or proceeding in which he may be involved by reason of his
being or having been an officer and representative of Company, whether or
not he continues to be an officer or representative of the Company at the
time such claim is prosecuted against Employee, such expenses to include
the cost of reasonable settlements and the satisfaction of final, non-
appealable judgments against Employee, in connection with the matters
covered hereby. However, Company shall not indemnify Employee with respect
to matters as to which Employee shall be finally adjudged in any such
action, suit or proceeding to be guilty of negligence or misconduct in the
performance of his duties as an officer of Company or in which Employee is
found to be in material breach of this Agreement. The foregoing rights of
indemnification shall not be exclusive of any other rights to which
Employee may be entitled as a matter of law, by agreement, by approval of
the Board of Directors of Company, or otherwise.
I. MISCELLANEOUS.
-------------
1. Neither this Agreement nor any of the terms or conditions
hereof may be waived, amended or modified except by means of a written
instrument duly executed by the party to be charged herewith.
2. The captions and paragraph headings used in the Agreement
are for convenience of reference only, and shall not affect the
construction or interpretation of this Agreement or any of the provisions
hereof.
3. This Agreement, and all matters or disputes relating to the
validity, construction, performance or enforcement hereof, shall be
governed and construed under the laws of the Province of Ontario, Canada.
4. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original hereof, but
all of which together shall constitute one and the same instrument.
5. ANY DISPUTE INVOLVING THE INTERPRETATION OR APPLICATION OF
THIS AGREEMENT SHALL BE RESOLVED BY FINAL AND BINDING ARBITRATION BEFORE
ONE OR MORE ARBITRATORS UNLESS MUTUALLY AGREED TO OTHERWISE. THE AWARD OF
SUCH ARBITRATOR(S) MAY BE ENFORCED IN ANY COURT OF COMPETENT JURISDICTION
IN THE PROVINCE OF ONTARIO.
6. This Agreement is intended for the sole and exclusive
benefit of the parties hereto and their respective heirs, executors,
administrators, personal representatives, successors, and permitted
assigns, and no other person or entity shall have any right to rely on this
Agreement or to claim or derive any benefit here from absent the express
written consent of the party to be charged with such reliance or benefit.
7. In the event this Agreement is terminated by Company for
Cause, in addition to the other rights and remedies that Company shall have
in accordance with the terms of this Agreement, Company shall have the
right to immediately declare due and payable all loans and advances made or
guaranteed by Company or its shareholders to Employee, at which time
Employee shall be required to repay in full said loans and advances,
including all accrued interest thereon, in accordance with the terms and
provisions of the loan documents evidencing said loan and/or advances. The
Company shall have the right to offset and credit against the accrued
interest and unpaid principal balance of such loans, all accrued and unpaid
salary, commissions and/or profit sharing distributions accrued by unpaid
to Employee prior to the date of termination.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on and as of the date first set forth above.
COMPANY:
ATTEST: AMERICAN ECO CORPORATION
/s/ Valerie Williams By: /s/ Michael E. McGinnis
------------------------------ --------------------------
Its: President
--------------------
EMPLOYEE:
/s/ David L. Norris
------------------------------
DAVID L. NORRIS
EXHIBIT 16
----------
[Karlins, Fuller, Arnold & Klodosky P.C. Letterhead]
April 28, 1997
American Eco Corporation
11011 Jones Road
Houston, Texas 77070
Gentlemen:
We have read the statements made by American Eco Corporation
(the "Company") in its Annual Report on Form 10-K for the year
ended November 30, 1996, concerning the resignation of this firm
as independent accountants of the Company effective May 7, 1997,
and we concur with such statements.
Sincerely,
Karlins, Fuller, Arnold & Klodosky, P.C.
/s/ Michael Karlins
-------------------
Michael Karlins, CPA
EXHIBIT 21
----------
AMERICAN ECO CORPORATION
SUBSIDIARIES (FN1)
-------------------------------------------------------
JURISDICTION OF
NAME INCORPORATION
---------------------- ---------------
The Turner Group Delaware
C.A. Turner Delaware
Construction Co. Inc.
C.A. Turner Texas
Maintenance Inc.
Action Contracting Delaware
Services Inc.
H.E. Co. Services, Texas
Inc.
MM Industra, Ltd. Nova Scotia
Industra Service British
Corporation Columbia
Industra Thermal British
Service Corporation Columbia,
Alberta
Industra Engineers & British
Consultants, Inc. Columbia
Nucon Ltd. Alberta
NUS, Inc. (Holding Washington
Company USA)
Industra Thermal Washington
Service Corp.
Industra Service Washington
Corp.
Industra, Inc. Washington
Eco Environmental Inc. Delaware
Separation and Recovery Nevada
Systems Inc.
Gibca Separation & United Arab
Recovery Emirates
Systems Inc.
Separation & Recovery South Africa
Systems
(PTY) Ltd.
Separation & Recovery United Kingdom
Systems, Ltd.
United Eco Systems, Delaware
Inc.
ENSCI Environmental Delaware
Lake Charles Louisiana
Construction
Corp.(Group)
Environmental Texas
Evolutions, Inc.
Cambridge Construction Nevada
Services
Chempower, Inc. Ohio
Global Power Company Ohio
Brookfield Ohio
Corporation
Southwick Corporation Ohio
Controlled Power Illinois
Limited Partnership
American Eco/ SP Corporation Delaware
_______________
(1) Inactive subsidiaries are not included
EXHIBIT 24
----------
DIRECTORS AND OFFICERS OF AMERICAN ECO CORPORATION
ANNUAL REPORT ON FORM 10-K
POWER OF ATTORNEY
The undersigned directors and officers of American Eco
Corporation, an Ontario Canada corporation (the
"Company"), do hereby make, constitute and appoint
Michael E. McGinnis and David L. Norris, and each of
them with full power of substitution and
resubstitution, as attorneys or attorney of the
undersigned, to execute and file, under the Securities
Exchange Act of 1934, as amended, the Company's Annual
Report on Form 10-K, for the year ended November 30,
1996 and all amendments or exhibits thereto, and any or
all applications or other documents to be filed with
the Securities and Exchange Commission pertaining to
such Annual Report, with full power and authority to do
and perform any and all acts and things whatsoever
necessary, appropriate or desirable to be done in the
premises, or in the name, place and stead or the said
directors and officers, hereby ratifying and approving
the acts of said attorneys and any of them and any
substitute.
This action may be executed in counterpart.
IN WITNESS WHEREOF, the undersigned have subscribed
these presents as of the 2nd day of May 1997.
/s/ Michael E. McGinnis /s/ Barry Cracower
------------------------ -------------------------
Michael E. McGinnis, Barry Cracower, Director
President, Chief
Executive
Officer and Director
------------------------
William Dimma, Director
/s/ John C. Pennie
-------------------
John C. Pennie, /s/ Tyrrell Garth
Vice Chairman ------------------------
Tyrrell Garth, Director
/s/ David L. Norris
----------------------
David L. Norris ------------------------
Chief Financial Officer Donald Getty, Director
-------------------
Mark White
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM AMERICAN ECO CORPORATION'S FORM 10-K
FOR THE YEAR ENDED NOVEMBER 30, 1996, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<MULTIPLIER> 1000
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> NOV-30-1996
<CASH> 497
<SECURITIES> 0
<RECEIVABLES> 27,959
<ALLOWANCES> (346)
<INVENTORY> 6,807
<CURRENT-ASSETS> 44,255
<PP&E> 41,429
<DEPRECIATION> (8,191) <TOTAL-ASSETS> 104,484
<CURRENT-LIABILITIES> 40,975
<BONDS> 102
0
0
<COMMON> 39,411
<OTHER-SE> 15,632
<TOTAL-LIABILITY-AND-EQUITY> 104,484
<SALES> 0
<TOTAL-REVENUES> 119,529
<CGS> 0
<TOTAL-COSTS> 107,819
<OTHER-EXPENSES> 2,009
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,747
<INCOME-PRETAX> 7,954
<INCOME-TAX> (809)
<INCOME-CONTINUING> 8,763
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,763
<EPS-PRIMARY> 0.81
<EPS-DILUTED> 0
</TABLE>
