UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________
Commission File Number: 001-10621
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AMERICAN ECO CORPORATION
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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 of (IRS Employer Identification No.)
incorporation or organization)
154 UNIVERSITY AVENUE, TORONTO, ONTARIO M5H 3Y9
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(Address or principal executive offices) (Zip Code)
(416) 340-2727
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(Registrant's telephone number, including area code)
11011 JONES ROAD, HOUSTON, TEXAS 77070
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
As of October 14, 1997, there were 19,418,169 shares of Common Shares, no
par value, outstanding.
<PAGE>
AMERICAN ECO CORPORATION
Index to Quarterly Report on Form 10-Q
PART I. FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statements
Consolidated Balance Sheets:
August 31, 1997 and November 30, 1996 . . 3
Consolidated Statements of Income:
Three Months and Nine Months Ended
August 31, 1997 and August 31, 1996 . . . 5
Consolidated Statements of Changes
in Financial Position:
Nine Months Ended August 31, 1997
and August 31, 1996 . . . . . . . . . . . 6
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . 12
Item 6. Exhibits and Reports on Form 8-K . . . . . 12
Signatures . . . . . . . . . . . . . . . . . . . . . 13
2
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN ECO CORPORATION
CONSOLIDATED BALANCE SHEETS
(United States dollars in thousands)
At August 31, At November 30,
1997 1996
------------- ---------------
(Unaudited) (Audited)
ASSETS
------
CURRENT ASSETS
Cash . . . . . . . . . . . . $ 5,330 $ 317
Certificate of deposit,
restricted . . . . . . . . -- 180
Accounts receivable . . . . 43,372 20,918
Current portion of notes
receivable (NOTE A) . . . 13,824 6,695
Costs and estimated earnings
in excess of billings on
jobs in progress . . . . 12,075 3,446
Inventory (NOTE B) . . . . . 16,642 6,807
Deferred income tax . . . . 3,363 1,393
Prepaid expenses and other . 6,100 4,499
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TOTAL CURRENT ASSETS . 100,706 44,255
-------- --------
PROPERTY, PLANT AND EQUIPMENT, net 42,225 33,238
-------- --------
OTHER ASSETS
Goodwill, net (NOTE C) . . . 44,793 18,969
Debenture issue costs, net . 967 97
Notes receivable . . . . . . 196 280
Investments . . . . . . . . 8,824 7,645
-------- --------
TOTAL OTHER ASSETS . . 54,780 26,991
-------- --------
TOTAL ASSETS . . . . . $197,711 $104,484
======== ========
The accompanying notes to the financial statements are
an integral part thereof.
3
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AMERICAN ECO CORPORATION
CONSOLIDATED BALANCE SHEETS
(United States dollars in thousands)
At August 31, At November 30,
1997 1996
------------- ---------------
(Unaudited) (Audited)
LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
CURRENT LIABILITIES
Accounts payable and accrued
liabilities . . . . . . . $ 30,433 18,449
Notes payable . . . . . . . 13,980 20,399
Current portion of
long-term debt . . . . . . -- 1,595
Current portion of
obligations under
capital leases . . . . . . -- 113
Billings in excess of costs
and estimated earnings on 563 419
jobs in progress . . . . . -------- --------
TOTAL CURRENT 44,976 40,975
LIABILITIES . . . . . -------- --------
LONG-TERM LIABILITIES
Long-term debt, net of
current portion (NOTE D) . 54,783 6,618
Obligations under capital
leases . . . . . . . . . . -- 102
Deferred income tax liability 6,200 1,373
Debentures payable (NOTE E) 8,304 --
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69,287 8,093
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TOTAL LIABILITIES . . . 114,263 49,068
-------- --------
MINORITY INTEREST . . . . . . . . 367 373
-------- --------
SHAREHOLDERS' EQUITY
Common Shares . . . . . . . 54,933 39,411
Common Shares subscribed . . 34 34
Unrealized gain on marketable
securities . . . . . . . . -- --
Additional paid-in capital . 2,845 2,845
Retained earnings . . . . . 25,269 12,753
-------- --------
83,081 55,043
-------- --------
TOTAL LIABILITIES AND $197,711 $104,484
SHAREHOLDERS' EQUITY ======== ========
The accompanying notes to the financial statements are
an integral part thereof.
4
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AMERICAN ECO CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(United States dollars in thousands except per share data)
Three Months Nine Months
Ended August 31, Ended August 31,
------------------------- -------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(unaudited) (unaudited) (unaudited) (unaudited)
$ 48,176 $ 25,390 $ 149,775 $ 90,473
REVENUE . . . ---------- ---------- ---------- ----------
COSTS AND
EXPENSES
Cost of
contracts,
sales and
other
operating
expenses . 41,035 22,594 130,939 82,828
Interest
expense on
long-term
debt, net
exchange . 1,162 160 3,026 452
Depreciation
and amorti- 778 236 2,640 921
zation . . -------- ---------- ---------- ----------
42,975 22,990 136,605 84,201
INCOME BEFORE
RECOVERY OF
(PROVISION
FOR) INCOME
TAXES . . . 5,201 2,400 13,170 6,272
RECOVERY OF
(PROVISION
FOR) INCOME 653 -- 653 --
TAXES . . . ---------- ---------- ---------- ----------
NET INCOME . $ 4,548 $ 2,400 $ 12,517 $ 6,272
========== ========== ========== ==========
Earnings per
common $ .28 $ .20 $ .83 $ .61
share: . . ========== ========== ========== ==========
Earnings per
common share
Fully $ .27 $ .19 $ .74 $ .57
diluted: . ========== ========== ========== ==========
Weighted
average
number of
shares used
in computing
income per 16,238,637 11,932,305 15,166,715 10,356,335
common share ========== ========== ========== ==========
The accompanying notes to the financial statements are
an integral part thereof.
5
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AMERICAN ECO CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
(United States dollars in thousands)
Nine Months Ended
August 31,
------------------------
1997 1996
----------- -----------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATIONS $ (5,036) $ (1,479)
CASH FLOW FROM INVESTING
Capital Expenditures 755 (1,262)
Acquisition of businesses,
net of working capital
acquired (5,210) --
Increase in goodwill (1,540) (424)
--------- ---------
Net Cash used in investing
activities (5,995) (1,686)
--------- ---------
CASH FLOWS FROM FINANCING
Net proceeds from notes receivable (15,740) (5,754)
Net proceeds from long term debt 19,272 2,653
Net proceeds from issuance of stock 12,512 6,327
--------- ---------
Net cash provided by (used in)
financing activities 16,044 3,226
--------- ---------
NET INCREASE IN CASH 5,013 61
CASH AT BEGINNING OF THE YEAR 317 1,070
--------- ---------
CASH AT THE END OF THE PERIOD $ 5,330 $ 1,131
========= =========
The accompanying notes to financial statements are
an integral part hereof.
6
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The accompanying financial statements have been prepared in
accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-Q
and Article 10 of Regulation S-X promulgated by the Securities
and Exchange Commission. Such financial statements do not
include all disclosures required by generally accepted accounting
principles for annual financial statement reporting purposes.
However, there has been no material change in the information
disclosed in the Company's annual consolidated financial
statements dated November 30, 1996, except as disclosed herein.
Accordingly, the information contained herein should be read in
conjunction with such annual consolidated financial statements
and related disclosures. The accompanying financial statements
reflect, in the opinion of management, all adjustments
(consisting of normal recurring adjustments) necessary for a fair
presentation of the results for the interim periods presented.
Results of operations for the quarter and nine months ended
August 31, 1997 are not necessarily indicative of results
expected for an entire year.
NOTE A
The Company's current portion of notes receivable increased to
$13.8 million as at August 31, 1997 compared to $6.7 million as
at November 30, 1996. The increase is primarily due to the $11.0
million note that the Company received in conjunction with its
divestiture of Eco Environmental, Inc. and Environmental
Evolutions, Inc. as of August 31, 1997. The note matures in June
1998 and is collateralized with the assets of the two entities
being sold. The two entities had aggregate revenues of $6.2
million as of June 1, 1997, which was the effective date of the
sale.
NOTE B
Inventory of the Company increased to $16.6 million as at
August 31, 1997 compared to $6.8 million as at November 30, 1996.
The increase is primarily due to a $7.0 million reclassification
of property, plant and equipment which is now classified as
equipment held for resale by the Company's subsidiary Separation
and Recovery Systems, Inc.
NOTE C
Goodwill of the Company increased to $44.8 million as at
August 31, 1997 compared to $18.9 million as at November 30,
1996. The increase in goodwill is directly attributable to the
merger acquisition of Chempower, Inc. ("Chempower") that closed
on March 4, 1997 and the goodwill of EIF Holdings, Inc. ("EIFH")
which had been consolidated for accounting purposes for the first
time for the period ended August 31, 1997. Chempower and EIFH
increased goodwill by $10.9 million and $11.0 million,
respectively. As a result of the Chempower merger, all Chempower
shareholders, other than the two principal shareholders, received
cash for each of their Chempower shares. The two principal
shareholders received a portion of the merger consideration in
cash and the balance was represented by a $15.9 million
promissory note due on February 28, 1998. In addition, the
Company acquired real estate from the two principal shareholders
in the amount of $4.0 million due on February 28, 1998, which
real estate had been leased by Chempower. Chempower also borrowed
$6.0 million against its $15.0 million credit line, which was
guaranteed by the Company, to complete the cash consideration for
the acquisition. All of the debt incurred in the Chempower
transaction was refinanced on August 29, 1997, see Note D for
further detail.
NOTE D
On August 29, 1997, the Company closed a credit and guarantee
agreement with a commercial bank for (i) a $52.5 million term
loan, the proceeds of which were used primarily to consolidate
substantially all of the Company's secured indebtedness incurred
or assumed with the prior acquisitions, including the Chempower
acquisition, and (ii) a $12.0 million revolving credit facility
("the Bank Facility").
7
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NOTE E
On January 24, 1997, the Company sold $15 million aggregate
principal amount of 9.5% Cumulative Convertible Debentures due
January 24, 2007 (the "Debentures"), together with 1,125,000
stock purchase warrants (the "Warrants") to a group of
institutional investors. The Company used the net proceeds from
the placement to fund in part the acquisition of Chempower. The
total proceeds from the issuance of the Debentures have been
allocated between the Warrants issued to the holders, the
conversion feature of the Debentures, and the debt feature of the
Debentures for financial reporting purposes. As a result of this
allocation, the Debentures were being carried at less than their
face value with a difference being charged to interest expense
over the term of the Debentures. The total charge associated
with this Debenture offering was $6.3 million that is being
amortized over their ten year life. As of September 9, 1997, all
of the Debentures were converted into Common Shares.
NOTE F
The consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in
Canada ("Canadian Basis") which differ in certain respects from
those principles and practices that the Company would have
followed had its consolidated financial statements been prepared
in accordance with accounting practices generally accepted in the
United States ("U.S. Basis").
Under Canadian Basis, the total amount allocated to the
conversion feature of the Debentures and to the Warrants of $6.3
million is being charged as provided in Note E above. Had the
U.S. Basis been followed, the $6.3 million would have been
charged to interest expense immediately as the conversion feature
of the Debentures were "in the money" and the Debentures were
immediately convertible.
On August 9, 1996, the Company acquired an 18% interest in EIF
Holdings, Inc. ("EIFH"). On November 7, 1996, the Company
acquired an additional 20% of EIFH. As a result of this increased
investment in EIFH, the Company changed its method of accounting
for its investment in EIFH from the cost basis to the equity
basis. Under Canadian Basis, the change is accounted for
prospectively. Under U.S. Basis, however, this change is
accounted for retroactively to when the Company first invested in
EIFH. Had the U.S. Basis been followed, the Company would have
recorded its proportionate share of EIFH's losses from August 9,
1996 through November 7, 1996 resulting in an additional charge
of approximately $250,000. As of August 31, 1997, the Company
consolidated EIFH for accounting purposes effective January 1,
1997. As a result, the August 31, 1997 statement of income
reflects $10.8 million of EIFH's revenues. The Company is
negotiating with a group of investors, headed by Frank Fradella,
President and CEO of EIFH, to acquire the Company's interest in
EIFH. Management believes that an option agreement to acquire
its EIFH interest will be concluded in the fourth quarter, but no
assurance can be made.
Under Canadian Basis, income tax losses available to be
carried forward are recognized only when there is virtual
certainty that they will be realized. Under U.S. Basis, income
tax losses available to be carried forward are recognized when it
is more likely than not that they will be realized. For the nine
months ended August 31, 1997, there were no significant
differences between these two methods.
Under Canadian Basis, joint ventures are accounted for using
the proportionate consolidation method, Under U.S. Basis, the
Company's joint venture would have been accounted for using the
equity method. Had the U.S. Basis been followed, the net assets
and net income of the Company for the nine months ended August
31, 1997 would remain unchanged.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The results of operations for the three months and the nine
months ended August 31, 1997 are not necessarily indicative of
the results for future periods. The following discussion should
be read in conjunction with the unaudited financial statements
included herein and the notes thereto, and with the audited
financial statements and notes thereto for the year ended
November 30, 1996.
OVERVIEW
The Company is a single source provider of industrial support
services and specialty fabrication products to the hydrocarbon
processing, power generation and forest products industries in
the United States and Canada. The Company's industrial
maintenance services include the repair, maintenance and
modification of boiler, pressure vessels and tubing used in
industrial facilities as well as providing project management and
engineering services. The Company's specialty fabricating
services typically involve the construction of custom steel and
metal alloy products used in refineries, pulp mills and off shore
oil drilling platforms. The Company's specialty fabricating
services also includes the manufacturing and distribution of a
proprietary line of SarexTM oil filtration and separation systems
used by the world's oil and petrochemical tankers as well as
major oil refineries. In September 1997, the Company divested
itself of two environmental companies, Environmental Evolutions
Inc. ("Environmental Evolutions") and Eco Environmental, Inc.
("Eco Environmental"), which provided hazardous material
remediation and abatement services in addition to emergency
hazardous spill containment, clean-up and transportation. As a
result of these divestitures the environmental services currently
provided by the Company are contracting, waste water processing,
ground contamination treatment and recycling services. The
Company also operates two thermal desorption treatment
facilities.
The Company entered 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 and to $149.7 million for the first nine
months of fiscal 1997, primarily as a result of such
acquisitions. The Company accelerated its acquisition program in
fiscal 1996 by adding the following five operating subsidiaries:
Industra Service Corporation, a British Columbia, Canada
corporation, Separation and Recovery Systems, Inc., a Nevada
corporation, Environmental Evolutions, United Eco Systems, Inc.,
a Delaware corporation, and MM Industra, Ltd., a Nova Scotia,
Canada corporation. In March 1997, the Company completed its
$50.0 million acquisition of Chempower. Due to the integration
of acquired operations with the Company's existing businesses,
results of operations for prior periods are not necessarily
comparable to or indicative of results of operations for current
or future periods.
The Company intends to continue to expand its business through
the acquisition of companies in the industrial maintenance and
specialty fabrication businesses. The Company's acquisition
strategy entails the potential risks inherent in assessing the
value, strengths, weaknesses, contingent liabilities and
potential profitability of acquisition candidates and in
integrating the operations of acquired companies. There can be
no assurance that acquisition opportunities will continue to be
available, that the Company will have access to the capital
required to finance potential acquisitions or that any business
acquired will be integrated successfully or prove profitable or
be sold.
The Company's acquisition strategy has led to rapid growth in
the Company's operations over the past four fiscal years. The
Company's operations generally are managed at each of its
subsidiaries. The core administrative, financing, risk management
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
9
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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 one- to two-quarter period. Accordingly,
the Company's quarterly results may fluctuate and the results of
one fiscal quarter should not be deemed to be representative of
the results of any other quarter or for the full fiscal year.
RECOGNITION OF REVENUES
The Company recognizes approximately 50% of its revenues and
profits on contracts using the percentage-of-completion method of
accounting. Under the percentage-of-completion method, contract
revenues are accrued based upon the percentage that accrued costs
to date bear to total estimated costs. As contacts can extend
over more than one accounting period, revisions in estimated
total costs and profits during the course of work are reflected
during the period in which the facts requiring the revisions
become known. Losses on contracts are charged to income in the
period in which such losses are first determined. The
percentage-of-completion method of accounting can result in the
recognition of either costs and estimated profits in excess of
billings or billings in excess of costs and estimated profits on
uncompleted contracts, which are classified as current assets and
liabilities, respectively, in the Company's balance sheet.
RESULTS OF OPERATIONS
REVENUES
The Company's revenues totaled $48.1 million and
$149.8 million for the three and nine months ended August 31,
1997 compared to $25.4 million and $90.5 million for the three
and nine months ended August 31, 1996. This significant increase
for the first nine months of fiscal 1997 compared to the first
nine months of fiscal 1996 on both a percent and a dollar basis
is due to the acquisition of six operating subsidiaries
subsequent to the second quarter of fiscal 1996 and in addition
to the consolidation of EIFH. Third quarter of fiscal 1997
reflects $10.8 million of revenues from the consolidation of
EIFH. These revenues include six months of its operations from
January 1, 1997 through June 30, 1997.
OPERATING EXPENSES
The Company's operating costs increased to $41.0 million and
$130.9 million for the three and nine months ended August 31,
1997 versus $22.6 million and $82.8 million for the three and
nine months ended August 31, 1996. This significant increase was
primarily as a result of adding six new subsidiaries subsequent
to the second quarter of fiscal 1996 in addition to the Company's
consolidation of EIFH. Expressed as a percent of total revenues,
operating costs decreased to 87.4% for the first nine months of
fiscal 1997 compared to 91.5% for the first nine months of fiscal
1996. Management attributes this decrease to the Company's
continued effort to control operating expenses. The Company has
instituted a program in fiscal 1994 which requires managers to
track such costs control indicators as labor productivity and
potential project cost overruns. Management believes that the
Company will continue to control operating expenses but there can
be no assurance that the Company's cost control policies will be
effective in the future. The Company's interest expense
10
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increased to $1.2 million and $3.0 million for the three and nine
months ended August 31, 1997 compared to $160,000 and $450,000
for the three and nine months ended August 31, 1996. This
increase in interest expense was due primarily to the acquisition
of the operating subsidiaries with existing debt in addition to
the interest associated with the debenture placement in January
1997 and increases in a bank line used as part of the payment to
acquire Chempower in March 1997. The Company's depreciation and
amortization increased to $700,000 and $2.6 million for three and
nine months ended August 31, 1997 versus $200,000 and $900,000
for the three and nine months ended August 31, 1996. This
significant increase was due to the Company's expanded operations
as a result of its acquisition program.
NET INCOME
Net income from continuing operations increased to $12.5
million, or $0.83 per share as of August 31, 1997, compared to
$6.2 million, or $0.61 per share, as of November 30, 1996. Net
income for the quarter ended August 31, 1997 was $4.5 million, or
$0.28 per share, compared to $2.4 million, or $0.20 per share as
of August 31, 1996.
PROVISION FOR INCOME TAX
The Company had net loss carry forwards in Canada with which
it is able to reduce its tax liabilities. As of November 30,
1996, the Company had a total of $3.2 million in Canadian net
loss carry forwards that expire incrementally between 1999 and
2003. As of August 31, 1997, the net operating loss carry
forwards were extinguished and the Company began to accrue for
income taxes. The accrual for income tax as of August 31, 1997
was $650,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's existing capital resources consist of cash, cash
provided by its operating subsidiaries and funds available under
its lines of credit. Typically the Company maintains cash levels
of between $2.0 million and $3.0 million for general corporate
needs, but the Company's available cash increased to $5.3 million
at August 31, 1997 from $317,000 at November 30, 1996 primarily
due to the Company raising funds from the sales of $18.0 million
aggregate principal amount of debentures in January 1997 and
March 1997, together with stock purchase warrants, and several
small borrowings, and closing the Bank Facility in late August.
As of September 1997, all of the debentures were converted into
Common Shares. The Company used the net proceeds from the
January offering of the debentures to fund, in part, the
acquisition of Chempower, which closed as of March 4, 1997. At
August 31, 1997, the Company and its operating subsidiaries had
an aggregate of $12.0 million in lines of credit, of which $10.0
million remained available to the Company and its subsidiaries,
and which are under the Bank Facility. The Bank Facility
provides that if the Company issues senior subordinated notes in
an aggregate principal amount of not less than $100 million prior
to March 31, 1998 and the proceeds thereof are used to repay the
term loan under the Bank Facility, the Bank will (i) increase the
revolving credit facility to $25 million and (ii) provide the
Company with a $50 million acquisition facility.
The Company's cash requirements consist of working capital
needs, obligations under its leases and promissory notes and the
funding of potential acquisitions. The Company primarily
provides services and its capital expenditure requirements are
low relative to the revenues that it generates. The Company used
$700,000 for capital expenditures during the first nine months of
fiscal 1997 compared to a negative $300,000 during the first nine
months of fiscal 1996. Management believes that the Company's
cash and funds available under its credit facilities, together
with cash generated from its operations, are sufficient to meet
its anticipated cash requirements. The Company also is exploring
a placement of senior subordinated notes and 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 issue the senior subordinated notes or
other securities.
11
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Accounts receivable at August 31, 1997 increased to
$43.3 million from $21.0 million at November 30, 1996.
Management attributes this increase to the addition of six new
operating subsidiaries since the second quarter of fiscal 1996.
Property, plant and equipment increased to $42.2 million at
August 31, 1997 from $33.2 million at November 30, 1996. This
increase is primarily due to the acquisition of Chempower.
Accounts payable increased to $30.4 million at August 31, 1997
from $18.5 million at November 30, 1996 as a result of the
Company's acquisition of Chempower.
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
The Company is including the following cautionary statement in
its Report on Form 10-Q to make applicable and take advantage of
the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 for any forward-looking statements made by, or
on behalf of the Company. Forward-looking statements include
statements concerning plans, objectives, goals, strategies,
future events or performance and underlying assumptions and other
statements which are other than statements of historical facts.
Certain statements contained herein are forward looking
statements and accordingly involve risks and uncertainties which
could cause actual results or outcomes to differ materially from
those expressed in the forward-looking statements. The Company's
expectations, beliefs and projects are expressed in good faith
and are believed by the Company to have a reasonable basis,
including without limitations, management's examination of
historical operating trends, data contained in the Company's
records and other data available from third parties, but there
can be no assurance that management's expectations, beliefs or
projections will result or be achieved or accomplished. In
addition to other factors and matters discussed elsewhere herein,
the following are important factors that, in the view of the
Company, could cause actual results to differ materially from
those discussed in the forward-looking statements: the ability of
the Company to continue to expand through acquisitions, the
availability of capital to fund the Company's expansion program,
the ability of the Company to manage its expansion effectively,
economic conditions that could affect demand for the Company's
services, the ability of the Company to complete projects
profitably and severe weather conditions that could delay
projects. The Company disclaims any obligation to update any
forward-looking statements to reflect events or circumstances
after the date hereof.
12
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 16, 1997, the arbitrators in the arbitration
proceeding brought by OHM Remediation Services Corp. ("OHM"), a
customer of Separation and Recovery Systems, Inc. ("SRS"), a
wholly-owned subsidiary of the Company, awarded SRS $2.4 million
in compensatory damages on its counterclaims, and denied SRS's
claims for punitive damages, and also denied all claims of OHM.
In June 1997, OHM filed a complaint in the United States District
Court for the Southern District of Ohio (the "Court") challenging
the award asserting that the arbitrators had exceeded their
authority, and SRS thereafter filed a motion in the same Court
seeking confirmation of the award. After a hearing held in
September 1997, the Court confirmed the award, which OHM paid in
October 1997. For the six months ended May 31, 1997, the Company
recorded $525,000 for the award, and recorded the remaining $1.8
million in the third quarter of fiscal 1997. Total expenses of
$1.1 million associated with this litigation were recorded in the
third quarter of fiscal 1997 with a net gain as of August 31,
1997 of $700,000. For additional information, see Item 3 of the
Company's Form 10-K for the fiscal year ended November 30, 1996.,
and Item 1 of the Company's Form 10-Q for the fiscal quarter
ended may 31, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Acquisition Agreement by and between American
Eco Corporation and Eurostar Interests, Ltd. for
100% of the Common Stock of Eco Environmental, Inc.
and Environmental Evolutions, Inc. dated as of
August 31, 1997.
27 Financial Data Schedule.
(b) Reports on Form 8-K
The Company filed a Form 8-K for an event of August 29, 1997
to report on Item 5 thereof the entry into the Bank
Facility.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
AMERICAN ECO CORPORATION
(Registrant)
Dated: October 15, 1997 /s/ Michael E. McGinnis
-----------------------------------
Michael E. McGinnis
Chief Executive Officer
Dated: October 15, 1997 /s/ David L. Norris
-----------------------------------
David L. Norris
Chief Financial Officer
14
<PAGE>
EXHIBIT INDEX
Exhibit Description
------- -----------
10.1 Acquisition Agreement by and between American
Eco Corporation and Eurostar Interests, Ltd. for
100% of the Common Stock of Eco Environmental, Inc.
and Environmental Evolutions, Inc. dated as of
August 31, 1997.
27 Financial Data Schedule.
ACQUISITION AGREEMENT
BY AND BETWEEN
AMERICAN ECO CORPORATION
AND
EUROSTAR INTERESTS, LTD.
FOR
100% of the Common Stock of
ECO ENVIRONMENTAL, INC.
and
ENVIRONMENTAL EVOLUTIONS, INC.
AUGUST 31, 1997
<PAGE>
THIS ACQUISITION AGREEMENT made as of the 31st day of August,
1997.
B E T W E E N:
AMERICAN ECO CORPORATION
a corporation amalgamated pursuant to the laws of
the Province of
Ontario, Canada
(the "Shareholder")
OF THE FIRST PART
- and -
EUROSTAR INTERESTS, LTD.
a corporation amalgamated pursuant to the laws of
the British Virgin Islands.
("Buyer")
OF THE SECOND PART
WHEREAS the Shareholder is the owner of 100% of the issued and
outstanding shares in the capital of the Targets (as hereinafter
defined) and the Shareholder seeks to sell the Targets Shares (as
hereinafter defined) for the consideration set forth hereinbelow and
Buyer seeks to acquire the Targets Shares from the Shareholder, 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 Targets 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 August 31, 1997 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 section 6.3.
"ECO" means American ECO 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.
"OBCA" means the Business Corporations Act, Ontario.
"Parties" means collectively, the parties to this Agreement.
"Purchase Note" shall have the meaning ascribed to it in Section
2.2 of 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 May 31, 1997.
"Security Agreement - Pledge" shall have the meaning ascribed to
it in Section 2.2 of this Agreement.
"Security Documents" shall mean the Purchase Note and the
Security Agreement - Pledge, collectively.
"Subsidiary" has the meaning ascribed thereto in the OBCA.
"Survival Period" has the meaning ascribed thereto in section 5.1
"Targets" means Eco Environmental, Inc., a Delaware corporation,
and Environmental Evolutions, Inc., a Texas corporation.
"Targets Contracts" has the meaning ascribed thereto in section
4.1(aa).
"Targets Shares" means 100% of the issued and outstanding shares
of capital stock of the Targets, registered in the name of the
Shareholder, as set forth on Schedule 4.2(f), hereto.
"Targets 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 and sale of the Targets Shares
in exchange for consideration as contemplated by this Agreement.
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 PURCHASE
---------------------
2.1 Purchase. Subject to the terms and conditions hereof, on the
--------
Closing Date at the Time of Closing, effective as of June 1, 1997, the
Shareholder shall transfer to Buyer and Buyer shall accept from the
Shareholder the Targets Shares and the Shareholder shall deliver to
Buyer certificates representing the Targets Shares, duly endorsed in
blank for transfer together with new certificates therefor, which
shall be as at the Reference Date.
2.2 Purchase Price. The purchase price for the Targets Shares shall be
--------------
the aggregate sum of U.S. $11,000,000 and shall be satisfied by the
execution and delivery by Buyer to Shareholder at closing of Buyer's
one certain Secured Promissory Note (the "Purchase Note"), in the
original principal amount of the Purchase Price. The Purchase Note
shall be in the form of Schedule 2.2 attached hereto, and the Purchase
Note shall be secured by certain assets more fully described within
that certain Security Agreement - Pledge, which shall be in the form
of Schedule 2.2 (a) attached hereto. The Purchase Note and the
Security Agreement - Pledge are hereinafter referred to as the
"Security Documents".
2.3 Closing. Closing shall occur at the Time of Closing on the Closing
-------
Date at the offices of American Eco Corporation at 11011 Jones Road,
Houston, Texas, or at such other place or other time and date as the
Parties may agree.
3. COVENANTS, REPRESENTATIONS AND WARRANTIES OF BUYER
--------------------------------------------------
3.1 Covenants, Representations and Warranties. Buyer hereby covenants,
-----------------------------------------
represents and warrants to the Shareholder as follows and acknowledges
and confirms that the Shareholder 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) Organization. Buyer is duly incorporated and validly
------------
subsisting under the laws of the British Virgin Islands and
has the corporate power to own or lease its property and to
carry on its business as it is now being conducted and will
have the corporate power to execute, deliver and perform its
obligations under this Agreement.
(b) Corporate Authority. On the Closing Date Buyer 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. This Agreement constitutes a valid
---------------------
and legally binding obligation of Buyer enforceable against
Buyer in accordance with its terms.
(d) No Violations. The execution and delivery of this Agreement
-------------
and all other agreements contemplated herein by Buyer and
the observance and performance of the terms and provisions
of this Agreement and any such agreements; (i) does not and
will not require Buyer 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 Buyer; (ii) does
not and will not constitute a violation or breach of the
charter documents or by-laws of Buyer; (iii) does not and
will not constitute a violation or breach of applicable law,
any material provision of any Contract to which Buyer is a
party or by which Buyer is bound or any law, by-law, rule,
regulation, judgment, order, writ, injunction or decree
applicable to Buyer; 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
Buyer is a party or by which Buyer is bound.
(e) Brokers. Buyer shall be responsible for the payment of all
-------
brokerage commissions, and finder's fees or other like
payment incurred by Buyer in connection with this
transaction, and Buyer will indemnify and save harmless the
Shareholder of and from any such claims.
(f) Release from Guarantees. Buyer shall use its best efforts to
-----------------------
have the Shareholder released from any and all outstanding
guarantees of indebtedness of the Targets with all such
guarantees being assumed by Buyer. In the event Buyer cannot
obtain such releases from the lenders of any such guaranteed
indebtedness, Buyer shall indemnify and save harmless the
Shareholder of and from any loss resulting from such
guaranteed indebtness.
4. COVENANTS, REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER
------------------------------------------------------------
4.1 Covenants, Representations and Warranties. The Shareholder hereby
-----------------------------------------
covenants, represents and warrants to Buyer as follows and
acknowledges and confirms that Buyer 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 with respect to each of the Targets:
(a) Legal Capacity. The Shareholder has the legal capacity and
--------------
corporate power to execute, deliver and perform its
obligations under this Agreement.
(b) Organization. Each Target is duly incorporated and validly
------------
subsisting under the laws of its respective state 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. Each
Target is duly qualified to do business in those
jurisdictions wherein the failure to so qualify could have a
Material Adverse Effect on the Target, being those
jurisdictions set forth on Schedule 4.1(b).
(c) Corporate Authority. The Shareholder and each Target have
-------------------
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
Shareholder 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 Shareholder or either
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 the Shareholder or either
Target; (ii) does not and will not constitute a violation or
breach of the charter documents or by-laws of either Target;
(iii) does not and will not constitute a violation or breach
of applicable law, any material provision of any Contract to
which the Shareholder or either Target is a party or by
which the Shareholder or either Target is bound or any law,
by-law, rule, regulation, judgment, order, writ, injunction
or decree applicable to the Shareholder or either Target;
(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 Shareholder or either Target is a party or by
which the Shareholder or either Target is bound; and (v)
does not and will not result in the creation or imposition
of any Encumbrance on the Targets Shares or any property or
assets of the Shareholder or either Target.
(e) Issued Shares. All of the issued and outstanding shares of
-------------
the Targets, being the Targets 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
either Target.
(f) Owner of the Targets Shares. The Shareholder is the owner
---------------------------
beneficially and of record of the Targets Shares in the
amounts and proportions identified on Schedule 4.1(f),
hereto, and has good and marketable title thereto, free and
clear of any Encumbrances and/or pre-emptive rights. The
Shareholder has the exclusive right and full power to
transfer the Targets Shares to Buyer as herein contemplated,
free and clear of any Encumbrances.
(g) Subsidiaries. Neither Target has any Subsidiaries nor owns
------------
any shares of any other corporation or entity nor any
rights, warrants or other securities convertible into shares
of any other corporation or entity. The Targets are not
bound by or a party to any Contract which contemplates their
amalgamation, merger, consolidation or other acquisition
with or by any other entity.
(h) Acts of Bankruptcy. Neither the Shareholder nor either
------------------
Target 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 Companies. The Targets do not distribute their
-----------------
securities to the public.
(j) Residents. The Targets principal places of business are
---------
within the United States.
(k) Actions - Targets Shares. There is not pending or, to the
------------------------
Best Knowledge of the Shareholder, 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 Shareholder from
effectually and legally transferring the Targets Shares to
Buyer in accordance with this Agreement; (ii) cause an
Encumbrance to attach to the Targets Shares; (iii) divest
title to the Targets Shares in any manner whatsoever; or
(iv) make Buyer 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 Shareholder,
threatened or contemplated, any suit, action, legal
proceeding, litigation or governmental investigation of any
sort relating to the Shareholder, the Targets 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 Shareholder or the Targets
any judgment, decree, injunction, rule or order of any
court, governmental department, commission, agency,
instrumentality or arbitrator.
(m) Minute Books. The minute books of the Targets contain
------------
accurate and complete copies of their organizational
documents together with minutes of all meetings of
directors, committees and shareholders of the Targets. The
articles and the by-laws of the Targets 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 Targets. No resolutions
or by-laws have been passed, enacted, consented to or
adopted by the directors or shareholders of the Targets
except as are contained in the minute books of the Targets.
The directors and officers of the Targets are as set forth
on Schedule 4.1(m)(1).
(n) Books of Account. The books of account and financial records
----------------
of the Targets fairly set out and disclose in all material
respects, the current financial position of the Targets. All
material transactions involving the Targets have been
accurately recorded in such books and records. All bonuses,
commissions and other payments relating to the employees of
the Targets are reflected in the books of the Targets in a
manner consistent with past record keeping practices and
none of such payables are in arrears.
(o) Permits and Licenses. The Targets have all necessary
--------------------
permits, certificates, licenses, approvals, consents and
other authorizations required to carry on and conduct
business and to own, lease or operate their assets at the
places and in the manner in which such businesses are
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 Targets, and the statements of operations
(the "Targets Financial Statements") of the Targets as of
May 31, 1997, are annexed hereto as Schedule 4.1(p). The
Targets 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,
except for the elimination of applicable intercompany
accounts.
(2) Present fairly the assets, liabilities and financial
position of the Targets as of May 31, 1997, and the
results of operations for the periods then ended. Other
than the liabilities specified in the balance sheet
forming part of the Targets 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 Shareholder,
there are no known liabilities or obligations of the
Targets (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 Targets.
(4) Contain and reflect all necessary adjustments for a
fair presentation of the results of operations and
financial position of the Targets for the periods
covered thereby.
(5) Contain and reflect adequate provision or allowance for
all reasonably anticipated liabilities, expenses and
losses of the Targets.
(q) Guarantees. Except as set forth on Schedule 4.1(q), hereto,
----------
the Targets do not have any outstanding guarantees or has
any outstanding security for any liability, debt or
obligation of any Person.
(r) Bonds, Debentures. The Targets do not have any outstanding
-----------------
bonds, debentures or other indebtedness and are not 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 Targets since
the dates of the Targets 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, neither Target has 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 Targets. Neither Target is a party to any Contract
with any officer, director, employee, shareholder or any
other Person not dealing at arm's length with the Target. No
officer, director or shareholder of neither 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% 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 either Target or a lessor,
lessee, client or supplier of either Target.
(2) Owns, directly or indirectly, in whole or in part, any
property that either Target uses in the operation of
its business.
(3) Has any cause of action or any other claims whatsoever
against or owes any amount to either Target.
(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 Targets has been authorized,
declared or paid since the date of the Targets 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 Targets 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 the Targets.
(2) Any damage, destruction or loss (whether or not covered
by insurance) affecting the property or assets of the
Targets 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 Targets
(whether absolute, accrued, contingent or otherwise and
whether due or to become due) greater than $1,000.00
each, 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 Targets or any Contract
entered into by the Targets for the issuance or sale by
the Targets of any shares in the capital of or
securities convertible into or exercisable into shares
in the capital of the Targets.
(5) Any labor disturbances have a Material Adverse Affect
on the Targets.
(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 Targets other than in the ordinary course of
business.
(7) Any write-off as uncollectible of any Accounts
Receivable or any portion thereof the Targets in
amounts exceeding the allowance set out in the Targets
Financial Statements.
(8) Any cancellation of any other debts or claims or any
amendment, termination or waiver of any other rights of
value to the Targets 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 either 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) or the making of any loan to or
engagement in any transaction with any employee,
officer or director thereof.
(10) Any material change in the accounting or tax practices
followed by the Targets.
(11) Any acquisition, transfer, assignment, sale or other
disposition of any of the assets shown in the Targets
Financial Statements other than in the ordinary course
of business.
(12) Any institution or settlement of any litigation, action
or proceeding before any court or governmental body by
or against the Targets.
(13) 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 Targets Financial
-----
Statements:
(1) All returns, including reports of every kind with
respect to Taxes, which are due to have been filed by
the Targets 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
Targets may have any liability arising prior to Closing
have been paid in full or accrued as liabilities for
Taxes on the books of the Targets.
(3) All installments for Taxes which the Targets 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 Targets Financial
Statements will be adequate to satisfy all liabilities
for Taxes of the Targets 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, reports of Taxes were or are due to be filed
by the Targets 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, have been accrued on the books of
the Targets and in the Targets 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
Targets pursuant to any tax indemnity, allocation or
sharing agreement and all such agreements will be
terminated with respect to the Targets 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 Shareholder, proposed or threatened and, to the
Best Knowledge of the Shareholder, 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
Targets 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
Targets or any other matter pending between the Targets
and any taxing authority.
(10) There are no liens for Taxes upon the Targets shares or
upon any property or assets of the Targets except liens
for current Taxes not yet due.
(11) To the Best Knowledge of the Shareholder there are no
facts which exist or have existed which would
constitute grounds for the assessment of any Taxes of
the Targets with respect to the periods which have not
been audited by the Internal Revenue Service or other
taxing authorities.
(12) Each Target 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
Targets for the period ending on the Reference Date.
(x) Assets. Each Target has good and marketable title to all of
------
its assets as reflected on the Targets 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 4.1(y)(1): All real property owned of record
or beneficially of the Targets.
(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 Targets, including
without limitation, automobiles, trucks and other
vehicles.
(3) Schedule 4.1(y)(3): All purchase commitments of the
Targets where the amount remaining unpaid is in excess
of $1,000.00 and all sales commitments where the total
value of the commitment which is presently unpaid
exceeds $1,000.00 of the Targets.
(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
Targets are 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 Targets 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 Targets
or would prevent the Targets from exercising and
obtaining the benefits of any rights or options
contained therein. The Targets have 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
Shareholder or the Targets 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
Targets and all material licenses and other agreements
allowing the Targets to use the Intellectual Property
of other Persons. None of the Intellectual Property of
the Targets infringes the Intellectual Property of any
other Person and to the Best Knowledge of the
Shareholder, no activity of any other Person infringes
upon any of the Intellectual Property of the Targets to
the extent that any such infringement in either case
could have a Material Adverse Effect on the Targets. To
the Best Knowledge of the Shareholder, the Targets have
been and are 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 Targets are
sufficient for the conduct of business of the Targets
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 Targets have an account and the names of all
Persons authorized to draw thereon as well as all
powers of attorney granted by the Targets.
(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 Targets on their
assets including without limitation, business
interruption, personal and product liability coverage
and by the Targets on the lives of their directors and
officers, together with true copies thereof. The
proceeds of such policies are fully payable to the
Targets. All premiums in connection with such policies
are fully paid. Such insurance is in amounts deemed by
the Shareholder 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 Targets. 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 Shareholder, no basis for any such
claim, action, suit or proceeding exists. The Targets
are 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 Targets
(being those clients of the Targets accounting for more
than 5% of revenues for the financial year ended on
November 30, 1996. There has been no termination or
cancellation of the business relationship of the
Targets 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 Targets 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 Targets 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 Targets.
(b) A complete list of all permanent and full-time
employees of the Targets, 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 Targets 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 Targets (the "Targets Contracts") not
included on any other Schedule. The enforceability of the
Targets Contracts will not be affected in any manner by the
execution and delivery of this Agreement or the consummation
of the Transaction. The Targets are 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 Targets
under any of the Targets Contracts. A true and complete copy
of each such Target Contract has been delivered to Buyer or
will be delivered to Buyer 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 Targets are not a party to or bound by
any Contract which in any way has or could have a Material
Adverse Effect on the Targets. 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 Targets are 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 Targets or the ownership or use of the assets
thereof.
(9) Any material warranties relating to products
distributed or services provided by the Targets.
(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 Targets 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 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 Targets have the capacity,
including the necessary personnel, equipment and supplies,
to materially perform all its obligations under all such
Contracts.
(ad) Compliance with Laws. The Targets 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. The Targets
are not in default under any such statutes, regulations,
by-laws, orders, covenants, restrictions or plans applicable
to it. Neither the Targets nor any of their directors,
officers, agents, employees or other Persons acting on
behalf of either Target have, directly or indirectly, used
any corporate funds of either Target for unlawful
contributions, gifts, entertainment or other unlawful
expenses relating to political activity, made any unlawful
payments on behalf of either 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 either Target or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment on
behalf of either Target.
(ae) Leased Premises. The occupation and use to which the leased
---------------
premises of either Target have been put by either Target 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 permit
the operation of business and the intended use to be made of
the leased premises. There are no outstanding work orders
against the leased premises of either Target or any part
thereof nor are there any matters under discussion between
either Target and any governmental or municipal authority
which may give rise to work orders.
(af) Environmental Matters. To the Best Knowledge of the
---------------------
Shareholder, the buildings and premises at which the Targets
carry on business do 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 Targets in all material
respects comply with all applicable environmental statutes,
regulations and decrees, whether federal, state or
municipal. The Targets have not received any notices to the
effect that the businesses carried on by the Targets are 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 Targets have made all payments
required to be made by it in connection therewith. All
employee plans requiring funding on the part of the Targets
are fully funded. The Targets do not have any employees
receiving or claiming long term disability benefits or
workers' compensation benefits. No notice has been received
by the Targets of any complaints filed by any employees
claiming that the Targets have violated any applicable
employee or human rights or similar legislation in any other
jurisdiction in which the Targets carry on business or of
any complaints or proceedings of any kind involving the
Targets or any employees of the Targets before any labor
relations board. There are no outstanding orders or charges
against any the Targets under any applicable health and
safety legislation in the jurisdictions in which the Targets
carry on business. All levies, assessments and penalties
made against the Targets pursuant to any applicable workers'
compensation legislation in any jurisdictions in which the
Targets carries on business have been paid by the Targets
and the Targets have been reassessed under any such
legislation during the past 3 years. The Targets 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 the Shareholder is not aware of
any current attempts to organize or establish any labor
union or employee association relating to the Targets. The
Targets have not entered into any agreement or made any
arrangements with any employees an consultants which would
have the effect of depriving the Targets 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 Shareholder
directly with Buyer without the intervention of any other
Person on behalf of the Shareholder in such manner as to
give rise to any valid claim against Buyer for a brokerage
commission, finder's fee or other like payment and the
Shareholder will indemnify and save harmless Buyer 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 Targets Shares and the Assets seeking full
information as to the Targets.
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. The 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
Survival Period such covenant, representation or warranty shall, for
the purposes of such claim, survive the Survival Period until such
claim is finally resolved and all obligations with respect thereto
have been fully satisfied.
6. INDEMNITY
---------
6.1 Indemnity by Buyer. Buyer agrees to indemnify and save harmless
------------------
the Shareholder from all Losses actually incurred by the Shareholder
as a result of any breach by Buyer or any inaccuracy of any covenant,
representation or warranty contained in this Agreement.
6.2 Indemnity by the Shareholder. The Shareholder agrees to indemnify
----------------------------
and save harmless Buyer from all Losses actually incurred by Buyer as
a result of:
(a) Any breach by the Shareholder or any inaccuracy of any
covenant, representation or warranty contained in this
Agreement.
(b) All debts, liabilities and claims whatsoever (whether
accrued, absolute, contingent or otherwise) of the Targets
as at the Reference Date which are not disclosed on,
provided for, reserved for or included in the balance sheets
forming part of the Targets Financial Statements or which
did not arise in the ordinary course of business since the
date of the Targets 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
Targets Financial Statement.
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 Buyer during the
period commencing on the Reference Date and terminating at the close
of business on the Closing Date, the Shareholder; (i) shall not make
nor shall the Shareholder permit to be made any material change in the
way of the Targets are being operated; and (ii) shall comply with all
laws in connection with the business of the Targets.
8. CONDITIONS PRECEDENT TO THE SHAREHOLDER'S OBLIGATIONS AT CLOSING
----------------------------------------------------------------
8.1 Conditions Precedent. All obligations of the Shareholder to sell
--------------------
the Targets Shares and the Assets at Closing under this Agreement are
subject to the fulfillment (or waiver in writing by the Shareholder)
prior to or at the Closing of each of the following conditions:
(a) Covenants, Representations and Warranties. The covenants,
-----------------------------------------
representations and warranties made by Buyer in or under
this Agreement shall be true in all material respects on and
as of the Closing Date and the Shareholder shall have
received from Buyer 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 and delivery of the Security
Documents as contemplated in this Agreement and all other
related legal matters shall have been approved by the
Shareholder and the Shareholder shall have been furnished
with such certified copies of actions and proceedings and
other such instruments and documents as the Shareholder
shall have requested.
(c) Approvals. Buyer shall have received all requisite
---------
regulatory approvals and board of director approvals in
connection with the Transaction.
(d) Compliance with Covenants. Buyer shall have complied with
-------------------------
all covenants and agreements herein agreed to be performed
or caused to be performed by Buyer.
(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 Shareholder as
may be required in order to permit the completion of the
Transaction as provided in this Agreement.
(f) Corporate Authorizations. Buyer shall have delivered to the
------------------------
Shareholder evidence satisfactory to the Shareholder that
all necessary corporate authorizations by 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
reasonable judgment of the Shareholder 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 reasonable satisfaction of the
Shareholder, the Shareholder may rescind this Agreement by notice to
Buyer 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 Shareholder without prejudice to
the Shareholder's rights of rescission in the event of the
non-fulfillment of any other condition or conditions, any such waiver
to be binding on the Shareholder only if the same is in writing.
9. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS AT CLOSING
------------------------------------------------------
9.1 Conditions Precedent. All obligations of Buyer to purchase the
--------------------
Targets Shares this Agreement are subject to the fulfillment (or
waiver in writing by Buyer) 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 Targets Shares and
all other related legal matters shall have been approved by
Buyer and Buyer shall have been furnished with such
certified copies of actions and proceedings and other such
instruments and documents as Buyer shall have requested.
(b) Covenants, Representations and Warranties. The covenants,
-----------------------------------------
representations and warranties made by the Shareholder in or
under this Agreement shall be true in all material respects
on and as of the Closing Date and Buyer shall have received
from the Shareholder a certificate signed as of the Closing
Date and to such effect.
(c) Approvals. Buyer shall have received all requisite
---------
regulatory approval including without limitation board of
director approvals in connection with the Transaction.
(d) Resignations. All of the directors and officers of the
------------
Targets shall have resigned as directors and officers of the
Targets in favor of nominees of Buyer and the resigning
directors and officers of the Targets shall have delivered
releases to the Targets and Buyer in form and substance
reasonably satisfactory to Buyer.
(e) Compliance with Covenants. The Shareholder shall have
-------------------------
complied with all covenants and agreements herein agreed to
be performed or caused to be performed by the Shareholder.
(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 Buyer as may be required in order
to transfer the Targets Shares at Closing as herein
provided.
(g) Permits and Licenses. Buyer shall have been furnished with
--------------------
evidence that the Targets hold all valid permits and
licenses as may be requisite for carrying on business.
(h) Corporate Authorizations. Shareholder shall have delivered
------------------------
to Buyer evidence satisfactory to Buyer that all necessary
corporate authorizations by the Shareholder and the Targets
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 Buyer 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 Buyer, Buyer may
rescind this Agreement by notice to the Shareholder 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
Buyer without prejudice to Buyer's rights of rescission in the event
of the non-fulfillment of any other condition or conditions, any such
waiver to be binding on Buyer 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 Shareholder, to:
American Eco Corporation
Attn: Michael E. McGinnis
11011 Jones Road
Houston, Texas 77070
(b) if to Buyer, to:
Eurostar Interests, Ltd.
c/o Consolidated Services, Ltd.
14 Par-la-ville Road
3rd Floor
Hamilton HM JX, Bermuda
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.
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. This Agreement shall inure to the benefit of and be
----------
binding upon the Parties and their respective successors and 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.
*****
IN WITNESS WHEREOF the Parties have duly executed this Agreement,
in multiple counterparts, as of the date and year first above written.
SHAREHOLDER:
AMERICAN ECO CORPORATION
BY: /s/ Michael E. McGinnis
-----------------------------
NAME: Michael E. McGinnis
---------------------------
TITLE: President/CEO
--------------------------
BUYER:
EUROSTAR INTERESTS, LTD.
/s/ Chris Almanaz
--------------------------------
Authorized Agent
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> AUG-31-1997
<CASH> 5,330
<SECURITIES> 0
<RECEIVABLES> 43,372
<ALLOWANCES> 0
<INVENTORY> 16,642
<CURRENT-ASSETS> 100,706
<PP&E> 42,225
<DEPRECIATION> 2,640
<TOTAL-ASSETS> 197,711
<CURRENT-LIABILITIES> 44,976
<BONDS> 0
0
0
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</TABLE>
