<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 20, 1999
REGISTRATION NO. 333-87045
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
MAVERICK TUBE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 43-1455766
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
16401 SWINGLEY RIDGE ROAD, SEVENTH FLOOR
CHESTERFIELD, MISSOURI 63017
(636) 733-1600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
GREGG M. EISENBERG, PRESIDENT
16401 SWINGLEY RIDGE ROAD, SEVENTH FLOOR
CHESTERFIELD, MISSOURI 63017
(636) 733-1600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
------------------------------
WITH COPIES TO:
ROBERT H. WEXLER, ESQ. GENE J. OSHMAN, ESQ.
GALLOP, JOHNSON & NEUMAN, L.C. BAKER & BOTTS, L.L.P.
1600 INTERCO CORPORATE TOWER ONE SHELL PLAZA
101 SOUTH HANLEY 910 LOUISIANA STREET
ST. LOUIS, MISSOURI 63105 HOUSTON, TEXAS 77002
TELEPHONE: (314) 862-1200 TELEPHONE: (713) 229-1234
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As
soon as practicable after this registration statement becomes
effective.
If the only securities being registered on this form are being
offered pursuant to dividend or interest reinvestment plans, please
check the following box: / /
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933, other than securities offered only in
connection with dividend or interest reinvestment plans, check the
following box: / /
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for
the same offering: / /
If this form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box: / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATES OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
===============================================================================
<PAGE>
<PAGE>
***************************************************************************
* WE WILL AMEND AND COMPLETE THE INFORMATION IN THIS PROSPECTUS. *
* ALTHOUGH WE ARE PERMITTED BY US FEDERAL SECURITIES LAW TO OFFER THESE *
* SECURITIES USING THIS PROSPECTUS, WE MAY NOT SELL THEM OR ACCEPT YOUR *
* OFFER TO BUY THEM UNTIL THE DOCUMENTATION FILED WITH THE SEC RELATING *
* TO THESE SECURITIES HAS BEEN DECLARED EFFECTIVE BY THE SEC. THIS *
* PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES OR OUR SOLICITATION *
* OF YOUR OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THAT *
* WOULD NOT BE PERMITTED OR LEGAL. *
***************************************************************************
SUBJECT TO COMPLETION, DATED SEPTEMBER 15, 1999
2,000,000 SHARES
[Maverick Tube Corporation Logo]
COMMON STOCK
-------------
We are selling 2,000,000 shares of our common stock. Our common
stock is traded on the Nasdaq National Market under the symbol
"MAVK." On September 15, 1999, the reported last sale price of our
common stock on the Nasdaq National Market was $19.50 per share.
-------------------
YOU SHOULD CONSIDER THE RISKS WHICH WE HAVE DESCRIBED IN "RISK
FACTORS" BEGINNING ON PAGE 8 BEFORE BUYING SHARES OF OUR COMMON
STOCK.
-------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
---------------------- ----------------------
<S> <C> <C>
Public offering price................................ $ $
Underwriting discount................................ $ $
Proceeds, before expenses, to us..................... $ $
</TABLE>
-------------------
The underwriters may purchase up to an additional 300,000 shares
from us at the public offering price, less the underwriting
discount, within 30 days from the date of this prospectus to cover
over-allotments.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
Raymond James & Associates, Inc., on behalf of the underwriters,
expects to deliver the shares to purchasers on or about
, 1999.
-------------------
RAYMOND JAMES & ASSOCIATES, INC.
MORGAN KEEGAN & COMPANY, INC.
The date of this Prospectus is , 1999.
<PAGE>
[PHOTO]
<PAGE>
You should rely only on the information contained in this
prospectus. We have not, and the underwriters have not, authorized
any other person to provide you with different information. If
anyone provides you with different or inconsistent information, you
should not rely on it. We are not, and the underwriters are not,
making an offer to sell these securities in any jurisdiction where
the offer or sale is not permitted. You should assume that the
information appearing in this prospectus is accurate as of the date
on the front cover of this prospectus only. Our business, financial
condition, results of operations and prospects may have changed
since that date.
-------------------
FORWARD-LOOKING STATEMENTS
We make forward-looking statements in this prospectus and in our
public documents that are incorporated by reference, which represent
our expectations or beliefs about future events and financial
performance. You can identify these statements by forward-looking
words such as "expect," "believe," "anticipate," "goal," "plan,"
"intend," "estimate," "may," "will" or similar words. Similarly, any
discussions about our large-diameter facility or its products and
any other statement that is not a historical fact is a
forward-looking statement. Forward-looking statements are subject to
known and unknown risks, uncertainties and assumptions, including:
* oil and gas price volatility;
* steel price volatility;
* domestic and foreign competitive pressures;
* fluctuations in industry-wide inventory levels;
* the presence or absence of governmentally imposed trade
restrictions;
* asserted and unasserted claims;
* our ability and the ability of entities with which we do
business to modify or redesign our and their computer systems
to work properly in the year 2000; and
* those other risks and uncertainties described under "Risk
Factors" and elsewhere in this prospectus and in our other
filings with the Securities and Exchange Commission.
In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this prospectus might not occur.
In addition, actual results could differ materially from those
suggested by the forward-looking statements. Accordingly, you should
not place undue reliance on the forward-looking statements. We
undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise.
3
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information from this
prospectus and may not contain all of the information that is
important to you. To understand this offering fully, you should read
the entire prospectus carefully, including the risk factors and the
financial statements and related notes, before you decide whether to
invest in our common stock. Unless we state otherwise,
all financial information and share and per share data in this
prospectus (1) assume that the underwriters do not exercise their
over-allotment option and (2) do not include shares reserved for
issuance under our stock option plans. Unless the context otherwise
requires, "we," "us," "our" or "Maverick" refers to Maverick Tube
Corporation and its subsidiaries.
OUR COMPANY
We are a leading domestic producer of tubular steel products
used in energy and industrial applications. We manufacture "oil
country tubular goods," which are steel tubular products used in the
completion and production of oil and natural gas wells. We also
serve the energy industry by manufacturing line pipe, which is used
primarily in the transportation of oil and natural gas. For
industrial applications, we manufacture structural tubing and
standard pipe. We also recently began producing "cold drawn tubing,"
which is used as a component of high quality products that require
close tolerances. During fiscal 1998, energy products accounted for
approximately 70% of our total revenues.
Manufacturers produce oil country tubular goods and line pipe
through both the electric resistance welded and seamless processes.
We produce only electric resistance welded pipe, which is generally
a lower priced, comparable quality alternative to seamless pipe in
many applications. We produce oil country tubular goods to meet or
exceed applicable American Petroleum Institute specifications. We
are also capable of manufacturing products in custom or proprietary
grades. Virtually all of our oil country tubular goods and line pipe
are fully completed or "end-finished" at our facilities. In
contrast, some of our competitors outsource the end-finishing of
their products or do not end-finish their products at all. The
principal uses of our energy industry products include:
OIL COUNTRY TUBULAR GOODS
-------------------------
* Surface casing to protect underground
formations while drilling
* Production casing to line wells for
completion
* Production tubing to convey oil and
gas to the surface
LINE PIPE
---------
* Surface production flow lines
* Gathering systems
* Pipeline distribution systems
for oil and gas
Structural tubing is an electric resistance welded product and
has a square, round or rectangular cross-section depending on the
end use. We believe structural tubing is an attractive alternative
to other structural steel forms, such as I-beams and H-beams, as
tubing products offer strength and other product characteristics
similar to beams, but with less steel content, resulting in lower
costs to the end user in many applications. We also produce standard
pipe products that are used in a variety of industrial applications.
The cold drawn tubing market is made up of mechanical or pressure
tubing used for applications that require closer tolerances and/or a
better surface finish than ordinary electric resistance welded or
seamless products.
4
<PAGE>
The principal uses of our industrial products include:
STRUCTURAL TUBING
-----------------
*Construction, including building columns, handrails and bridge
frames
*Transportation, including boat trailers
*Agricultural, including farm implement components
*Material handling, including storage rack systems and conveying
systems support
*Recreational, including exercise equipment
STANDARD PIPE
-------------
*Steam, water and gas lines
*Plumbing
*Heating
COLD DRAWN TUBING
-----------------
*Hydraulic and pneumatic cylinder stock
*Industrial shapes
*Conveyor rollers
*Axles and steering columns
*Motor housings
OUR BUSINESS STRATEGY
Increase market share by expanding our existing product lines.
We believe that the expansion of our product lines in both the
energy and industrial segments of our business has allowed us to
increase our market share by capitalizing on our existing customer
relationships to market additional products. Our planned
construction and equipping of the new large-diameter facility
discussed below is an important part of this strategy.
Identify and enter new markets. We continually seek and make
acquisitions and capital expenditures to enter new markets as
evidenced by our entry into the structural tube market in 1994, and
our recent entry into the cold drawn tubular market. We intend to
seek additional opportunities to expand our business to new markets
where we believe we can compete effectively and profitably.
Continually improve the efficiency of our manufacturing process.
We intend to continue to pursue our objective of being a low-cost,
high-volume producer of quality steel-tubular products by
seeking to:
* maintain product manufacturing cost controls;
* maximize production yields from raw materials;
* make capital expenditures designed to lower costs and improve
quality;
* minimize unit production costs through effective utilization
of plant capacity; and
* minimize freight costs.
Deliver quality products and service to our customers. We
believe that we have achieved an excellent reputation with our
existing customers. We intend to continue to build long-term
customer relationships with new and existing customers by seeking
to:
* offer broad-based product lines;
* focus on product availability;
* deliver competitively priced quality products; and
* provide a high level of customer support before and after the
sale.
5
<PAGE>
PRODUCT LINE EXPANSION
To further our growth and enhance our ability to compete in our
energy and industrial businesses, we plan to expand our current
product lines to include larger diameter pipe and tubing products.
As the focal point to this expansion, we intend to construct and
equip a new large-diameter facility immediately adjacent to our
current facilities in Hickman, Arkansas, at an estimated cost of $35
million. We have chosen this strategic location for the new facility
to achieve significant cost-saving advantages. These advantages
include:
* utilization of lower-cost, non-union labor;
* access to rail, truck and barge transportation;
* proximity to the Nucor Corporation steel mill, Maverick's
primary steel supplier; and
* shared overhead.
Based principally on historical product relationships, we
estimate that our current product size range allows us to compete
for approximately 49% of the total tons consumed in all of the
markets we serve. We believe that our expansion into the production
of larger diameter pipe and tubing products should allow us to
compete for approximately 67% of the total tons consumed in these
markets. This represents an increase of approximately 37% of the
total tons consumed for which we can compete in the markets we
serve.
We recently entered into a definitive agreement for the purchase
of a significant portion of the equipment required for the new
large-diameter facility for a purchase price of $11.75 million.
Although consummation of this purchase is subject to various
conditions, we expect to close the transaction in January 2000. We
believe we will begin limited production of select industrial and
energy products at the new facility by July 2000 with full
production capability of all products by October 2000.
We were incorporated in Missouri in 1977 and reincorporated in
Delaware in 1987. Our principal executive offices are located at
16401 Swingley Ridge Road, Seventh Floor, Chesterfield, Missouri
63017 and our telephone number is (636) 733-1600.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by us...................... 2,000,000 shares
Common stock outstanding after the
offering........................................ 17,440,474 shares<F1>
Use of proceeds................................. We intend to use the proceeds to fund the
construction and equipping of a new large-diameter
facility and to provide working capital when the
new facility is in full operation. Any remaining
proceeds will be used for general corporate
purposes.
Nasdaq National Market symbol................... MAVK
<FN>
- -------------------
<F1> Includes 3,000 shares issued after June 30, 1999 upon the exercise of
stock options.
</TABLE>
RISK FACTORS
You should consider the risks discussed in "Risk Factors" and
elsewhere in this prospectus before deciding to invest in our common
stock.
6
<PAGE>
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE, TONS SHIPPED AND PER TON AMOUNTS)
The following table summarizes our financial information. You
should read this information in conjunction with our consolidated
financial statements, and the sections titled "Selected Consolidated
Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
---------------------------------------------------- -------------------
1994 1995<F1> 1996<F2> 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................... $124,843 $167,896 $204,182 $291,060 $265,389 $213,617 $118,410
Cost of goods sold...................... 117,833 159,865 182,042 252,803 232,038 183,843 118,047
-------- -------- -------- -------- -------- -------- --------
Gross profit............................ 7,010 8,031 22,140 38,257 33,351 29,774 363
Selling, general and administrative..... 4,896 7,728 10,198 13,966 14,815<F3> 9,335 10,528
Start-up costs.......................... 392 245 -- -- -- -- 2,496<F4>
-------- -------- -------- -------- -------- -------- --------
Income (loss) from operations........... 1,722 58 11,942 24,291 18,536 20,439 (12,661)
Interest expense........................ 1,125 3,164 2,522 2,067 1,731 1,274 1,261
Other income............................ -- 772 -- -- -- 61 360
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes....... 597 (2,334) 9,420 22,224 16,805 19,226 (13,562)
Provision (credit) for income taxes..... 168 -- 1,882 7,339 5,420 6,619 (4,874)
-------- -------- -------- -------- -------- -------- --------
Net income (loss)....................... $ 429 $ (2,334) $ 7,538 $ 14,885 $ 11,385 $ 12,607 $ (8,688)
======== ======== ======== ======== ======== ======== ========
Diluted earnings (loss) per share....... $ 0.04 $ (0.16) $ 0.50 $ 0.97 $ 0.73 $ 0.81 $ (0.56)
Average shares deemed outstanding....... 12,845 14,920 15,000 15,282 15,564 15,635 15,437
OTHER DATA:
Depreciation and amortization........... $ 3,395 $ 4,691 $ 5,201 $ 5,697 $ 6,172 $ 4,313 $ 5,471
Capital expenditures.................... 20,759 5,592 5,497 9,537 22,181 8,053 11,976
EBITDA<F5>.............................. 5,117 5,521 17,143 29,988 24,708 24,813 (6,830)
Tons shipped:
Energy products..................... 206,151 203,775 230,504 334,928 263,243 215,656 118,296
Industrial products................. 8,501 72,600 114,728 135,029 164,973 122,654 113,198
Average selling price per ton<F6>:
Energy products..................... $ 570 $ 609 $ 620 $ 655 $ 683 $ 691 $ 558
Industrial products................. -- 527 484 483 477 480 447
<CAPTION>
JUNE 30, 1999
-------------------------
AS
ACTUAL ADJUSTED<F7>
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital................................................................................ $ 37,712 $ 37,712
Total assets................................................................................... 145,390 180,390
Current maturities of long-term debt........................................................... 694 694
Long-term debt (less current maturities)....................................................... 7,669 7,669
Revolving credit facility...................................................................... 22,300 20,868
Stockholders' equity........................................................................... 81,375 117,807
<FN>
- ------------------------
<F1> The fiscal year ended September 30, 1995 is the first reporting period
which includes results of operations of our structural tube facility which
began operations in October 1994.
<F2> Includes the one-time effect of the change in accounting practice which
resulted in a reduction in net sales, gross profit, net income and diluted
earnings per share of $8,700,000, $1,000,000, $839,000 and $0.06,
respectively.
<F3> Includes a write-down of software costs of $1,605,000.
<F4> The nine months ended June 30, 1999 is the first reporting period which
includes results of operations of our cold drawn tubing facility which
began operations in October 1998.
<F5> EBITDA represents earnings before interest, income taxes, depreciation and
amortization. We believe EBITDA is a widely accepted, supplemental
financial measurement used by many investors and analysts to analyze and
compare companies' performances. However, EBITDA should not be considered
as an alternative to income from operations or to cash flows from
operating, investing or financing activities, as determined in accordance
with generally accepted accounting principles. EBITDA should also not be
construed as an indication of a company's operating performance or as a
measure of liquidity. Management's discretionary use of funds depicted by
EBITDA may be limited by working capital, debt service and capital
expenditure requirements and by restrictions related to legal
requirements, commitments and uncertainties. Because EBITDA excludes some,
but not all, items that affect net income and because these measures may
vary among companies, the EBITDA data presented above may not be
comparable to similarly titled measures of other companies.
<F6> Includes only "prime" products which exclude scrap and secondary sales,
product returns and selling allowances.
<PAGE>
<F7> As adjusted to give effect to our sale of 2,000,000 shares of common stock
under this prospectus at an assumed price of $19.50 per share and the
application of the net proceeds. See "Use of Proceeds" for a description
of our plans for the offering proceeds.
</TABLE>
7
<PAGE>
<PAGE>
RISK FACTORS
Investing in our common stock will provide you with an equity
ownership in Maverick. Performance of your shares will reflect the
performance of our business related to, among other things, our
competition, general, economic and market conditions and industry
conditions. The price of our stock may decline and could lower the
value of your investment. You should carefully consider the
following factors as well as other information contained in this
prospectus before deciding whether to invest in shares of our common
stock.
FLUCTUATIONS IN OIL AND NATURAL GAS PRICES COULD ADVERSELY AFFECT US
BECAUSE WE SELL A SIGNIFICANT PORTION OF OUR PRODUCTS TO THE ENERGY
INDUSTRY.
Our principal products consist of oil country tubular goods and
line pipe. Sales of these products to the energy industry constitute
the most significant source of our revenues. In fact, revenues from
the sale of oil country tubular goods and line pipe to the energy
industry accounted for approximately 56%, 70%, 77% and 72% of our
total sales for the nine months ended June 30, 1999, fiscal 1998,
fiscal 1997 and fiscal 1996, respectively. Demand for these products
depends primarily upon the number of oil and natural gas wells being
drilled, completed and worked over in the United States and Canada
and the depth and drilling conditions of those wells. The level of
these activities are primarily dependent on current and anticipated
oil and natural gas prices. Many factors, such as the supply and
demand for oil and natural gas, general economic conditions and
global weather patterns, affect these prices. As a result, the
future level and volatility of oil and natural gas prices are
uncertain.
Since January 1998, oil and natural gas prices have been
declining and drilling levels have fallen significantly, resulting
in our incurring operating losses in each of the first three
quarters of fiscal 1999. Although oil and gas prices and, to a
lesser extent, drilling levels have recently improved, we expect to
incur an operating loss in the quarter ending September 30, 1999. We
expect the loss to be modestly lower than that incurred in our third
fiscal quarter. We cannot assure you that this recent recovery of
prices and drilling activity will be sustained or what its longer-term
effect will be on our business.
THE VOLATILITY AND CYCLICAL NATURE OF STEEL PRICES MAY ADVERSELY
AFFECT OUR BUSINESS.
Purchased steel represents slightly more than two-thirds of our
costs of goods sold. As a result, the steel industry, which is
highly volatile and cyclical in nature, affects our business both
positively and negatively. Numerous factors, most of which are
beyond our control, drive the cycles of the steel industry and
influence steel prices. Some of these factors are:
* general economic conditions;
* industry capacity utilization;
* import duties and other trade restrictions; and
* currency exchange rates.
Consistent with the cyclical nature of the steel industry, our
major supplier of steel announced three price decreases from
mid-September 1998 through November 1998 and has announced five
price increases since December 1998. Changes in steel prices can
affect the pricing levels of our products. In response to any
increases in steel costs, we seek to maintain our profit margin by
attempting to increase the price of our products. However, increases
in the prices of our products often do not fully compensate for
steel price increases and generally lag several months behind
increases in steel prices. As a result, we typically have a limited
ability to recover increases in steel costs.
8
<PAGE>
WE MAY LOSE BUSINESS TO COMPETITORS WHO ARE LARGER THAN US OR WHO
PRODUCE THEIR OWN STEEL.
Some of our competitors are larger and have greater financial
and marketing resources and business diversification than us. These
companies may be better able than us to successfully endure
downturns in either the energy or industrial sectors. Also, many of
our larger competitors are integrated steel producers--producers who
make their own raw materials rather than purchase their raw
materials in the open market. During periods of strong steel demand,
we may be at a competitive disadvantage to these integrated
competitors. As a result, we may lose business to any of these
competitors.
THE LEVEL OF IMPORTS OF OIL COUNTRY TUBULAR GOODS INTO THE U.S.
MARKET, WHICH HAS BEEN REDUCED BY TRADE RELIEF NOW IN PLACE, IMPACTS
DEMAND FOR OUR PRODUCTS.
The level of imports of oil country tubular goods, which has varied
significantly over time, affects the domestic oil country tubular
goods market. High levels of imports reduce the volume sold by domestic
producers and tend to suppress selling prices, both of which have an
adverse impact on our business. We believe that U.S. import levels are
affected by, among other things:
* U.S. and overall world demand for oil country tubular goods;
* the trade practices of and government subsidies to foreign
producers; and
* the presence or absence of antidumping and countervailing
duty orders.
Since 1986, the level of imports of oil country tubular goods from
Canada, Israel and Taiwan has been greatly reduced by the existence of
antidumping duty orders covering imports from these countries and a
countervailing duty order covering imports from Israel. In addition,
since 1995, the level of imports of oil country tubular goods from
Argentina, Italy, Japan, Korea and Mexico has been greatly reduced by
the existence of antidumping duty orders covering imports from these
countries and a countervailing duty order covering imports from Italy.
The orders also have had a beneficial impact on prices for oil country
tubular goods in the U.S. market.
Antidumping and countervailing duty orders require special duties
to be imposed in amounts designed to offset unfair pricing and government
subsidization, respectively. Once an order is in place, each year
foreign producers, importers, domestic producers and other parties may
request an "administrative review" to determine the duty rates to be
applied to imports during the preceding year, as well as the duty
deposit rates for future imports from the companies covered by the review.
In addition, a company that did not ship to the United States during the
original period examined by the U.S. government may request a "new
shipper review" to obtain its own duty rate on an expedited basis.
Antidumping and countervailing duty orders may be revoked as a result
of periodic "sunset reviews." An individual exporter also may obtain
revocation as to itself under certain circumstances. The U.S. government
is now conducting sunset reviews of the orders covering Canada and Taiwan,
which are expected to be completed by May 2000. The U.S. government is
scheduled to conduct sunset reviews of the orders covering Argentina,
Italy, Japan, Korea and Mexico beginning in August 2000. These reviews are
expected to be completed by August 2001. The U.S. government will revoke
the antidumping and countervailing duty orders covering imports from Israel
effective January 1, 2000, because the domestic industry did not request
sunset reviews of these orders based on its belief that imports from Israel
are not significant in the U.S. oil country tubular goods market. If the
orders covering imports from Argentina, Canada, Italy, Japan, Korea, Mexico
and Taiwan are revoked in full or in part or the duty rates lowered, we
could be exposed to increased competition from imports that could have a
material adverse effect on our business.
9
<PAGE>
INDUSTRY INVENTORY LEVELS AFFECT OUR SALES AND NET INCOME.
Industry inventory levels of our products, and in particular oil
country tubular goods, can change significantly from period to
period. These changes can have a direct adverse effect on the demand
for new production of energy and industrial products when customers
draw from inventory rather than purchase new products. Although
industry inventory levels of oil country tubular goods have steadily
declined through the nine months ended June 30, 1999, we believe
that industry-wide oil country tubular goods inventory is still at
or above normal levels in relation to current demand. Additionally,
through the nine months ended June 30, 1999, months of supply of
inventory, which defines the level of inventory in terms of current
monthly demand, have fluctuated due to contracting demand. The above
normal industry inventory levels and upward fluctuations in months of
supply of inventory have had and may continue to have an adverse impact
on us.
OUR PLANS FOR THE NEW LARGE-DIAMETER FACILITY MAY NOT BE SUCCESSFUL.
An important part of our growth strategy is our ability to
successfully expand our current product lines, offer new product
lines and enter new markets. We are devoting significant resources
to this strategy. To this end, we are currently planning to open a
new large-diameter facility that will produce products with larger
diameters than we currently manufacture. Opening the new facility
may expose us to risks including:
* intense competition in the larger diameter product lines;
* the current industry-wide overcapacity in these product lines;
and
* potential unforeseen or higher than expected costs.
Any of these risks could adversely affect or prevent the success of
the new facility.
OUR COLD DRAWN TUBING BUSINESS MAY NOT BE SUCCESSFUL.
Our recent entry into the cold drawn tubing market has required
capital expenditures of approximately $13.7 million as of June 30,
1999. We have not generated a profit to date and cannot assure you
that we will be successful in achieving significant sales levels or
profitability in the cold drawn tubing market.
SEASONAL FLUCTUATIONS WHICH AFFECT OUR CUSTOMERS MAY AFFECT DEMAND
FOR OUR PRODUCTS.
We, as well as the oil country tubular goods industry in
general, experience seasonal fluctuations in demand for our
products. For instance, weather conditions during the first half of
the calendar year normally make drilling operations more difficult.
For this reason, domestic drilling activity and the corresponding
demand for our oil country tubular goods generally will be lower
during our second and third fiscal quarters, as compared with the
first and fourth fiscal quarters. We also believe we experience
seasonal fluctuations in demand for our industrial products,
particularly those sold to the automotive industry. However, the
timing of such fluctuations may differ from fluctuations experienced
in the oil country tubular goods industry.
WE DEPEND ON A FEW SUPPLIERS FOR A SIGNIFICANT PORTION OF OUR STEEL,
AND A LOSS OF ONE OR MORE SIGNIFICANT SUPPLIERS COULD AFFECT OUR
ABILITY TO PRODUCE OUR PRODUCTS.
In fiscal 1998, we purchased 94% of the steel for our Arkansas
facilities from a single supplier, and 80% of the steel for our
Texas facility from three suppliers. This same pattern has continued
through the first nine months of fiscal 1999. The loss of any of
these suppliers or interruption of production at one or more of the
suppliers could have a material adverse effect on our business,
financial condition and results of operations.
10
<PAGE>
WE DEPEND ON A FEW DISTRIBUTORS FOR A SIGNIFICANT PORTION OF OUR NET
SALES OF OIL COUNTRY TUBULAR GOODS, AND A LOSS OF ONE OR MORE
SIGNIFICANT DISTRIBUTORS COULD AFFECT OUR ABILITY TO SELL OUR
PRODUCTS.
In fiscal 1998 and fiscal 1996, one distributor, National
Oilwell Supply, Inc., accounted for 14% and 16%, respectively, of
our net sales. In fiscal 1997, two distributors, National Oilwell
and Master Tubulars, Inc., accounted for 25% of our net sales. Four
distributors, including National Oilwell, have recently combined to
become Sooner Pipe & Supply Corp., one of the largest distributors
of oil country tubular goods. Sooner has accounted for 14% of our
net sales for the nine months ended June 30, 1999. We cannot yet
determine whether this combination will have any significant impact
on our sales or margins. The loss of any these distributors could
have a material adverse effect on our business, financial condition
and results of operations.
THE OPERATIONS OF OUR CUSTOMERS EXPOSE US TO POTENTIAL PRODUCTS
LIABILITY CLAIMS.
Drilling for oil and natural gas involves a variety of risks
that can result in significant losses. Actual or claimed defects in
our products may give rise to claims against us for these losses.
The use of structural tubing can also involve risks. Actual or
claimed defects in these pipe and tubing products can also expose us
to claims for damages. We maintain insurance coverage against
potential product liability claims in amounts which we believe to be
adequate. We have not historically incurred material product
liability costs, nor have we experienced difficulties in obtaining
or maintaining adequate product liability insurance coverage.
However, we may incur product liability in excess of our insurance
coverage or incur other uninsured costs, and we may not be able to
maintain adequate insurance coverage levels in the future.
COMPLIANCE WITH AND CHANGES TO LAWS REGULATING THE OPERATION OF OUR
BUSINESS COULD ADVERSELY AFFECT OUR PERFORMANCE.
Our business is subject to numerous local, state and federal
laws and regulations concerning environmental and safety matters. We
cannot assure you that future changes and compliance within these
laws and regulations will not have a material effect on our
operations.
PROVISIONS IN OUR CORPORATE DOCUMENTS AND DELAWARE LAW COULD DELAY
OR PREVENT A CHANGE IN CONTROL OF MAVERICK.
The existence of some provisions in our corporate documents and
Delaware law could delay or prevent a change in control of Maverick,
even if that change might be beneficial to our stockholders. Our
certificate of incorporation and bylaws contain provisions that may
make acquiring control of Maverick difficult, including:
* provisions limiting the right to call special meetings of our
stockholders;
* provisions regulating the ability of our stockholders to bring
matters for action at annual meetings of our stockholders;
* a prohibition against action by our stockholders by written
consent; and
* the authorization to issue and set the terms of preferred
stock.
In addition, we have adopted a stockholder rights plan that would
cause extreme dilution to any person or group who attempts to
acquire a significant interest in Maverick without advance approval
of our Board of Directors, while Delaware law would impose some
restrictions on mergers and other business combinations between us
and any holder of 15% or more of our outstanding common stock. See
"Description of Capital Stock."
11
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds we will receive from this
offering of common stock will be approximately $36.4 million. We
anticipate using the net proceeds of this offering to:
* purchase approximately $25 million of equipment for use at our
new large-diameter facility; and
* pay approximately $10 million in expenses to relocate some of
the equipment described above and construct the new facility.
The balance will be used to provide working capital for the new
facility after it becomes fully operational and for general
corporate purposes. Pending our use of the net proceeds we receive
from this offering, we may invest the proceeds in short-term
investments or repay a portion of our outstanding indebtedness under
our revolving credit facility.
We are currently seeking debt financing of up to $10 million
from the Arkansas Development and Finance Authority. This agency has
the authority to provide industrial revenue bond financing at
attractive interest rates for projects such as our new
large-diameter facility. To the extent we obtain this industrial
revenue bond financing, we will use an equal amount of the proceeds
of this offering that we would otherwise use for the construction
and equipping of the new facility to instead reduce our outstanding
indebtedness under our revolving credit facility.
Our revolving credit facility will expire on September 30, 2003
and bears interest at either the prevailing prime rate or an
adjusted Eurodollar rate, plus an interest margin, depending upon
certain financial measurements. As of June 30, 1999, the applicable
annual interest rate was 7.0%. See "Management Discussion and
Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" for more information about our
revolving credit facility.
PRICE RANGE OF COMMON STOCK
Our common stock is traded on the Nasdaq National Market under
the symbol "MAVK." The following table summarizes the high and low
closing sales prices of our common stock, as reported by the Nasdaq
National Market, for the periods indicated.
<TABLE>
<CAPTION>
PRICE RANGE
--------------------
HIGH LOW
-------- --------
<S> <C> <C>
FISCAL YEAR 1999
First Quarter......................................... 8 15/16 5 5/32
Second Quarter........................................ 7 5/16 5 1/2
Third Quarter......................................... 15 1/4 5 11/16
Fourth Quarter (through September 15)................. 22 11 7/8
FISCAL YEAR 1998
First Quarter......................................... 50 3/4 20 5/16
Second Quarter........................................ 25 3/4 14 5/8
Third Quarter......................................... 18 3/8 10 9/16
Fourth Quarter........................................ 11 1/4 5 3/8
FISCAL YEAR 1997
First Quarter......................................... 8 1/4 5 5/8
Second Quarter........................................ 9 1/2 6 1/8
Third Quarter......................................... 19 3/8 8 3/4
Fourth Quarter........................................ 41 3/4 17 1/8
</TABLE>
On September 15, 1999, the reported last sale price of our
common stock was $19.50 per share. As of July 31, 1999, there were 271
holders of record of our common stock, including brokerage firms and
other nominees.
12
<PAGE>
DIVIDEND POLICY
Our board of directors has not declared or paid any cash
dividends since our incorporation. Our board of directors does not
currently intend to declare any cash dividends in the foreseeable
future. Any payment of cash dividends in the future will depend
upon:
* our financial condition;
* our capital requirements;
* any contractual restrictions;
* our earnings; and
* any other factor our board of directors deems relevant.
The terms of our revolving credit facility restrict the amount of
dividends we can pay to our stockholders.
CAPITALIZATION
The following table sets forth our capitalization as of June 30,
1999, and as adjusted to reflect the offering of our common stock
and the application of the net proceeds from this offering as
described in "Use of Proceeds."
<TABLE>
<CAPTION>
JUNE 30, 1999
-------------------------
ACTUAL AS ADJUSTED<F1>
-------- ---------------
(IN THOUSANDS, EXCEPT
SHARE AMOUNTS)
<S> <C> <C>
Current maturities of capital lease obligations............. $ 694 $ 694
======== ========
Long-term debt, less current maturities:
Capital lease obligations............................... $ 7,669 $ 7,669
Revolving credit facility............................... 22,300 20,868
-------- --------
Total long-term debt, less current maturities....... 29,969 28,537
-------- --------
Stockholders' equity
Preferred stock, $0.01 par value, 5,000,000 shares
authorized............................................ -- --
Common stock, $0.01 par value, 40,000,000 shares
authorized, 15,437,474 shares issued and outstanding,
actual; and 17,437,474 shares issued and outstanding,
as adjusted........................................... 154 174
Additional paid-in capital.............................. 44,216 80,628
Retained earnings....................................... 37,005 37,005
-------- --------
Total stockholders' equity.......................... 81,375 117,807
-------- --------
Total capitalization................................ $111,344 $146,344
======== ========
<FN>
- -------------------
<F1> Reflects the issuance of 2,000,000 shares of common stock by us at an
assumed public offering price of $19.50 per share, resulting in estimated net
proceeds of $36.4 million, of which $20,000 (equal to the par value of the
shares issued) is reflected in common stock and the balance is reflected
in additional paid-in capital. We intend to use the proceeds from the
issuance of the common stock to construct and equip a new large-diameter
facility. We estimate the total cost of this project to be $35 million. We
may use the remaining proceeds to reduce outstanding borrowings under the
revolving credit facility.
</TABLE>
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
In the table below, we provide you with selected consolidated
financial data of Maverick. We have prepared this information using
the audited consolidated financial statements of Maverick for the
five years ended September 30, 1998 and unaudited consolidated
financial statements of Maverick for the nine-month period ended
June 30, 1998 and 1999. The unaudited financial statements include
all adjustments, consisting of normal recurring accruals, which we
consider necessary for a fair presentation of the financial position
and results of operations for those periods. Operating results for
the nine-month period ended June 30, 1999 are not necessarily
indicative of the results that may be expected for the entire year
ending September 30, 1999.
When you read this selected financial data, it is important that
you read along with it the consolidated financial statements and
related notes included herein, as well as "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
---------------------------------------------------- -------------------
1994 1995<F1> 1996<F2> 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................. $124,843 $167,896 $204,182 $291,060 $265,389 $213,617 $118,410
Cost of goods sold........................ 117,833 159,865 182,042 252,803 232,038 183,843 118,047
-------- -------- -------- -------- -------- -------- --------
Gross profit.............................. 7,010 8,031 22,140 38,257 33,351 29,774 363
Selling, general and administrative....... 4,896 7,728 10,198 13,966 13,210 9,335 10,528
Write-down of software costs.............. -- -- -- -- 1,605 -- --
-------- -------- -------- -------- -------- -------- --------
Total selling, general and
administrative.......................... 4,896 7,728 10,198 13,966 14,815 9,335 10,528
Start-up costs............................ 392 245 -- -- -- -- 2,496<F3>
-------- -------- -------- -------- -------- -------- --------
Income (loss) from operations............. 1,722 58 11,942 24,291 18,536 20,439 (12,661)
Interest expense.......................... 1,125 3,164 2,522 2,067 1,731 1,274 1,261
Other income.............................. -- 772 -- -- -- 61 360
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes......... 597 (2,334) 9,420 22,224 16,805 19,226 (13,562)
Provision (credit) for income taxes....... 168 -- 1,882 7,339 5,420 6,619 (4,874)
-------- -------- -------- -------- -------- -------- --------
Net income (loss)......................... $ 429 $ (2,334) $ 7,538 $ 14,885 $ 11,385 $ 12,607 $ (8,688)
======== ======== ======== ======== ======== ======== ========
Diluted earnings (loss) per share......... $ 0.04 $ (0.16) $ 0.50 $ 0.97 $ 0.73 $ 0.81 $ (0.56)
Average shares deemed outstanding......... 12,845 14,920 15,000 15,282 15,564 15,635 15,437
OTHER DATA:
Depreciation and amortization............. $ 3,395 $ 4,691 $ 5,201 $ 5,697 $ 6,172 $ 4,313 $ 5,471
Capital expenditures...................... 20,759 5,592 5,497 9,537 22,181 8,053 11,976
EBITDA<F4>................................ 5,117 5,521 17,143 29,988 24,708 24,813 (6,830)
BALANCE SHEET DATA:
Working capital........................... 23,111 30,272 32,652 44,992 60,362 60,477 37,712
Total assets.............................. 99,434 106,494 125,556 162,064 156,885 150,160 145,390
Current maturities of long-term debt...... 1,880 2,795 1,843 604 653 640 694
Long-term debt (less current
maturities)............................. 19,640 18,045 11,901 8,879 8,226 8,366 7,669
Revolving credit facility................. 4,000 15,000 13,250 10,000 27,400 17,000 22,300
Stockholders' equity...................... 51,837 49,503 57,247 77,868 90,063 90,636 81,375
<FN>
- ------------------------
<F1> The fiscal year ended September 30, 1995 is the first reporting period
which includes results of operations of our structural tube facility which
began operations in October 1994.
<F2> Includes the one-time effect of the change in accounting practice which
resulted in a reduction in net sales, gross profit, net income and diluted
earnings per share of $8,700,000, $1,000,000, $839,000 and $0.06,
respectively.
<F3> The nine months ended June 30, 1999 is the first reporting period which
includes results of operations of our cold drawn tubing facility which
began operations in October 1998.
<PAGE>
<F4> EBITDA represents earnings before interest, income taxes, depreciation and
amortization. We believe EBITDA is a widely accepted, supplemental
financial measurement used by many investors and analysts to analyze and
compare companies' performances. However, EBITDA should not be considered
as an alternative to income from operations or to cash flows from
operating, investing or financing activities, as determined in accordance
with generally accepted accounting principles. EBITDA should also not be
construed as an indication of a company's operating performance or as a
measure of liquidity. Management's discretionary use of funds depicted by
EBITDA may be limited by working capital, debt service and capital
expenditure requirements and by restrictions related to legal
requirements, commitments and uncertainties. Because EBITDA excludes some,
but not all, items that affect net income and because these measures may
vary among companies, the EBITDA data presented above may not be
comparable to similarly titled measures of other companies.
</TABLE>
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Our products include oil country tubular goods and line pipe
which are used in the energy industry. We also make structural
tubing and standard pipe for industrial applications. During the
first quarter of fiscal 1999, we began the production of cold drawn
tubing products for industrial applications. At June 30, 1999, sales
of cold drawn tubing had not reached material levels.
Energy Products. Demand for our energy related products depends
primarily upon the number of oil and natural gas wells being
drilled, completed and worked over in the United States and Canada
and the depth and drilling conditions of these wells. The level of
these activities are primarily dependent on oil and natural gas
prices. Domestic end-users obtain oil country tubular goods from
domestic and foreign pipe producers and from draw-downs of their or
distributors' inventories. According to published industry reports,
domestic drilling remained relatively constant from fiscal 1997 to
fiscal 1998 averaging approximately 900 rigs over those two years
with gas-related drilling increasing by 11.1% and oil related
drilling declining by 16.6%. However, for the nine months ended June
30, 1999, domestic drilling declined 37.9% with natural gas and oil
related drilling decreasing by 26.5% and 57.5%, respectively.
Average energy prices decreased during fiscal 1998, with natural gas
decreasing 8.6% and oil decreasing 25.7%. Energy prices continued to
decline through the nine months ended June 30, 1999, with natural
gas decreasing 18.9% and oil decreasing 14.1% from the same period
in the prior year. The decreases in energy prices had a negative
effect on drilling levels in the third and fourth quarter of fiscal
1998 and the first three quarters of fiscal 1999. At the end of
fiscal 1998, drilling was at 770 rigs, down 22.8% from its fiscal
1997 year-end level of 998 rigs, and continued to decline to 488
rigs which occurred in April 1999.
The following table illustrates certain factors related to
industry-wide domestic drilling activity, domestic energy prices,
domestic oil country tubular goods consumption, shipments, imports
and inventories for the periods presented:
<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS
ENDED SEPTEMBER 30, ENDED JUNE 30,
-------------------------- ----------------
1996 1997 1998 1998 1999
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
U.S. DRILLING ACTIVITY:
Average rig count................................ 759 905 903 943 586
AVERAGE U.S. ENERGY PRICES:
Oil per barrel (West Texas Intermediate)......... $20.33 $21.94 $16.94 $17.02 $14.62
Natural gas per MMBTU
(Henry Hub).................................... $ 2.53 $ 2.55 $ 2.33 $ 2.43 $ 1.97
U.S. OIL COUNTRY TUBULAR GOODS CONSUMPTION (IN TONS):
U.S. producer shipments (000's).................. 1,769 2,021 1,548 1,345 478
Imports (000's).................................. 191 360 402 315 100
Inventory (increase)/decrease (000's)............ (80) (299) (66) (217) 298
Used pipe (000's)................................ 94 187 139 83 83
Total consumption (000's).................... 1,974 2,269 2,023 1,526 959
</TABLE>
The rig count in the table is based on weekly rig count
reporting from Baker Hughes, Inc. calculated as follows: Fiscal 1996
- - 52 weeks ended September 27, 1996; Fiscal 1997 - 52 weeks ended
September 26, 1997; Fiscal 1998 - 53 weeks ended October 2, 1998; 9
months ended June 30, 1998 - 39 weeks ended June 26, 1998; 9 months
ended June 30, 1999 - 39 weeks ended July 2, 1999. U.S. consumption
of oil country tubular goods are management estimates based on our
estimate of per rig consumption of oil country tubular goods
multiplied by the Baker Hughes rig
15
<PAGE>
count. Total U.S. consumption (in thousands of tons) as reported by
Pipe Logix, Inc., an independent domestic oil country tubular goods
industry reporting service, for fiscal 1996, 1997, 1998, and the nine
months ended June 30, 1998 was 1,606, 1,943, 1,939, and 1,515 (nine
months ended June 30, 1999 not available). Imports are as reported by
the U.S. Census Bureau. Inventory (increase)/decrease are management
estimates based upon independent research by Duane Murphy and Associates.
Inventory (increase)/decrease (in thousands of tons) as reported by
Pipe Logix, Inc. for fiscal 1996, 1997, 1998, and the nine months ended
June 30, 1998 was (263), (717), (116), and (203) (nine months ended
June 30, 1999 not available). Used pipe quantities are calculated by
multiplying 8.3 recoverable tubing and casing tons (as determined by
independent research performed by Duane Murphy and Associates) by
the number of abandoned oil and gas wells as determined by the
completed wells per year as reported by the American Petroleum
Institute adjusted for the net change in active wells as reported by
World Oil. U.S. producer shipments are management estimates
calculated based on the components listed above. Energy prices in
the table are monthly average period prices as reported by Spears
and Associates for West Texas Intermediate grade crude oil
calculated by averaging the closing price each Friday during the
month and the Henry Hub monthly natural gas cash price calculated by
averaging weekly prices as reported by Natural Gas Week.
Competition from imports increased to an estimated 19.9% market
share during fiscal 1998 from an estimated 15.9% market share in
fiscal 1997. We believe that this increase is primarily attributable
to higher oil country tubular goods prices in the United States during
the first six months of the year. However, during the nine months
ended June 30, 1999, estimated import penetration declined to 10.4%
as drilling activity declined.
During fiscal 1998, industry inventory increases resulted in an
estimated additional demand of 3.3% of total domestic oil country
tubular goods consumption. However, this is significantly below the
13.2% of estimated additional demand from inventory increases in
1997, reflecting the downturn in drilling in 1998 as compared to
increased drilling activity during 1997. For the first nine months
of fiscal 1999, industry inventory decreases adversely affected
demand by satisfying an estimated 31.7% of consumption. We believe
that industry inventories are at or above normal levels in relation
to demand at June 30, 1999, as months of supply of inventory have
increased by approximately 2.7% from fiscal year end to 7.5 months.
During fiscal 1998, as a result of relatively constant drilling
activity, increased imports, and a smaller increase in industry
inventories, we estimate that total domestic shipments of oil
country tubular goods declined by 23.4% as compared to fiscal 1997.
During this period, our shipments of oil country tubular goods were
down 21.5% primarily due to decreased exports to Canada, where the
downturn in drilling was more significant than in the United States.
We estimate that our share of domestic oil country tubular goods
shipments increased to approximately 14% during fiscal 1998 from
approximately 13% during fiscal 1997.
During the nine months ended June 30, 1999, as a result of
declining drilling activity and a substantial decline in industry
inventories, partially offset by decreased imports, we estimate that
total domestic shipments declined by 64.4% as compared to the nine
months ended June 30, 1998. During the nine-month period in fiscal
1999, our shipments of domestic oil country tubular goods were down
45% from the comparable period in the preceding year. However, our
export sales, primarily to Canada, declined 59.9%. Accordingly, we
estimate that our share of domestic oil country tubular goods
shipments increased to approximately 20% during the nine months
ended June 30, 1999 from approximately 13% during the comparable
period in 1998.
Published information suggests that demand for line pipe
increased during fiscal 1998 by 30.9%. However, domestic shipments
only rose by 20% as import market share rose from 28.4% to 34.4%.
For the nine months ended June 30, 1999 as compared to the same
period for 1998,
16
<PAGE>
demand was down 7.9%. However, during this time, import penetration
remained relatively unchanged resulting in domestic shipments
decreasing by 7.5%.
Industrial Products. Given the numerous applications for our
industrial products, sources of demand for these products are
diversified. Demand generally depends on the general level of
economic activity in the construction, transportation, agricultural,
material handling and recreational segments, the use of structural
tubing as a substitute for other structural steel forms, such as
I-beams and H-beams, and draw downs of existing customer
inventories.
We estimate that the demand for structural tube products
increased by 11.2% in fiscal 1998 and total domestic shipments rose
by 10.7% as import market share increased slightly. For the nine
months ended June 30, 1999 as compared to the same period in 1998,
we estimate that demand increased 1.1% and total domestic shipments
remained flat as import market share increased slightly. According
to published reports, the standard pipe market demand increased by
2% in fiscal 1998, while total domestic shipments declined by 2.8%
as the import market share increased from 25.0% to 28.5%. For the
nine months ended June 30, 1999 as compared to the same period in
1998, standard pipe demand fell 17.9%, domestic shipments decreased
21.6% and the import market share increased from 27.5% to 33.5%.
General. Pricing of our products was mixed during fiscal 1998.
Pricing of oil country tubular goods rose by approximately 4.9%
during the year due to increased product pricing early in the year
and a favorable product mix. However, oil country tubular goods
pricing during the fourth fiscal quarter was down 3.4%. Line pipe
and standard pipe product pricing decreased by 4.5% and 2.7%,
respectively, primarily due to high levels of imports in fiscal
1998. Structural product pricing remained relatively constant.
During the nine months ended June 30, 1999, prices for all of our
products declined, with oil country tubular goods down 17.4%, line
pipe down 19.7%, standard pipe down 11.9%, and structural tubing
down 10.0%.
Steel costs included in cost of goods sold decreased during
fiscal 1998 by $18 per ton, or 5.3%, and decreased an additional
$41, or 12.6%, by June 30, 1999. Replacement costs for steel
fluctuated during fiscal 1998 as the cost increased by $10 per ton
in February and remained at that level until July. Our major
supplier of steel announced three price decreases from mid-
September 1998 to November 1998, reducing our replacement cost of
steel by $50 per ton. These price reductions were reflected in our
cost of goods sold in the second and third quarters of fiscal 1999.
However, this same supplier has announced five price increases since
December 1998. These price changes will increase our replacement
cost modestly through the end of December 1999. We estimate that
these cost increases will not be reflected in cost of goods sold
until the fourth quarter of fiscal 1999 and first quarter of fiscal
2000.
The supply of steel in the United States increased significantly
during calendar 1998, primarily due to previous capacity additions
and increased import levels. We anticipate that these market
conditions should help keep steel costs relatively low during the
remainder of fiscal 1999. However, steel trade cases filed by
domestic steel producers with the U.S. International Trade
Commission in September 1998 have been a contributing factor to the
recent steel cost increases and could have an additional adverse
impact on our future replacement costs of steel. As a result of
these factors, anticipated future steel prices may impact margin
levels of our products.
The oil country tubular goods market conditions described above
affected us and our competitors significantly during fiscal 1998 and
the first nine months of fiscal 1999. As our recent experience
indicates, oil and natural gas prices are volatile and can have a
substantial effect upon drilling levels and resulting demand for our
energy related products. The future demand levels and pricing for
structural and other industrial related products is also uncertain.
Although we believe that drilling activity will ultimately recover
from the currently depressed level, the timing and extent of such
recovery is uncertain.
17
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods presented,
information relating to our operations expressed as a percentage of
net sales:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
----------------------------- -----------------
1996 1997 1998 1998 1999
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales.................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold......................... 89.2 86.9 87.4 86.1 99.7
----- ----- ----- ----- -----
Gross profit............................... 10.8 13.1 12.6 13.9 0.3
Selling, general and administrative........ 5.0 4.8 5.0 4.4 8.9
Start up costs............................. -- -- -- -- 2.1
Loss on write-down of software
development costs........................ -- -- .6 -- --
----- ----- ----- ----- -----
Total selling, general and administrative
and start up costs....................... 5.0 4.8 5.6 4.4 11.0
----- ----- ----- ----- -----
Income (loss) from operations.............. 5.8 8.3 7.0 9.6 (10.7)
Interest expense, net...................... 1.2 .7 .7 0.6 0.7
----- ----- ----- ----- -----
Income (loss) before income taxes.......... 4.6 7.6 6.3 9.0 (11.4)
Provision (credit) for income taxes........ .9 2.5 2.0 3.1 (4.1)
----- ----- ----- ----- -----
Net income (loss).......................... 3.7 5.1 4.3 5.9 (7.3)
===== ===== ===== ===== =====
</TABLE>
Nine Months Ended June 30, 1999 Compared to Nine Months Ended
June 30, 1998
Overall Company. Net sales of $118.4 million decreased $95.2
million, or 44.6%, during the nine months ended June 30, 1999 as
compared to the prior year period. These results were attributable
primarily to a decrease of 31.6% in total product shipments, from
338,310 tons in the first nine months of fiscal 1998 to 231,494 tons
in the first nine months of fiscal 1999, and an overall decrease of
19.0% in the average selling prices of our products.
Cost of goods sold of $118.0 million decreased $65.8 million, or
35.8%, during the first nine months of fiscal 1999 over the
comparable prior year period. The overall decrease was due primarily
to decreased product shipments. However, the overall unit cost per
ton of products sold decreased 4.4% (from an average of $543 to $519
per ton) in the first nine months of fiscal 1999 as compared with
the same period in fiscal 1998. This decrease was due to a decrease
in steel costs of $43 per ton, or 13.3%, partially offset by an
increase in conversion costs from less favorable fixed cost
absorption due to lower production. See "Overview" for a description
of the effect of steel prices on our results.
We earned a gross profit of $363,000 during the first nine
months of fiscal 1999 compared to a gross profit of $29.8 million in
the prior year period. Gross profit, as a percentage of net sales
was 0.3% for the nine month period ended June 30, 1999 as compared
to 13.9% for the prior year period. The change in the gross profit
is due to the factors discussed above.
During September 1998, we acquired assets that are being
utilized in the production of cold drawn tubular products at a
facility in Beaver Falls, Pennsylvania. We incurred net costs of
$2.5 million in the first nine months of fiscal 1999 related to the
commencement of operations at this facility. These costs are
comprised primarily of salary and related costs for production,
sales and administrative personnel prior to the fully integrated
operation of the facility.
Selling, general and administrative expenses increased by $1.2
million, or 12.8%, in the first nine months of fiscal 1999 over the
prior year period. These costs were impacted by an increase
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in the allowance for doubtful accounts (which reflects the
deterioration of a specific accounts receivable balance) and wage
increases, partially offset by a decrease in industrial products
selling commissions. Also, due to the significant decline in net
sales revenue caused by the market conditions discussed above,
selling, general and administrative expenses as a percentage of net
sales in the first nine months of fiscal 1999 were 8.9%, as compared
to 4.3% for the comparable prior year period.
Interest expense remained relatively flat in the first nine
months of fiscal 1999 as compared to the comparable prior year
period. Our long-term debt to capitalization ratio improved from
28.3% to 26.9% during this time frame.
The benefit from income taxes was $4.9 million for the nine
months ended June 30, 1999, as compared to the prior year periods
when we recorded a provision of $6.6 million. This change is
attributable to our generation of pre-tax losses of $13.6 million in
the first nine months of fiscal 1999 as compared to pre-tax income
in the first nine months of fiscal 1998 of $19.2 million.
We have available acquired net operating loss carryforwards of
$2,320,000 as of June 30, 1999 which may be used to offset future
taxable income. Due to our current operating losses, these
carryforwards must be utilized in fiscal year 2000. A failure to
utilize this net operating loss prior to its expiration would require
us to record a change to earnings for the amount of the deferred
tax asset not utilized. As permitted under the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," realization of this deferred tax asset depends on generating
approximately $3 million of taxable income during fiscal 2000. If we
fail to generate this level of taxable income from our pre-tax earnings,
we intend to implement a reasonable tax planning strategy which we
expect will allow us to generate sufficient taxable income to utilize
our net operating loss carryforwards expiring in fiscal 2000.
As a result of the decreased gross profit and the other factors
discussed above, we generated a net loss of $8.7 million in the
first nine months of fiscal 1999, a decrease of $21.3 million from
$12.6 million reported for the comparable prior year period.
Although oil and gas prices and, to a lesser extent, drilling levels
have recently improved, we expect to incur an operating loss in the
quarter ending September 30, 1999, although the loss is expected to
be modestly lower than the $2.6 million loss incurred in our fiscal
third quarter.
Energy Products Segment. Energy product sales of $66.8 million
decreased $86.5 million, or 56.4%, for the first nine months of
fiscal 1999 as compared with the prior year period. Energy product
shipments decreased 97,360 tons, or 45.1%, from 215,656 tons to
118,296 tons. Our domestic shipments of oil country tubular goods
fell 45.2% for the nine months ended June 30, 1999 as compared to
the prior year period due to excessive levels of industry inventory
and a declining rig count (from 770 active rigs to 563 active rigs).
Our export shipments, primarily to Canada, decreased 59.9%, from
24,896 tons in the nine months ended June 30, 1998 to 9,975 tons in
the nine months ended June 30, 1999, as the average level of
Canadian drilling fell 46.0% from 363 active rigs to 196 active
rigs. Line pipe shipments decreased by 24.0% for the nine months
ended June 30, 1998 as a result of increased import penetration from
the comparable prior year period. The average net selling price for
energy products was $565 per ton, a decrease of $146 per ton. The
decrease was due primarily to the market conditions discussed above
and a change in mix to lower priced products. See "Overview" for a
discussion of changes in prices.
Energy products cost of goods sold of $70.7 million decreased
$60.8 million, or 46.2% for the first nine months of fiscal 1999,
compared with the prior year period. The gross loss for energy
products of $3.9 million for the nine month period ended June 30,
1999 compares to a gross profit of $21.7 million for the nine months
ended June 30, 1998. Energy products gross loss percentage was 5.9%
for the first nine months of fiscal 1999 as compared to a gross
profit margin percentage of 14.2% for the prior year period.
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<PAGE>
Additional downward pressure on energy selling prices could
require us to further reduce the carrying value of our inventory.
While we believe that our inventory is in line with our anticipated
future sales levels, any significant decrease in prices would have a
negative impact on conversion costs recorded in cost of goods sold.
Industrial Products Segment. Industrial products sales of $51.6
million decreased $8.7 million, or 14.6%, for the first nine months
of fiscal 1999 as compared with the prior year period. Industrial
products shipments decreased 9,456 tons, or 7.7%, from 122,654 tons
to 113,198 tons. Intensified competitive pressures due to capacity
additions contributed to the decrease in sales and shipments of
industrial products. The average net selling price for industrial
products during the first nine months of fiscal 1999 was $456, down
$36 per ton as compared to the same period of the prior year. This
decrease for the first nine months of fiscal 1999 was due primarily
to declining steel prices.
Cost of goods sold of $47.3 million decreased $5.0 million, or
9.5%, in the first nine months of fiscal 1999 as compared with the
prior year period. Gross profit for industrial products of $4.3
million decreased $3.7 million, or 46.2% over the same periods. The
decreased gross profits were due to lower selling prices and reduced
operating efficiencies, partially offset by lower steel costs.
Industrial products gross profit margin percentage declined to 8.4%
for the first nine months of fiscal 1999 as compared to 13.3% for
the first nine months of fiscal 1998.
Fiscal Year 1998 Compared to Fiscal Year 1997
Overall Company. In fiscal 1998, net sales decreased $25.7
million, or 8.8%, from the preceding fiscal year. These results were
attributable primarily to a decrease of 8.9% in total product
shipments, from 469,958 tons in fiscal 1997 to 428,216 tons in
fiscal 1998. Overall average selling prices remained relatively
constant during fiscal 1998.
Cost of goods sold decreased $20.8 million, or 8.2%, in fiscal
1998 as compared to fiscal 1997. The overall decrease was due
primarily to decreased product shipments. However, the overall unit
cost per ton of products sold increased 0.7% (from an average of
$538 to $542 per ton) in fiscal 1998. This increase was due
primarily to an increase in conversion costs from a higher cost
product mix and less favorable fixed cost absorption due to lower
production. The increase in conversion costs was mostly offset by a
decrease in steel costs by $18 per ton, or 5.3% in fiscal 1998. See
"Overview" for a description of the effect of steel prices on
results.
Gross profit decreased $4.9 million, or 12.8%, in fiscal 1998 as
compared to fiscal 1997. Gross profit as a percentage of net sales
was 12.6% for fiscal 1998, as compared to 13.1% for fiscal 1997.
Selling, general and administrative expenses increased $849,000,
or 6.1%, from fiscal 1997 to fiscal 1998. These expenses increased
principally as a result of the write-down of software development
costs of $1.6 million in fiscal 1998. These costs were also
increased by higher sales commissions on industrial products sales
and partially offset by decreased employee incentive compensation
and decreased selling expenses related to lower energy sales
volumes. Selling, general and administrative expenses as a
percentage of net sales increased from 4.8% in fiscal 1997 to 5.6%
in fiscal 1998.
Interest expense decreased $336,000, or 16.3%, in fiscal 1998 as
compared to fiscal 1997 as a result of decreased average borrowings,
decreased interest rates and additional amounts of interest expense
capitalized on additions to property, plant and equipment. The
decreased borrowings were principally the result of principal
repayments from funds generated from operations.
The provision for income taxes decreased $1.9 million in fiscal
1998 as compared to fiscal 1997 as a result of the reduced level of
income before income taxes recorded in fiscal 1998, as compared to
fiscal 1997.
20
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At September 30, 1998, we had available net operating loss
carryforwards of $2.3 million which we may use to offset future
taxable income, of which $1.2 million was available at the beginning
of fiscal 1999. In addition, at September 30, 1998, we had
alternative minimum tax credit carryforwards of $598,000 available
for income tax purposes. See Note 8 of the Notes to the Consolidated
Financial Statements as of September 30, 1998.
As a result of the foregoing factors, net income decreased $3.5
million from net income of $14.9 million, or $0.97 diluted earnings
per share, in fiscal 1997 to net income of $11.4 million, or $0.73
diluted earnings per share, in fiscal 1998.
Energy Products Segment. Energy product sales decreased $39.0
million, or 17.4%, from the preceding fiscal year. Oil country
tubular goods shipments decreased 66,282 tons, or 21.5%, from
308,428 to 242,146. Our domestic shipments of oil country tubular
goods fell 14.7% due to excessive levels of industry inventory and a
declining rig count throughout the fiscal year. Our export sales,
primarily to Canada, decreased by 37.1%, from 41,092 tons in fiscal
1997 to 25,866 tons in fiscal 1998, as Canadian drilling activity
fell from 392 rigs at the end of fiscal 1997 to 161 rigs at the end
of fiscal 1998. Line pipe shipments decreased by 20.4% principally
due to increased import penetration. The average selling price for
energy products was $702, an increase of $34 per ton. The increase
was principally due to higher product pricing early in the year and
improved mix of higher value products.
Energy products cost of goods sold decreased $30.6 million, or
15.9%, from the preceding fiscal year. Gross profit for energy
products decreased approximately $8.4 million or 27.0%. Energy
products gross profit percentage was 12.3%, as compared to 13.9% in
fiscal 1997.
Industrial Products Segment. Industrial products sales
increased $13.4 million, or 19.9%, from the preceding fiscal year.
Industrial products shipments increased 22.2%, from 135,029 tons in
fiscal 1997 to 164,973 tons in fiscal 1998. The average selling
price of industrial products was $488, a decrease of $10 per ton.
This decrease was principally due to the decline in standard pipe
pricing caused by an increase in the level of imported product.
Industrial products cost of goods sold increased $9.8 million,
or 16.3%, from the preceding fiscal year. Industrial products gross
profit increased $3.5 million, or 49.9%. The improved gross profit
was primarily attributable to declining steel costs and improved
operating efficiencies during fiscal 1998, partially offset by
slightly lower selling prices. Industrial products gross profit
percentage was 13.1%, as compared to 10.5% in fiscal 1997.
Fiscal Year 1997 Compared to Fiscal Year 1996
Overall Company. In fiscal 1997, net sales increased $86.9
million, or 42.5%, from the preceding fiscal year. These results
were attributable primarily to an increase of 36.1% in total product
shipments, from 345,232 tons in fiscal 1996 to 469,958 tons in
fiscal 1997. Total sales and total shipments were positively
impacted by our strengthened position in the industrial products
market. Overall average selling prices increased during fiscal 1997
by 4.7% (from an average of $591 to $619 per ton). This increase
augmented the increase in volume of total sales.
Cost of goods sold increased $70.8 million, or 38.9%, in fiscal
1997 as compared to fiscal 1996. The overall increase was due
primarily to increased product shipments. However, the overall unit
cost per ton of products sold increased 2.0% (from an average of
$527 to $538 per ton) in fiscal 1997. This increase was due
primarily to an increase in delivered steel costs in the first half
of fiscal 1997, resulting in an increase in the average prime steel
cost of goods sold of $17 per ton. See "Overview." The increase in
steel costs was partially offset by the operating efficiencies we
achieved and improved fixed cost absorption.
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Gross profit increased $16.1 million, or 72.8%, in fiscal 1997
as compared to fiscal 1996. Gross profit as a percentage of net
sales was 13.1% for fiscal 1997, as compared to 10.8% for fiscal
1996.
Selling, general and administrative expenses increased $3.7
million, or 36.9%, from fiscal 1996 to fiscal 1997. These expenses
increased principally as a result of increased employee incentive
compensation, salary increases, increased selling expenses related
to higher sales volumes and the increase in sales commissions on
industrial products. Selling, general and administrative expenses as
a percentage of net sales decreased from 5.0% in fiscal 1996 to 4.8%
in fiscal 1997.
Interest expense decreased $455,000, or 18.0%, in fiscal 1997 as
compared to fiscal 1996 as a result of decreased borrowings. The
decreased borrowings were principally the result of principal
repayments from internally generated funds.
The provision for income taxes increased $5.5 million in fiscal
1997 as compared to fiscal 1996 as a result of our generating $12.8
million in additional income before income taxes in fiscal 1997, as
compared to fiscal 1996.
As a result of the foregoing factors, net income increased $7.4
million from net income of $7.5 million, or $0.50 per diluted share,
in fiscal 1996 to net income of $14.9 million, or $0.97 per diluted
share, in fiscal 1997.
Energy Products Segment. Energy product sales increased $76.3
million, or 51.7%, from the preceding fiscal year. Oil country
tubular goods shipments increased 108,036 tons, or 53.9%. During
fiscal 1997, an increase in consumption of oil country tubular goods
resulted from the average rig count rising by 148, or 19.5%, and a
build in existing inventories held by distributors. Also export
sales, primarily to Canada, increased by 95.8%, from 20,985 tons in
fiscal 1996 to 41,092 tons in fiscal 1997, as Canadian drilling rose
by 39.9%. Line pipe shipments decreased by 12.0% principally due to
increasing import penetration. The average selling price for energy
products was $668, an increase of $28 per ton. The increase was
principally due to higher product pricing and improved sales of
higher value products.
Energy products cost of goods sold increased $62.3 million, or
47.7%, from the preceding fiscal year. Gross profit for energy
products increased approximately $14.1 million or 82.3%. Energy
products gross profit percentage was 13.9%, as compared to 11.6% in
fiscal 1996.
Industrial Products Segment. Industrial products sales
increased $10.6 million, or 18.6%, from the preceding fiscal year.
Industrial products shipments increased 17.7%, from 114,728 tons in
fiscal 1996 to 135,029 tons in fiscal 1997. The average selling
price of industrial products was $498, an increase of $4 per ton.
This increase was principally due to improved product pricing.
Industrial products cost of goods sold increased $8.5 million or
16.5%, from the preceding fiscal year. Industrial products gross
profit increased $2.0 million or 40.3%. The improved gross profit
percentages were primarily attributable to improved product pricing
and improved operating efficiencies during fiscal 1997. Industrial
products gross profit percentage was 10.5%, as compared to 8.9% in
fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at June 30, 1999 was $37.7 million and the ratio
of current assets to current liabilities was 2.2 to 1, as compared
to September 30, 1998 when working capital was $60.4 million and the
current ratio was 3.3 to 1. The decrease in working capital was due
principally to a $15.7 million decrease in inventory and an $8.4
million increase in accounts payable, partially offset by a $1.4
million decrease in deferred revenue and a $2.2 million decrease in
accrued expenses and other liabilities. The above changes in
inventory and deferred revenue are due
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primarily to the decreased volume of energy business. The change in
accounts payable is due to the recent increase in steel purchasing
activity.
Cash provided by operating activities was $17.3 million for the
nine months ended June 30, 1999. During fiscal 1998, 1997 and 1996,
net cash provided by operations was $3.1 million, $16.7 million and
$14.2 million, respectively. In fiscal 1998, net cash provided by
operations, supplemented by funds drawn from the revolving credit
facility, was used to fund capital expenditures. In 1997 and 1996,
the net cash provided by operations was primarily used to fund
capital expenditures and the pay-down of net long-term borrowings.
Cash used in investing activities in the nine months ended June
30, 1999 and fiscal 1998, 1997 and 1996 was $12.0 million, $22.2
million, $9.4 million and $5.5 million, respectively, which was used
for the purchase of property, plant, and equipment. In fiscal 1998,
$11.5 million was spent on the purchase of the production facility
for cold drawn tubing.
For the nine months ended June 30, 1999, cash used by financing
activities was $5.6 million. Outstanding borrowings on our revolving
credit facility decreased $5.1 million primarily due to the
reduction in inventory. Our other long-term indebtedness, including
current maturities, was reduced by approximately $516,000. During
fiscal 1998, 1997 and 1996, cash provided (used) by financing
activities was $17.0 million, ($5.0) million and ($8.6) million,
respectively. Cash provided by financing activities in fiscal 1998
was primarily attributable to a $17.4 million net increase in our
revolving credit facility used to fund the purchase of the
production facility for cold drawn mechanical tubing and other
working capital needs. The increase in our revolving credit facility
was offset by other regularly scheduled term debt payments. Cash
used by financing activities in fiscal 1997 was primarily
attributable to the pay-off of a $3.7 million term note used to
finance the relocation of the energy facility to Arkansas, a $3.3
million net decrease in our revolving credit facility and other
regularly scheduled term debt payments. These debt pay-downs were
partially offset by $2.5 million of proceeds from the exercise of
stock options. The cash used by financing activities in fiscal 1996
was primarily attributed to the pay-off of a $5.5 million term note
(the proceeds of which were used in 1995 to finance the Hickman
structural facility) and a $1.8 million net pay-down of our
revolving credit facility.
Our capital budget for fiscal 1999 has been reduced to
approximately $13.0 million, of which $12.0 million was expended
during the nine months ended June 30, 1999. Such amount includes
progress payments of $2.6 million related to a new furnace for our
cold drawn tube facility. Because we leased the furnace, these
progress payments were reimbursed to us. In addition to completing
the cold drawn tube facility, the budgeted funds are also being
utilized principally to acquire equipment for our other
manufacturing facilities and to purchase and install a new
enterprise resource planning system. As of June 30, 1999, we had an
additional $900,000 committed for the purchase of equipment.
We expect that we will meet our ongoing working capital and
capital expenditure requirements from a combination of cash flows
from operations, which constitutes our primary source of liquidity,
the net proceeds from this offering and available borrowings under
our revolving credit facility. The revolving credit facility
provides for maximum borrowings up to the lesser of the eligible
borrowing base or $50 million, and bears interest at either the
prevailing prime rate or an adjusted Eurodollar rate, plus an
interest margin, depending upon certain financial measurements. The
revolving credit facility was amended as of March 31, 1999 to revise
financial covenants in order to reflect the current economic
environment in our energy related markets and to provide additional
availability in our borrowing base. These financial covenants
include a limit of earnings before income taxes loss of $2.5
million. The revolving credit facility is secured by our accounts
receivable, inventories and equipment and will expire on September
30, 2003. As of June 30, 1999, the applicable interest rate under
the revolving credit facility was 7.0%
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per annum. We had $17.5 million in unused availability under the
revolving credit facility and had $485,000 in cash and cash
equivalents at June 30, 1999.
We currently are seeking $10 million in financing from the
Arkansas Development and Finance Authority for use in the
construction and equipping of our large diameter mill. We may not,
however, be able to obtain this financing on favorable terms or at
all.
YEAR 2000 READINESS DISCLOSURE
General. The advent of the year 2000 poses certain
technological challenges resulting from a reliance in computer
technologies on two digits rather than four digits to represent the
calendar year (e.g., "98" for "1998"). Computer technologies
programmed in this manner, if not corrected, could produce
inaccurate or unpredictable results or system failures in connection
with the transition from 1999 to 2000, when dates will begin to have
a lower two-digit number than dates in the prior century. This
problem, the so-called "year 2000 problem" or "Y2K problem," may
have a material adverse effect on our financial condition, results
of operations, business or business prospects because we rely
extensively on computer technology to manage financial information
and, to a lesser extent, to operate our manufacturing equipment.
Our State of Readiness. We have developed a Year 2000 Action
Plan to deal with the year 2000 problem. Our plan specifies a range
of tasks and goals which we will achieve by various dates before the
year 2000. The principal tasks and goals include:
* assessment of our computer systems;
* remediation of any identified problems; and
* testing of our systems.
To date, we are on target with our plan and are meeting our
major deadlines. Our year 2000 staff has regularly apprised senior
management and our board of directors of our progress. As a result,
senior management provides input and guidance on a regular basis.
Information Technology Systems. We rely extensively on computer
technology for our information management systems. We have completed
our assessment of our internal information technology systems to
identify those which are in need of modification or renovation to
minimize disruptions or failures related to the Y2K problem. As a
result of this assessment, we identified several older information
technology systems that presented certain risks of failure or
malfunction in connection with the year 2000 problem, including
systems related to sales and inventory management. Accordingly, we
are in the process of converting to a new enterprise resource
planning system which will replace the older systems and, we
believe, will adequately function through the transition from 1999
to 2000. We anticipate completing the remediation and testing phases
of this aspect of our plan before December 1999.
Non-Information Technology Systems. We completed our
assessment, remediation and testing phases of our plan with respect
to internal non-information technology systems, including our
manufacturing machinery and equipment. During our assessment of
these non-information technology systems, we did not identify any
significant issues related to the Y2K problem. As a result, we do
not anticipate any further remediation of this equipment in
connection with the Y2K problem.
Third-Party Providers and Customers. We have monitored the year
2000 preparedness of our third party providers and servicers,
utilizing various methods for testing and verification. However, our
ability to evaluate is limited to some extent by the willingness of
vendors to supply information and the ability of vendors to verify
the year 2000 preparedness of their own systems or their
sub-providers. We have requested certifications of year 2000
preparedness from principal software and equipment providers. In
those cases where a vendor has not been able to certify its
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product's preparedness with respect to the Y2K problem, we have
taken steps to bring the system into compliance or to replace the
system.
We have inquired on the year 2000 status of our customers. As is
the case with other similarly situated companies, if several current
or future customers fail to prepare adequately for the Y2K problem,
our financial condition, results of operations, business or business
prospects could be adversely impacted.
The Costs to Address Our Year 2000 Issues. As discussed above,
we are in the process of converting to a new enterprise resource
planning system. We acquired this system, which is year 2000
compliant, in order to enhance our ability to make more informed
decisions regarding sales and inventory, optimize inventory levels
and minimize costs. The cost of this system, including the cost of
software and related internal cost, is expected to be $5.0 million,
of which approximately $3.9 million has been expended through June
30, 1999. The cost of this system will be funded primarily from
general operating cash flows.
We have postponed some of our minor computer-related projects
that we otherwise might have completed during calendar years 1998
and 1999, due to our shifting of resources directed to the
replacement of the enterprise resource planning systems and other
year 2000 related projects. We do not believe this postponement will
have any significant effect on our operations or customer service.
Year 2000 Risks We Face and Our Contingency Plans. Our failure
to successfully implement our plan could result in an interruption
in or failure of certain normal business activities or operations.
Even if we successfully complete our plan, we may also be exposed to
the failure of some of our customers, suppliers or vendors to
prepare adequately for the Y2K problem. These failures could
materially adversely affect our results of operations, liquidity and
financial condition. Currently, we are on schedule and believe that
our successful completion of the assessment, remediation and testing
phases should significantly reduce the risks we face with respect to
the Year 2000 problem.
We believe that it is difficult to fully assess the risks of the
year 2000 issue due to numerous uncertainties surrounding the issue.
We believe that the primary risks are external to us and relate to
the year 2000 readiness of customers, suppliers and transportation
providers. In the most reasonably-likely worst case scenario, our
customers may not purchase our products if their drilling or
fabricating equipment fail to operate, we may not be able to access
our bank accounts or make or receive payments and our transportation
providers may not be able to make timely shipments to customers.
In order to reduce these risks, we have developed certain
contingency plans. As part of our contingency plans, we would use
various manual procedures that bypass computer applications.
However, implementing these contingency plans could have an adverse
effect on our liquidity, financial condition and results of
operation due to reduced productivity and efficiency associated with
the manual procedures. Some catastrophic events, such as the loss of
utilities or the failure of certain governmental bodies to function,
are outside the scope of our contingency plans, although we
anticipate that we would respond to any catastrophe in a manner
designed to minimize disruptions in customer service, and in full
cooperation with our peer providers, community leaders and service
organizations.
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<PAGE>
BUSINESS
OUR COMPANY
We are a leading domestic producer of tubular steel products
used in energy and industrial applications. We manufacture "oil
country tubular goods," which are steel tubular products used in the
completion and production of oil and natural gas wells. We also
serve the energy industry by manufacturing line pipe, which is used
primarily in the transportation of oil and natural gas. For
industrial applications, we manufacture structural tubing and
standard pipe. We also recently began producing "cold drawn tubing,"
which is used as a component of high quality products that require
close tolerances. During fiscal 1998, energy products accounted for
approximately 70% of our total revenues.
The following table summarizes our current manufacturing
facilities and the products they produce:
<TABLE>
<CAPTION>
FACILITY PRODUCTS SIZES<F1>
---------------- --------------------------- ----------------
<S> <C> <C>
Hickman, AR Oil country tubular goods 1 1/2" - 5 1/2"
Line pipe 1 1/2" - 5 9/16"
Standard pipe 2" - 5"
Hickman, AR Structural tubing 1 1/2" - 8"
Conroe, TX Oil country tubular goods 4 1/2" - 9 5/8"
Line pipe 4 1/2" - 8"
Structural tubing 4 1/2" - 8"
Standard pipe 6" - 8"
Beaver Falls, PA Cold drawn tubular products 1 7/8" - 12"
<FN>
- -------------------
<F1> Represents outside diameter measurement. Structural tubing can
have a square, rectangular, or round cross-section.
</TABLE>
OUR BUSINESS STRATEGY
Increase market share by expanding our existing product
lines. We believe that the expansion of our product lines in both
the energy and industrial segments of our business will allow us to
increase our market share by capitalizing on our existing customer
relationships to market additional products. Our planned
construction and equipping of the new large-diameter facility
discussed below is an important part of this strategy.
Identify and enter new markets. We continually seek and make
acquisitions and capital expenditures to enter new markets as
evidenced by our entry into the structural tube market in 1994, and
our recent entry into the cold drawn tubular market. We intend to
seek additional opportunities to expand our business to new markets
where we believe we can compete effectively and profitably.
Continually improve the efficiency of our manufacturing
process. We intend to continue to pursue our objective of being a
low-cost, high-volume producer of quality steel-tubular products by
seeking to:
* maintain product manufacturing cost controls;
* maximize production yields from raw materials;
* make capital expenditures designed to lower costs and improve
quality;
* minimize unit production costs through effective utilization
of plant capacity; and
* minimize freight costs.
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<PAGE>
Deliver quality products and service to our customers. We
believe that we have achieved an excellent reputation with our
existing customers. We intend to continue to build long-term
customer relationships with new and existing customers by seeking
to:
* offer broad-based product lines;
* focus on product availability;
* deliver competitively priced quality products; and
* provide a high level of customer support before and after the
sale.
PRODUCT LINE EXPANSION
To further our growth and enhance our ability to compete in our
energy and industrial businesses, we plan to expand our current
product lines to include larger diameter pipe and tubing products.
As the focal point to this expansion, we intend to construct and
equip a new large-diameter facility immediately adjacent to our
current facilities in Hickman, Arkansas, at an estimated cost of $35
million. We have chosen this strategic location for the new facility
to achieve significant cost-saving advantages. These advantages
include:
* utilization of lower-cost, non-union labor;
* access to rail, truck and barge transportation;
* proximity to the Nucor Corporation steel mill, Maverick's
primary steel supplier; and
* shared overhead.
Based principally on historical product relationships, we
estimate that our current product size range allows us to compete
for approximately 49% of the total tons consumed in all of the
markets we serve. We believe that our expansion into the production
of larger diameter pipe and tubing products should allow us to
compete for approximately 67% of the total tons consumed in these
markets. This represents an increase of approximately 37% of the
total tons consumed for which we can compete in the markets we
serve.
We recently entered into a definitive agreement for the purchase
of a significant portion of the equipment required for the new
large-diameter facility for a purchase price of $11.75 million.
Although consummation of this purchase is subject to various
conditions, we expect to close the transaction in January 2000. We
believe we will begin limited production of select industrial
products and energy products at the new facility by July 2000 with
full production capability of all products by October 2000.
THE ENERGY PIPE INDUSTRY
General. Oil country tubular goods consist of drill pipe,
production casing, surface casing and production tubing. Drill pipe
is used and may be reused to drill wells. Production casing forms
the structural wall in oil and gas wells to provide support and
prevent caving during drilling operations and is generally not
removed after it has been installed in a well. Surface casing is
used to protect water-bearing formations during the drilling of a
well. Production tubing is placed within the casing and is used to
convey oil and natural gas to the surface. In addition, production
tubing may be replaced during the life of a producing well.
The domestic oil country tubular goods market is affected by
several factors, the most significant being the number of oil and
natural gas wells being drilled. The level of drilling activity is
largely a function of current prices for oil and natural gas and the
industry's future price expectations. These prices are determined by
various supply and demand factors, such as
27
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<PAGE>
consumption levels, current inventory levels, weather, import
levels, production economics and future expectations. The following
chart shows the price of oil and natural gas since August 1996:
[GRAPH]
The most commonly cited indicator of the level of domestic
drilling activity is the Baker Hughes rig count which represents the
number of active oil and natural gas rigs currently being used in
the U.S. Since July 1987, the Baker Hughes rig count hit a high in
December 1990 of 1179 and a low in April 1999 of 488. However, by
September 10, 1999, the active rig count increased 41% from this low
to 690. The following chart shows the U.S. rig count at each month
end since August 1996 and our shipments of oil country tubular goods
for the same period:
[GRAPH]
The oil country tubular goods market is also affected by the
level of industry inventories maintained by manufacturers,
distributors and end users. When customers draw down on inventory
rather than purchase new products, this has an adverse effect on the
demand for new production. Conversely, when distributors and end
users increase inventory levels, this has a positive effect on
demand for new production. For calendar years 1996 and 1997,
increasing industry inventory levels added an estimated 4.3% and
13.9%, respectively, to oil country tubular goods demand for new
production. However, for calendar 1998, declining industry inventory
levels satisfied 8.5% of oil country tubular goods consumption. For
the six months ended June 30, 1999, industry inventory levels
continued to decline, but remained at or above current levels of
demand at June 30, 1999.
Import levels of foreign oil country tubular goods also
significantly affects the oil country tubular goods market. High
levels of imports, reduce the volumes sold by domestic producers and
tend to suppress selling prices. We believe that domestic import
levels are affected by, among
28
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other things, overall world demand for oil country tubular goods,
the trade practices of and government subsidies to foreign producers
and the presence or absence of governmentally imposed trade restrictions
in the U.S. Since 1986, the level of imports of oil country tubular
goods from Canada and Taiwan has been reduced by the existence of duties
imposed by the United States government. The U.S. International Trade
Commission is scheduled to review these duties in 1999. In addition,
since 1995, the level of imports of oil country tubular goods from
Argentina, Italy, Japan, Korea and Mexico have also been reduced by the
existence of anti-dumping duties. The U.S. International Trade
Commission is scheduled to review these duties in 2000. If these
duties expire or are renewed on a less stringent basis, we could be
exposed to increased competition from imports.
The following table illustrates certain factors related to
industry-wide domestic drilling activity, domestic oil country
tubular goods consumption, shipments, imports and inventories during
the calendar years presented:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1993 1994 1995 1996 1997 1998
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
U.S. DRILLING ACTIVITY:
Average rig count................................ 754 775 723 779 943 831
===== ===== ===== ===== ===== =====
U.S. OIL COUNTRY TUBULAR GOODS CONSUMPTION (IN TONS):
U.S. producer shipments (000's).................. 1,106 1,122 1,413 1,760 2,100 1,217
Imports (000's).................................. 353 342 180 213 409 343
Inventory (increase)/decrease (000's)............ (154) 95 2 (84) (349) 156
Used pipe (000's)................................ 233 139 144 78 223 111
----- ----- ----- ----- ----- -----
Total U.S. consumption (000's)............... 1,538 1,698 1,739 1,967 2,383 1,827
===== ===== ===== ===== ===== =====
</TABLE>
The rig count in the table is based on weekly rig count
reporting from Baker Hughes, Inc. calculated by averaging the 52
weeks ending with the last week in December of each year. U.S.
consumption of oil country tubular goods are based on our estimate
of per rig consumption of oil country tubular goods multiplied by
the Baker Hughes rig count. Total U.S. consumption (in thousands of
tons) as reported by Pipe Logix, Inc., an independent domestic oil
country tubular goods industry reporting service, for calendar year
1993, 1994, 1995, 1996, 1997, and 1998 was 1,445, 1,494, 1,475,
1,668, 2,025, and 1,775. Imports are as reported by the U.S. Census
Bureau. Inventory (increase)/decrease are management estimates based
upon independent research by Duane Murphy and Associates. Inventory
(increase)/decrease (in thousands of tons) as reported by Pipe
Logix, Inc. for calendar year 1993, 1994, 1995, 1996, 1997, and 1998
was (340), (204), (133), (366), (671), and 136. Used pipe quantities
are calculated by multiplying 8.3 recoverable tubing and casing tons
(as determined by independent research performed by Duane Murphy and
Associates) by the number of abandoned oil and gas wells as
determined by the completed wells per year as reported by the
American Petroleum Institute adjusted for the net change in active
wells as reported by World Oil. U.S. producer shipments are
calculated using the above components.
Manufacturers produce oil country tubular goods in numerous
sizes, weights, grades and end finishes. We believe that most oil
country tubular goods are produced to American Petroleum Institute
specifications. The grade of pipe used in a particular application
depends on technical requirements for strength, corrosion resistance
and other performance qualities. Oil country tubular goods are
generally classified into groupings of "carbon" and "alloy" grades.
Carbon grades of oil country tubular goods have yield strength
levels of 75,000 pounds per square inch or less and are generally
used in oil and natural gas wells drilled to depths less than 8,000
feet. Alloy grades of oil country tubular goods have yield strength
levels of 75,000 pounds per square
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inch or more and are generally used in oil and natural gas wells
drilled to depths in excess of 8,000 feet, or for high temperature
wells, highly corrosive wells or for critical applications.
Carbon and alloy grades of oil country tubular goods are
available from both electric resistance welded and seamless pipe
producers. Electric resistance welded pipe is produced by processing
flat rolled steel into strips which are cold-formed, welded,
heat-treated or seam-annealed and end-finished with threads and
couplings. Seamless products are produced by individually heating
and piercing solid steel billets into pipe and then end finishing
such pipe into oil country tubular goods in a manner similar to
electric resistance welded pipe. We believe that the seamless
manufacturing process involves higher costs than the welded process
and that, as a result, seamless products are generally priced higher
than comparable welded products.
Based on published industry statistics, electric resistance
welded products, which did not have significant market penetration
prior to the mid-1970's, now account for approximately half of the
tonnage of domestic oil country tubular goods consumed annually. We
believe electric resistance welded products have captured a
significant majority of the carbon grade oil country tubular goods
market, while seamless products retain a significant majority of the
alloy grade oil country tubular goods market. We also believe that
further significant market penetration of welded products will
depend upon increased market acceptance of welded products and
technological advances in the types of raw materials and equipment
utilized in the electric resistance welding process.
Line pipe products are used for surface production flow lines,
gathering systems and pipeline transportation and distribution
systems for oil, natural gas and other fluids. Line pipe is produced
in both welded and seamless form. Line pipe markets are dependent
not only on the factors which influence the oil country tubular
goods market, but also on the level of pipe line construction
activity, line pipe replacement requirements, new residential
construction and utility purchasing programs.
Our Products. We manufacture oil country tubular goods used for
production tubing, production casing, and surface casing, and we
also manufacture line pipe. We do not make drill pipe. We produce
all of our oil country tubular goods and line pipe using only the
electric resistance welding process.
The following table shows our oil country tubular goods and line
pipe shipments in tons, net sales (000's) and as a percentage of
overall net sales measured in dollars:
<TABLE>
<CAPTION>
OIL COUNTRY TUBULAR GOODS LINE PIPE
------------------------------------- ------------------------------------
% OF MAVERICK % OF MAVERICK
PERIOD TONS NET SALES NET SALES TONS NET SALES NET SALES
- ------ ------- --------- ------------- ------ --------- -------------
<S> <C> <C> <C> <C> <C> <C>
First nine months of
fiscal 1999............. 104,888 $ 61,024 51.5% 13,408 $ 5,771 4.9%
Fiscal 1998............... 242,146 173,329 65.3% 21,097 11,496 4.3%
Fiscal 1997............... 308,427 208,932 71.8% 26,501 14,947 5.1%
Fiscal 1996............... 202,491 133,259 65.3% 28,013 14,296 7.0%
</TABLE>
Our decreased sales of oil country tubular goods in fiscal 1998
were due to declining demand and a smaller industry inventory
increase. Our decreased sales of oil country tubular goods for the
first nine months of fiscal 1999 were due to declining demand and
draw downs of industry inventories. Our decreased sales of line pipe
in fiscal 1997, fiscal 1998 and the first nine months of fiscal 1999
were due in large part to competition from imported pipe.
Our energy products meet or exceed applicable American
Petroleum Institute standards. In addition, similar to other
producers, we manufacture oil country tubular goods in custom or
proprietary grades. We design and engineer our custom and
proprietary oil country tubular goods to be used in similar
applications as products meeting American Petroleum Institute
standards
30
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<PAGE>
and to provide performance features comparable to products meeting
those standards. We warrant our American Petroleum Institute
casing and tubing to be free of defects in material or workmanship
in accordance with the Institute's applicable specifications and our
proprietary grade products to be free of defects in accordance with
our published standards. We have not incurred significant costs in
connection with this warranty. We maintain insurance coverage against
potential claims in an amount which we believe to be adequate.
We manufacture finished products in both carbon and alloy steel
grades. Virtually all of our products are fully completed or
"end-finished" at our facilities. In contrast, some of our
competitors outsource the end-finishing of their products or do not
end-finish their products at all, thus adding to their freight and
handling costs. The end-finish process includes, as appropriate,
upsetting, beveling, threading, pressure testing and the application
of couplings. Our fully finished oil country tubular goods are ready
to be installed in oil or natural gas wells. By end-finishing our
products, we are better able to control quality, cost and service to
customers. Both of our energy facilities provide heat-treatment
capabilities necessary for the production of alloy grade pipe. Our
alloy grade tubing and casing products accounted for 24%, 21% and
27% of the tons of energy products sold in fiscal 1998, 1997 and
1996, respectively. Carbon grade tubing and casing and line pipe
products accounted for the balance of these tons.
We manufacture oil country tubular goods and line pipe ranging
in size from two inches to 9 5/8 inches in outside diameter.
Excluding drill pipe, which we do not manufacture, approximately 59%
of the total oil country tubular goods and line pipe tonnage
produced in the western hemisphere in calendar 1997 fell into this
size range. Approximately 16% of the total tonnage produced was
greater than 9 5/8 inches through sixteen inches in outside
diameter, and the remaining 25% was outside this size range.
Our planned construction and enhancement of the large-diameter
facility will enable us to manufacture oil country tubular goods and
line pipe in sizes ranging from two inches to sixteen inches in
diameter. This capability will broaden our product line of line pipe
and of oil country tubular goods. We expect the product line expansion
to allow us to increase market share by selling to our existing customers
with minimal increases in cost, improve our bargaining position with
existing distributors and increase complementary product sales of
existing products by offering larger sizes.
Marketing. We sell oil country tubular goods and line pipe
primarily throughout the United States and Canada to numerous
distributors, which then resell the pipe to major and independent
oil and natural gas production, gathering and pipeline companies.
Sales to Canadian customers were $17.9 million, $26.3 million and
$12.9 million, respectively. Sales to other foreign customers in
fiscal 1998, 1997 and 1996 made up an additional $900,000, $400,000
and $300,000, respectively. Our marketing philosophy emphasizes
delivering competitively priced quality products and providing a
high level of service to our customers. With the completion of our
new large-diameter facility, we plan to also market ourselves as a
broad line supplier of oil country tubular goods and line pipe
products. We maintain inventories of finished goods that are housed
at both of our production facilities and at field locations close to
areas of drilling activity which allows us to provide timely
delivery of our products.
As of June 30, 1999 and June 30, 1998, our backlog orders were
approximately $27.7 million and 26.5 million, respectively. All of
the backlog orders as of June 30, 1999 are expected to be filled by
the end of fiscal 1999. We consider only $2.1 million and $4.7
million of our backlog orders, respectively to be firm as remaining
orders may generally be cancelled without penalty. Our backlog
orders as of any particular date may not be indicative of our actual
operating results for any fiscal period. We cannot give any
assurance that the amount of backlog at any particular date will
ultimately be realized.
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<PAGE>
<PAGE>
At June 1, 1999 the average price we charged for our oil country
tubular goods had decreased to $559 per ton from $669 per ton in
November 1998 and $760 per ton in late 1997. Effective June 15,
1999, July 15, 1999 and August 31, 1999 we increased the price of
our oil country tubular goods $20 per ton, $30 per ton and $50 per
ton, respectively. These increases have allowed us to increase our
price per ton to levels close to the November 1998 level. We cannot
assure you that any of our price increases will hold.
In fiscal 1998, 1997 and 1996, one distributor, National
Oilwell, Inc., accounted for 14%, 14% and 16% of our net sales,
respectively. In fiscal 1997, another distributor, Master Tubulars,
Inc., accounted for 11% of our net sales. Four distributors,
including National-Oilwell, have recently combined to become Sooner
Pipe & Supply Corp., one of the largest distributors of oil country
tubular goods. Sooner has accounted for 14% of our net sales for the
nine months ended June 30, 1999. We currently use several
distributors and believe that additional qualified distributors are
available to assist us in meeting the end-users' needs. While we
believe that we could replace any one distributor, including Sooner
or Master Tubulars with other qualified distributors, the loss of
Sooner or Master Tubulars could have a material adverse effect on
our net sales or results of operations.
Manufacturing. We manufacture oil country tubular goods and
line pipe products at our facilities in Conroe, Texas and Hickman,
Arkansas. We expect to begin the production of additional energy
products at our new large-diameter facility adjacent to our Hickman,
Arkansas, facilities by October 2000. The facilities are
strategically located to serve the energy markets in the United
States. We can currently produce at a consolidated maximum rate of
approximately 669,000 tons of finished products per year with
approximately 477,000 tons currently dedicated to energy related
products. After completion of our new large-diameter facility, we
expect these amounts to increase to 919,000 and 627,000 tons per
year, respectively. We operated our energy facilities at a capacity
utilization of approximately 55% during fiscal 1998. During the nine
months ended June 30, 1999, capacity utilization fell to 33%.
In order to control our manufacturing costs, we attempt to
maximize production yields from purchased steel and reduce unit
labor costs. In fiscal 1998 and for the first nine months of fiscal
1999, purchased steel represented approximately 67% and 60%,
respectively, of our cost of goods sold. For fiscal 1998 and for the
first nine months of fiscal 1999, direct and indirect labor costs
accounted for approximately 10% and 13%, respectively, of the cost
of goods sold. We control labor costs by automating some of our
activities and by seeking to optimize product throughput and
scheduling. We maintain an innovative compensation plan at our
Hickman, Arkansas and Conroe, Texas manufacturing facilities,
whereby employees receive quarterly bonuses for superior
productivity and cost savings. In addition, some employees are
eligible to receive annual profitability bonuses based on our
consolidated earnings. The maximum achievable incentives and bonuses
range from 15% to 75% of an employee's salary or wages.
During fiscal 1998, we spent $7.5 million on new capital
equipment for our energy facilities. Our capital budget for fiscal
1999 is $6.3 million, of which $2.6 million has been spent as of
June 30, 1999. During fiscal 2000, we expect to spend approximately
$35 million to construct and equip a new large-diameter facility
that will produce, in part, oil country tubular goods and line pipe
in larger sizes than we currently produce. We expect these capital
expenditures to result in manufacturing cost savings, quality
improvements and/or expanding or maintaining production capabilities
and product lines.
Competition. The suppliers of oil country tubular goods and
line pipe products face a highly competitive market. We believe that
the principal competitive factors affecting our business are price,
quality, delivery, availability and service. We believe we enjoy an
excellent reputation for quality products and outstanding customer
service. We compete with several domestic and numerous foreign
producers of oil country tubular goods, some of which have greater
financial
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resources than we do. In the oil country tubular goods market, our
more significant competitors are Lone Star Steel Company and Newport
Steel Company, which produce electric resistance welded pipe and
United States Steel Corporation and North Star Steel Company,
which primarily produce seamless pipe. We also compete in the line
pipe market with these same competitors, and with foreign producers
of oil country tubular goods, most of which are units of large
foreign steel makers. During calendar years 1996, 1997, 1998 and the
first six months of 1999, we estimate that domestic oil country
tubular goods market penetration by imports was 9.2%, 17.2%, 18.8%,
and 8.6%, respectively, of tons consumed.
THE STRUCTURAL TUBE AND STANDARD PIPE INDUSTRY
General. Our structural tubing products are used in the
following applications:
* construction, including handrails, building columns, and
bridge frames;
* transportation, including boat trailers;
* agricultural, including farm implement components, and tillage
equipment;
* material handling, including storage rack systems and
conveying systems support; and
* recreational, including exercise equipment.
In addition, structural tubing is an attractive alternative to
other structural steel forms, such as I-beams and H-beams.
Structural tubing products offer strength and other product
characteristics similar to beams, but with less steel content,
resulting in lower costs to the end user in many applications.
Structural tubing and standard pipe are produced by processing
flat rolled steel into strips which are cold-formed, welded,
heat-treated or seam-annealed. The machinery and equipment used for
the manufacture of structural tubing products are similar to that
used for the manufacture of oil country tubular goods. Structural
tubing and standard pipe are not, however, subject to the same
degree of tolerances as are oil country tubular goods, which
results in lower production costs related to testing and inspection
than for oil country tubular goods. Moreover, structural tubing does
not require end finishing, flash elimination from the welding
process or seam-annealing. Because less finishing is required of
structural tubing products as compared to oil country tubular goods,
the average cost per ton to convert steel into structural tubing is
significantly less than oil country tubular goods.
We believe that demand for structural tubing is influenced
primarily by the level of general economic activity in the United
States. We estimate that domestic consumption of structural tubing
during calendar 1998, 1997 and 1996 was 2.0 million, 1.9 million and
1.6 million tons, respectively.
Standard pipe products are used in industrial applications such
as steam, water, air and gas lines, and plumbing and heating. As
with structural tubing, we believe that demand for standard pipe is
influenced primarily by the level of general economic activity in
the United States. We estimate that domestic consumption of standard
pipe during calendar 1998, 1997 and 1996 was 2.6 million, 2.7 million
and 2.6 million tons, respectively. In recent years, standard pipe
has faced limited new competition from plastic pipe in certain
applications.
Our Products. We produce square, rectangular and round
structural tubing at our facilities in sizes ranging from one and
one half to eight inch square and the equivalent sizes in
rectangular and round tubing. Our products range in thicknesses from
0.120 to 0.500 inches. Because of the large number of applications
for structural tubing and standard pipe, the number of different
products produced for the industrial market is considerably larger
than that produced for the oil country tubular goods market. The
annual capacity at our Hickman structural facility is
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<PAGE>
approximately 192,000 tons. We were operating at approximately 86%
of our structural capacity during fiscal 1998 and 79% of capacity
during the first nine months of fiscal 1999.
The following table shows our structural tubing and standard
pipe shipments in tons, net sales (000's) and as a percentage of
overall net sales measured in dollars:
<TABLE>
<CAPTION>
STRUCTURAL TUBING STANDARD PIPE
------------------------------------- ------------------------------------
% OF MAVERICK % OF MAVERICK
PERIOD TONS NET SALES NET SALES TONS NET SALES NET SALES
- ------ ------- --------- ------------- ------ --------- -------------
<S> <C> <C> <C> <C> <C> <C>
First nine months of fiscal
1999...................... 96,300 $41,750 35.3% 14,171 $ 6,492 5.5%
Fiscal 1998................. 142,779 68,892 26.0 22,196 11,632 4.4
Fiscal 1997................. 111,735 54,639 18.8 23,294 12,542 4.3
Fiscal 1996................. 81,959 40,767 20.0 32,769 15,860 7.8
</TABLE>
Completion of the new large-diameter facility will increase the
size range of our structural tube and standard pipe offering, thus
allowing us to market a broader line of products for industrial
applications. As a result of this new facility, we expect to gain
additional complementary sales by offering larger sizes, while
limiting the amount of additional expenses. We also believe this new
facility will allow us to market ourselves as a broad line producer
of structural tubing and standard pipe.
Marketing. The structural tubing and standard pipe markets are
somewhat regional in nature, primarily because order sizes are
smaller and lead-time requirements are shorter than for oil country
tubular goods. We currently sell principally to distributors, but
since fiscal 1997, we significantly increased our sales to large
end-user customers. As in the case of oil country tubular goods, our
marketing strategy emphasizes delivering competitively priced
quality products and providing a high level of service to our
customers. In addition, we expect our marketing ability will be
enhanced by the addition of larger diameter pipe and tubing that we
will produce upon completion of our large-diameter facility. Because
the application of structural tubing and standard pipe products is
diverse, and a short lead time is required for customer satisfaction,
we maintain inventory levels, in terms of months of supply, comparable
to those for oil country tubular goods. This finished goods inventory
will consist of a larger number of items than in the case of oil
country tubular goods. We use experienced manufacturing representatives
in our sales efforts.
As of June 30, 1999 and June 30, 1998, our backlog orders were
$6.2 million and 8.2 million, respectively. All of the backlog
orders as of June 30, 1999 are expected to be filled by the end of
fiscal 1999. We do not consider any of our backlog orders to be
firm as they may generally be cancelled without penalty. Our backlog
orders as of any particular date may not be indicative of our actual
operating results for any fiscal period. We cannot give any assurance
that the amount of backlog at any given time ultimately will be
realized.
Manufacturing. We are currently producing structural square and
rectangular shaped tubing products in our structural tube facility
located in Hickman, Arkansas. We are also currently producing
structural round tubing products and standard pipe at our two energy
facilities in Conroe, Texas and Hickman, Arkansas and expect to
begin production of larger sized structural tubing and standard pipe
upon completion of our large-diameter facility to be located
adjacent to our Hickman, Arkansas location by July 2000.
We believe that the sizes of structural tubing products we
currently are capable of manufacturing account for more than 85% of
the domestic tonnage of all sizes of domestic structural tubing
products consumed. After completing the new large-diameter facility,
we expect to be capable of manufacturing sizes that account for more
than 97% of the domestic tonnage consumed.
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Based on an industry source, we believe that the types of
standard pipe products we are capable of manufacturing account for
approximately 25% of the domestic tonnage of all types of standard
pipe products consumed. After completing the new large-diameter
facility, we expect to be capable of manufacturing more than 40% of
the domestic tonnage of all sizes of products consumed.
Consistent with our manufacturing strategy for oil country
tubular goods production, we believe we are a low-cost, high-volume
producer of quality structural tubing and standard pipe products. We
believe that the application of our efficient manufacturing process
originally developed for the production of oil country tubular
goods, the labor costs at our Arkansas facility and the strategic
location of the facility provide a conversion cost advantage
relative to the majority of existing domestic structural tubing and
standard pipe manufacturers.
During the first nine months of fiscal 1999 and during fiscal
1998, we spent approximately $917,000 and $722,000, respectively, on
additional equipment needed for manufacturing.
Competition. Although a significant market for structural
tubing is located within a 400 mile radius of our Hickman structural
facility, no other major structural tubing facility is currently
located within this area. Foreign competition, primarily from
Canada, represented 23%, 22% and 23% of total domestic sales of
structural tubing in calendar 1998, 1997 and 1996, respectively. We
compete primarily against several domestic and numerous foreign
producers of structural tubing. Our more significant structural tube
competitors are Leavitt Tube Company, Inc., Welded Tube Corporation
of America, Copperweld, Bull Moose Tube Corporation and Ex-L-Tube,
Inc.
A significant market for standard pipe also exists. Foreign
competition has had a large presence in the standard pipe market.
Foreign competition represented approximately 31%, 24% and 25% of
total domestic sales of standard pipe in calendar 1998, 1997 and
1996, respectively. Our more significant domestic competitors are
Wheatland Tube Company, Armco, Inc. Sawhill Tubular Division,
Laclede Steel Company and IPSCO Tubulars, Inc.
We believe that the principal competitive factors affecting our
structural tubing and standard pipe businesses are price, product
availability, delivery and service.
THE COLD DRAWN TUBING INDUSTRY
General. The cold drawn tubing market is made up of mechanical
or pressure tubing used for applications that require closer
tolerances and/or a better surface finish than ordinary electrical
resistance welded or seamless tubing. The following table describes
some of these applications:
<TABLE>
<CAPTION>
INDUSTRIAL USES OILFIELD USES CONSUMER USES
--------------- ------------- -------------
<C> <C> <C>
* Hydraulic, pneumatic * Mud pumps * Motorcycle forks
and gas cylinder stock
* Precision pumps * Exercise equipment
* Power takeoff and auger
shafts * Perforating tubes * Office furniture
* Electric motor housings * Subsurface pump shells * Playground equipment
* Conveyor rollers * Coupling stock * Bicycles
* Axles * Boat trailers
</TABLE>
Cold drawn tubing starts with either a plain-end electric
resistance welded or seamless tube. The source tube is then pulled
through a die and over a mandrel to create precise outside and
inside diameters or wall tolerances and to create a smoother finish.
35
<PAGE>
<PAGE>
The cold drawn tubing market is driven primarily by the general
economy. Other factors include agricultural prices and infrastructure
construction due to the large quantity of cold drawn tubing consumed
in cylinder manufacturing for agriculture and construction machinery.
We believe the market size is currently about 516,000 tons per year.
Imports have typically satisfied less than 10% of consumption.
The market is made up of three segments based upon outside
diameter and wall thickness of the tube, as follows:
<TABLE>
<CAPTION>
OUTSIDE DIAMETER WALL THICKNESS
---------------- --------------
<S> <C> <C>
Group 1.............................. through 4" through .134"
Group 2.............................. 4" through 7 1/2" through .320"
Group 3.............................. above 7 1/2" all
</TABLE>
Our Products. We primarily manufacture and sell cold drawn
tubing products in the Group 2 and Group 3 market segments as shown
above. As of June 30, 1999, the sales of our cold drawn tubing
products had not reached material levels.
Marketing. Our current customer base for cold drawn tubing
products is primarily steel service centers. Generally, because cold
drawn tubing products are components of larger products, order sizes
range from 5,000 to 10,000 pounds, which is smaller than our typical
order sizes for structural tubing or oil country tubular goods. We
almost always manufacture cold drawn tubing products to order
resulting in a finished goods inventory that is smaller than our
finished goods inventory of structural or energy products.
Currently, the industry lead time for cold drawn tubing products is
approximately six to seven weeks.
As of June 30, 1999 our backlog of cold drawn tubing orders was
approximately $1 million. We do not consider any of our backlog to
be firm. Our backlog orders as of any particular date may not be
indicative of our actual operating results for any fiscal period.
We cannot give any assurance that the amount of backlog at any given
time ultimately will be realized.
Manufacturing. In fiscal 1998, we acquired assets used in the
production of cold drawn tubular products at our production facility
in Beaver Falls, Pennsylvania. This facility began production during
the first quarter of fiscal 1999. We expect to supply approximately
75% of this facility's raw material requirements from our other
production facilities. We purchase the remainder from outside
sources, which include both smaller diameter pipe that is less than
1 9/10" and larger diameter pipe that is greater than 10" and
seamless pipe.
During the first nine months of fiscal 1999, we spent
approximately $2.5 million on additional equipment for the Beaver
Falls facility. We currently have approximately 75,000 tons of
drawing capacity annually.
Competition. A significant market for drawn tubing is located
within a 500 mile radius of the Pennsylvania facility. Our primary
competitors in this market are Alliance Midwest, Copperweld, Lone
Star Steel, LTV, Metal Matic, Pacific Tube, Plymouth Tube,
Pittsburgh Tube, Vision Metals and Webco. We believe that the
principal competitive factors affecting our cold drawn tubular
product business are price, quality, product availability, delivery
and service.
RAW MATERIALS
We make all steel purchases at our headquarters in order to
optimize pricing, quality, availability and delivery of our raw
materials. During 1998, we consumed approximately 2.5% of the total
amount of hot rolled steel produced in the United States.
Accordingly, we believe that we are generally considered to be a
significant purchaser by our steel suppliers. We maintain favorable
working relationships with our steel suppliers and believe that we
are treated favorably with respect to volume allocations and
deliveries. We presently purchase the majority of our steel
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<PAGE>
from several domestic suppliers, with approximately 75% of consolidated
purchases made from Nucor Corporation. Nucor's mill in Hickman, Arkansas
is directly connected by rail to our Hickman facilities, thus eliminating
our raw material freight costs for raw materials purchased from Nucor.
During fiscal 1998, we began purchasing some of our raw materials from
foreign suppliers due to their competitive pricing. To date, we have not
experienced any significant disruption in our supply of raw materials.
EMPLOYEES
As of June 30, 1999, we employed approximately 892 persons, of
whom approximately 20% were salaried and approximately 80% were
employed on an hourly basis. None of our employees are represented
by a union. We consider our employee relations to be excellent.
PROPERTIES
We lease approximately 40,000 square feet of office space in
Chesterfield, Missouri, for our executive offices under a lease
which expires in 2008. We own a 21,000 square foot office facility
located on a 14-acre site in Union, Missouri that is leased to an
unaffiliated third party. We use 110 acres of our 160-acre site in
Hickman, Arkansas for two facilities with approximately 315,000
square feet of oil country tubular goods manufacturing and storage
space. A 275,000 square foot structural tube manufacturing plant is
located adjacent to the existing oil country tubular goods facility.
Approximately 120,000 square feet of this facility is used for
manufacturing with the remainder used for inventory and material
storage and shipping. We lease both facilities under separate
leases, each providing us an option to purchase which is exercisable
on the expiration dates of the leases. The expiration dates are
August 1, 2007 for the oil country tubular goods facility and
March 1, 2004 for the structural tube facility. Approximately 50
acres remain in Hickman, Arkansas for future expansion, including
the 40 acres required for the new large-diameter facility. We also
own 117 acres and a 244,000 square foot manufacturing facility located
in Conroe, Texas. Of the 117 acres, approximately 30 acres are used
for manufacturing and storage and 60 acres are available for future
expansion. We lease a 21 acre site and a 370,000 square foot
manufacturing facility in Beaver Falls, Pennsylvania for the production
of cold drawn tubing at this site during early fiscal 1999. The
expiration date for this lease is September 17, 2001. Each manufacturing
facility that we operate is served by truck, has its own rail spur,
other than the Beaver Falls facility, and is within proximity of barge
facilities.
We believe the facilities are in good condition, are adequately
insured and are suitable for our planned level of operations.
LEGAL PROCEEDINGS
From time to time, we are involved in litigation relating to
claims arising out of our operations in the normal course of our
business. We maintain insurance coverage against potential claims in
an amount that we believe to be adequate. We believe that we are not
presently a party to any litigation in which the outcome would have
a material adverse effect on our business or operations.
ENVIRONMENTAL MATTERS
We are subject to federal, state and local environmental laws
and regulations concerning, among other things, wastewater disposal
and air emissions. We believe that we are currently in material
compliance with all applicable environmental regulations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect
to our directors and executive officers:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
<S> <C> <C>
Gregg M. Eisenberg................ 49 Chairman of the Board, President, Chief Executive
Officer and Director
Sudhakar Kanthamneni.............. 52 Vice President--Manufacturing and Technology
Barry R. Pearl.................... 50 Vice President--Finance and Administration, Treasurer,
Secretary and Chief Financial Officer
T. Scott Evans.................... 52 Vice President--Commercial Operations
William E. Macaulay............... 54 Director
David H. Kennedy.................. 52 Director
C. Robert Bunch................... 45 Director
C. Adams Moore.................... 66 Director
Wayne P. Mang..................... 62 Director
John M. Fox....................... 59 Director
</TABLE>
Set forth below are descriptions of the backgrounds of our executive
officers and directors.
Gregg M. Eisenberg has served as Chairman of the Board since
February 1996. He has served as President, Chief Executive Officer
and a director of Maverick since 1988. Prior to joining Maverick in
1983, he was employed with Central Steel Tube Company for six years.
He is a former director and past chairman of the Committee on Pipe
and Tube Imports.
Sudhakar Kanthamneni has served as Vice President--Manufacturing
and Technology of Maverick since August 1992. From May 1991 to
August 1992, Mr. Kanthamneni served as Maverick's Vice
President--Manufacturing. Prior to joining Maverick in 1987, he was
employed with Central Steel Tube Company for ten years.
Barry R. Pearl has served as Vice President--Finance and
Administration, Treasurer, Secretary and Chief Financial Officer
since June 1998. He was formerly employed by Santa Fe Pacific
Pipeline Partners, L.P. in Orange, California where he was the
Senior Vice President and Chief Financial Officer from January 1995
until March 1998 and Senior Vice President, Business Development
from 1992 to January 1995.
T. Scott Evans has served as Vice President--Commercial
Operations of Maverick since September 1992. Prior to joining
Maverick in 1988 as General Sales Manager, he was employed with
Wolverine Tube Corporation. From January 1981 to June 1986, Mr.
Evans was employed with Republic Steel Corporation.
William E. Macaulay has served as Chairman and Chief Executive
Officer of First Reserve Corp. since 1983; he is also a director of
Weatherford International, Inc., National-Oilwell, Inc., Pride
International, Inc. and Superior Energy Services, Inc.
David H. Kennedy served as Managing Director of First Reserve
Corp. from 1981 to 1998; he is also a director of Berkley Petroleum
Corporation and Pursuit Resources, Inc.
C. Robert Bunch has been a Partner in the law firm of King &
Pennington, L.L.P. since 1997; from June 1995 to May 1996, he
served as the Executive Vice President and Chief Operating Officer
of Oyo Geospace Corporation; from June 1994 to May 1995, he was an
attorney with the
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<PAGE>
law firm of Scott, Douglass & Luton, L.L.P.; from July 1993 to May
1994, he served as the President of Geo-Capital Resources, L.C.;
from June 1992 to June 1993, he was the Senior Vice President of
Siberian American Limited Liability Company.
C. Adams Moore has been an independent consultant in the steel
distribution and fabrication businesses since February 1992; from
January 1983 to February 1992, he was Vice President of Sales of
Bethlehem Steel Corporation and President of Bethlehem Steel Export
Corporation; he is also a director of Fisher Tank Company and Warren
Fabricating Corporation.
Wayne P. Mang has served as a "Non-Executive" Chairman and
Director of Laclede Steel Co. since 1997; from 1982 to 1991, he was
President and Chief Executive Officer Metals Group of Federal
Industries Ltd.; he was the President and Chief Operating Officer of
Russel Metals from 1991 to May 1997.
John M. Fox has served as the President, Chief Executive Officer
and as a member of the Board of Directors of Markwest Hydrocarbon,
Inc. since 1988 and 1996, respectively; he was the founder of
Western Gas Resources, Inc. and its Executive Vice President and
Chief Operating Officer from 1972 to 1986.
39
<PAGE>
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the
beneficial ownership of our common stock as of July 31, 1999 by:
* each person or group we have reason to believe owns
beneficially more than five percent of the outstanding shares
of common stock;
* each of our executive officers and each of our directors; and
* all of our executive officers and directors as a group.
Unless otherwise indicated, each of the persons or entities
listed below exercises sole voting and investment power over the
shares that each of them beneficially owns.
<TABLE>
<CAPTION>
PERCENT OF CLASS
AMOUNT AND NATURE CURRENTLY ----------------------------------
OF BENEFICIAL EXERCISABLE PRIOR TO AFTER
NAME AND ADDRESS OWNERSHIP<F1> OPTIONS<F2> OFFERING OFFERING
- ---------------- ----------------- ----------- ------------------------ --------
<S> <C> <C> <C> <C>
Directors and named executive officers
Gregg M. Eisenberg.............................. 124,708 30,000 <F*> <F*>
William E. Macaulay............................. 26,500<F3><F4> 26,500 <F*> <F*>
David H. Kennedy................................ 46,500 26,500 <F*> <F*>
C. Robert Bunch................................. 24,900 22,500 <F*> <F*>
C. Adams Moore.................................. 18,500 18,500 <F*> <F*>
Barry R. Pearl.................................. 10,000 -- <F*> <F*>
T. Scott Evans.................................. 58,286 36,000 <F*> <F*>
Sudhakar Kanthamneni............................ 91,008 80,000 <F*> <F*>
Wayne P. Mang................................... 15,000 15,000 <F*> <F*>
John M. Fox..................................... 21,000 15,000 <F*> <F*>
All current directors and executive officers as
a group (10 persons).......................... 436,402 270,000 2.78% 2.46%
Beneficial owners in excess of 5% of the
outstanding common stock <F5>
<S> <C> <C> <C> <C> <C>
Woodbourne Partners, L.P. Sole Voting: 1,250,000 --
10 South Broadway, Shared Voting: 90,000 --
Suite 2000 Sole Investment: 1,250,000 --
St. Louis, MO 63102 Shared Investment: 90,000 -- 8.68% 7.68%
<FN>
- ------------------------
<F*> Represents less than 1% of the class.
<F1> Includes currently exercisable options.
<F2> Reflects the number of shares of common stock issuable upon the exercise
of options which are presently exercisable or will first become
exercisable within 60 days of July 31, 1999.
<F3> Excludes: (a) 300,000 shares of common stock owned by American Gas and Oil
Investors, Limited Partnership ("AmGO") and (b) 200,000 shares of common stock
owned by AmGO II, Limited Partnership ("AmGO II"). First Reserve Corp. is the
managing general partner of AmGO and AmGO II. William E. Macaulay is a director
of Maverick and serves as Chairman and Chief Executive Officer of First Reserve
Corp. Mr. Macaulay disclaims beneficial ownership of these shares.
<F4> Excludes 24,000 shares of common stock owned by Linda R. Macaulay, the
wife of Mr. Macaulay. Mr. Macaulay disclaims beneficial ownership of these
shares.
<F5> Based on a Schedule 13D filed with the SEC by Woodbourne Partners, L.P. on
March 12, 1999.
</TABLE>
DESCRIPTION OF OUR CAPITAL STOCK
Our certificate of incorporation currently authorizes us to
issue 40,000,000 shares of common stock and 5,000,000 shares of
preferred stock. Each authorized share has a par value of $.01. Our
board does not presently intend to seek the approval of our
stockholders before we issue any of our currently authorized stock,
unless it is required by law or the applicable rules of any stock
exchange or market. Please see our certificate of incorporation and
our bylaws, both of which are included as exhibits to the registration
statement of which this prospectus is a part and which qualify the
following summary.
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<PAGE>
COMMON STOCK
Each share of common stock has one vote on all matters to be
voted upon by our stockholders. No share of common stock affords any
cumulative voting or preemptive rights or is convertible,
redeemable, assessable or entitled to the benefits of any sinking or
repurchase fund. Holders of common stock will be entitled to
dividends in such amounts and at such times as our board, in its
discretion, may declare out of funds legally available for the
payment of dividends. See "Price Range of Common Stock and Dividend
Policy" for more information about our dividend policy. In the event
of our liquidation, dissolution or winding up, the holders of our
common stock are entitled to share ratably in all of our assets
remaining after payment of liabilities, subject to prior
distribution rights of our preferred stock, if any, then
outstanding.
PREFERRED STOCK
Our board has the authority, without action by our stockholders,
to designate and issue shares of our currently authorized preferred
stock in one or more series and to designate the rights, preferences
and privileges of each series, which may be greater than the rights
of our common stock. The rights any class or series of our preferred
stock may evidence include:
* general or special voting rights;
* preferential liquidation or preemptive rights;
* preferential cumulative or noncumulative dividend rights;
* redemption or put rights; and
* conversion or exchange rights.
We may issue shares of, or rights to purchase, preferred stock the
terms of which might:
* adversely affect voting or other rights evidenced by our
common stock;
* restrict dividends on our common stock;
* discourage an unsolicited proposal to acquire us; or
* facilitate a particular business combination involving us.
Any such action could discourage a transaction that some or a
majority of our stockholders might believe to be in their best
interests or in which our stockholders might receive a premium for
their stock over its then market price.
We have designated 1,000,000 shares of our preferred stock as
Series I junior participating preferred stock, which may be issued
in connection with the exercise of the rights described below. Each
one one-hundredth of a share of Series I junior participating
preferred stock that may be issued on the exercise of the rights
described below will be economically similar to a share of common
stock.
STOCKHOLDER RIGHTS PLAN
Each share of common stock offered by this prospectus includes
one right to purchase from us one one-hundredth of a share of our
Series I junior participating preferred stock at an exercise price
of $50.00 per share, subject to adjustment. The rights are not
exercisable until after the "separation time," as we describe below,
occurs. Please see our rights agreement with Harris Trust and
Savings Bank, as rights agent, which is included as an exhibit to
the registration statement of which this prospectus is a part and
which qualifies the following summary of the rights.
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<PAGE>
<PAGE>
The rights are attached to all certificates representing our
currently outstanding common stock and will attach to all common
stock certificates we issue prior to the separation time. The
separation time would occur, except in some cases, on the earlier
of:
* the day that a public announcement that a person or group of
affiliated or associated persons (collectively, an "acquiring
person") has acquired or obtained the right to acquire
beneficial ownership of 20% or more of the outstanding common
stock; or
* 10 days following the start of a tender or exchange offer that
would result, if closed, in a person becoming an acquiring
person.
Our board may defer the separation time in some circumstances, and
some inadvertent acquisitions will not result in a person becoming
an acquiring person if the person promptly divests itself of
sufficient common stock.
Until the separation time occurs:
* common stock certificates will evidence the rights;
* the rights will be transferable only with those certificates;
* those certificates will contain a notation incorporating the
rights agreement by reference; and
* the surrender for transfer of any of those certificates also
will constitute the transfer of the rights associated with the
stock that certificate represents.
The rights will expire at the close of business on July 23,
2008, unless we earlier redeem or exchange them as we describe
below.
As soon as practicable after the separation time, the rights
agent will mail certificates representing the rights to holders of
record of common stock as of the close of business on that date and,
from and after that date, only separate rights certificates will
represent the rights. We will not issue rights with any shares of
common stock we issue after the separation time, except as our board
otherwise may determine.
A "flip-in event" will occur under the rights agreement when a
person becomes an acquiring person otherwise than through a
"permitted offer" as described in the rights agreement. The rights
agreement defines "permitted offer" to mean a tender or exchange
offer for all outstanding shares of common stock at a price and on
terms that a majority of the independent members of our board
determines to be adequate and otherwise in our best interests and
the best interests of our stockholders.
Anytime prior to the earlier of any person becoming an acquiring
person and the expiration of the rights, we may redeem the rights in
whole, but not in part, at a redemption price of $.01 per right. At
our option, we may pay the redemption price in cash, shares of
common stock or other securities of Maverick. If our board timely
orders the redemption of the rights, the rights will terminate on
the effectiveness of that action. If a flip-in event occurs and we
do not redeem the rights, each right, other than any right that has
become null and void, will become exercisable, at the time we no
longer may redeem it, to receive the number of shares of common
stock (or, in some cases, other property) which has a "market price"
(as the rights agreement defines that term) equal to two times the
exercise price of the right.
A "flip-over event" will occur under the rights agreement when,
at any time from and after the time a person becomes an acquiring
person:
* we are acquired in a merger or other business combination
transaction, other than specified mergers that follow a
permitted offer of the type we describe above;
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<PAGE>
* 50% or more of our assets or earning power is sold or
transferred; or
* an acquiring person increases its percentage beneficial
ownership by more than one percent of common stock or other
class of stock or engages in self-dealing transactions with
us, as described in the rights agreement.
If a flip-over event occurs, each holder of a right will have
the right to receive upon exercise of the right common stock of the
surviving or purchasing company or of the acquiring person which has
a then market value equal to two times the exercise price of the
right. However, rights held by an acquiring person become void.
At any time after the occurrence of a flip-in event and prior to
a person's becoming the beneficial owner of 50% or more of our
outstanding common stock, we may exchange each outstanding right for
our stock at an exchange rate of either one share of common stock or
one one-hundredth of a share of Series I junior participating
preferred stock for each right owned, subject to adjustment.
We may supplement or amend the rights agreement without the
approval of any holders of the rights:
* to make any change prior to a flip-in event other than to
change the exercise price, the redemption price or the
expiration of the rights;
* to make any change following a flip-in event that does not
materially adversely affect the interests of holders of
rights; or
* to cure any ambiguity, defect or inconsistency.
The holder of a right cannot vote, receive dividends or take any
actions as a stockholder until the right is exercised.
The rights will have anti-takeover effects. They will cause
severe dilution to any person or group that attempts to acquire us
without the approval of our board. As a result, the overall effect
of the rights may be to render more difficult or discourage any
attempt to acquire us, even if that acquisition may be favorable to
the interests of our stockholders. Because our board can redeem the
rights or approve a permitted offer, the rights should not interfere
with a merger or other business combination that our board approves.
We have issued the rights to protect our stockholders from coercive
or abusive takeover tactics and to afford our board more negotiating
leverage in dealing with prospective acquirers.
STATUTORY BUSINESS COMBINATION PROVISION
As a Delaware corporation, we are subject to Section 203 of the
Delaware General Corporation Law. Section 203 prevents an
"interested stockholder," which is defined generally as a person
owning 15% or more of a Delaware corporation's outstanding voting
stock or any affiliate or associate of that person, from engaging in
a broad range of "business combinations" with the corporation for
three years following the date that person became an interested
stockholder unless:
* before that person became an interested stockholder, the board
of directors of the corporation approved the transaction in
which that person became an interested stockholder or approved
the business combination;
* on completion of the transaction that resulted in that
person's becoming an interested stockholder, that person owned
at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, other than
stock held by (1) directors who are also officers of the
corporation or (2) any employee stock plan that does not
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<PAGE>
provide employees with the right to determine confidentially
whether shares held subject to the plan will be tendered in a
tender or exchange offer; or
* following the transaction in which that person became an
interested stockholder, both the board of directors of the
corporation and the holders of at least 66 2/3% of the
outstanding voting stock of the corporation not owned by that
person approved the business combination.
Under Section 203, the restrictions described above also do not
apply to specific business combinations proposed by an interested
stockholder following the announcement or notification of designated
extraordinary transactions involving the corporation and a person
who had not been an interested stockholder during the previous three
years or who became an interested stockholder with the approval of a
majority of the corporation's directors, if a majority of the
directors who were directors prior to any person becoming an
interested stockholder during the previous three years or were
recommended for election or elected to succeed those directors by a
majority of those directors approve or do not oppose that
extraordinary transaction.
OTHER MATTERS
Delaware law authorizes Delaware corporations to limit or
eliminate the personal liability of their directors to them and
their stockholders for monetary damages for breach of a director's
fiduciary duty of care. The duty of care requires that, when acting
on behalf of the corporation, directors must exercise an informed
business judgment based on all material information reasonably
available to them. Absent these limitations, directors of Delaware
corporations are accountable to those corporations and their
stockholders for monetary damages for conduct constituting gross
negligence in the exercise of their duty of care. Delaware law
enables Delaware corporations to limit available relief against its
directors to equitable remedies such as injunction or rescission.
Our certificate of incorporation limits the liability of our
directors to us or our stockholders to the fullest extent Delaware
law permits, and no member of our board will be personally liable
for monetary damages for breach of the member's fiduciary duty as a
director, except for liability:
* for any breach of the member's duty of loyalty to us or our
stockholders;
* for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
* for unlawful payments of dividends or unlawful stock
repurchases or redemptions as provided in Section 174 of the
Delaware General Corporation Law; or
* for any transaction from which the member derived an improper
personal benefit.
This provision could have the effect of reducing the likelihood of
derivative litigation against our directors and may discourage or
deter our stockholders or management from bringing a lawsuit against
our directors for breach of their duty of care, even though such an
action, if successful, might otherwise have benefited our
stockholders and us. Our certificate of incorporation and our bylaws
provide indemnification to our officers and directors and other
specified persons with respect to their conduct in various
capacities.
Our certificate of incorporation provides that our stockholders
may act only at an annual or special meeting of stockholders and may
not act by written consent. Our certificate of incorporation and our
bylaws provide that only our board or a committee of our directors
designed by our board may call a special meeting of our stockholders.
A 75% vote of the outstanding voting stock is required to amend the
certificate of incorporation with respect to action of the stockholders
by written consent and the calling of special meetings of our
stockholders.
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<PAGE>
Our bylaws provide that there will be at least five and no more
than 15 directors of Maverick, as determined by the board from time
to time. Our certificate of incorporation provides that directors
may be removed only for cause. This provision, along with the
provisions of our bylaws authorizing the board to fill vacant
directorships, will prevent stockholders from removing incumbent
directors without cause and filling the resulting vacancies with
their own nominees.
STOCKHOLDER PROPOSALS
Our bylaws contain advance-notice and other procedural
requirements that apply to stockholder nominations of persons for
election to the board at any annual meeting of stockholders and to
stockholder proposals that stockholders take any other action at any
annual meeting. A stockholder proposing to nominate a person for
election to the board or proposing that any other action be taken
must give our corporate secretary written notice of the proposal not
less than 45 days and not more than 90 days prior to the anniversary
date of the date on which we first mailed our proxy materials for
the preceding annual meeting of stockholders. These stockholder
proposal deadlines are subject to exceptions if the pending annual
meeting date differs by more than specified periods from the
anniversary date of the prior year's annual meeting. Our bylaws
prescribe the specific information any advance written stockholder
notice must contain. We refer to our bylaws, which are included as
an exhibit to the registration statement that includes this
prospectus and which qualifies this summary by this reference.
TRANSFER AGENT AND REGISTRAR
Harris Trust and Savings Bank currently serves as the transfer
agent and registrar for the common stock.
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<PAGE>
<PAGE>
UNDERWRITING
Subject to the terms and conditions of an underwriting agreement,
the underwriters named below, through their representatives, Raymond
James & Associates, Inc. and Morgan Keegan & Company, Inc., have
severally agreed to purchase from us the respective number of shares
of common stock set forth opposite their names below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------- ---------
<S> <C>
Raymond James & Associates, Inc.............................
Morgan Keegan & Company, Inc................................
---------
Total...................................................
=========
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters are subject to certain conditions precedent, including
the absence of any material adverse change in our business and the
receipt of certain certificates, opinions and letters from us and
our counsel and independent auditors. The nature of the
underwriters' obligation is such that they are committed to purchase
all shares of common stock offered hereby if any of such shares are
purchased.
We have granted an option to the underwriters, exercisable for
30 days after the date of this prospectus, to purchase up to an
aggregate of 300,000 shares of common stock at the public offering
price, less the underwriting discounts and commissions, set forth on
the cover page of this prospectus. The underwriters may exercise
this option solely to cover over-allotments, if any, made on the
sale of the common stock. To the extent that the underwriters
exercise this option, each underwriter will be obligated, subject to
certain conditions, to purchase a number of additional shares of
common stock proportionate to such underwriter's initial amount set
forth in the table above.
The following table summarizes the underwriting discounts and
commissions to be paid by us to the underwriters in connection with
this offering. This information is presented assuming either no
exercise or full exercise of the underwriters' option to purchase
additional shares of common stock.
<TABLE>
<CAPTION>
PAID BY MAVERICK TUBE
CORPORATION
---------------------------------
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per common share............................................ $ $
Total....................................................... $ $
</TABLE>
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<PAGE>
We have been advised by the representatives that the
underwriters propose to offer the shares of common stock to the
public at the public offering price set forth on the cover page of
this prospectus and to certain dealers at such price less a
concession not in excess of $ per share. The underwriters
---------
may allow, and such dealers may reallow, a concession not in excess
of $ per share to certain other dealers. The offering of the
---------
shares of common stock is made for delivery when, as and if accepted
by the underwriters and subject to prior sale and to withdrawal,
cancellation or modification of this offering without notice. The
underwriters reserve the right to reject an order for the purchase
of shares in whole or in part.
We and our executive officers and directors have agreed that
for a period of 180 days after the date of this prospectus, we and
they will not, without the prior written consent of Raymond James &
Associates, Inc. directly or indirectly:
* offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant for the sale of or
otherwise dispose of or transfer any shares of our common stock
or securities convertible into or exchangeable or exercisable
for shares of our common stock, whether now owned or acquired
after the date of this prospectus by any such person or with
respect to which any such person acquires after the date of
this prospectus the power of disposition, or file any
registration statement under the Securities Act with respect
to any of the foregoing; or
* enter into any swap or other agreement or any other agreement
that transfers, in whole or in part, directly or indirectly,
the economic consequence of ownership of shares of our common
stock whether any such swap or transaction is to be settled by
delivery of our common stock or other securities in cash or
otherwise.
The foregoing restrictions, however, do not apply to:
* shares of common stock being sold under the prospectus;
* any grant of options by us for our common stock under our
stock option plans; or
* any shares of common stock issued by us pursuant to the
exercise of stock options currently outstanding or granted
under our stock option plans.
Until the offering of the shares of common stock is completed,
rules of the SEC may limit the ability of the underwriters and
certain selling group members to bid for and purchase the common
stock. As an exception to these rules, the underwriters may engage
in certain transactions that stabilize the price of the common
stock. These transactions may include short sales, stabilizing
transactions and purchases to cover positions created by short
sales. Short sales involve the sale by the underwriters of a greater
number of shares of common stock than they are required to purchase
in the offering. Stabilizing transactions consist of certain bids or
purchases made for the purpose of preventing or retarding a decline
in the market price of the common stock while the offering is in
progress.
The underwriters also may impose a penalty bid. This occurs when
a particular underwriter repays to the underwriters a portion of the
underwriting discount received by it because the representatives
have repurchased shares sold by or for the account of such
underwriter in stabilizing or short covering transactions.
These activities by the underwriters may stabilize, maintain or
otherwise affect the market price of the common stock. As a result,
the price of the common stock may be higher than the price that
otherwise might exist in the open market. If these activities are
commenced, they may be discontinued by underwriters without notice
at any time. These transactions may be effected on the Nasdaq
National Market, or otherwise.
47
<PAGE>
<PAGE>
Certain of the underwriters or their affiliates have in the past
and may in the future provide investment banking or other services
for us.
We estimate that the total expenses of this offering, excluding
underwriting discounts and commissions, will be approximately
$325,000.
We have agreed to indemnify the several underwriters against
certain liabilities, including liabilities under the Securities Act,
and to contribute to payments which the underwriters may be required
to make in respect thereof.
LEGAL MATTERS
Gallop, Johnson & Neuman, L.C., St. Louis, Missouri will render
its opinion as to the validity of the issuance of the common stock
offered in this prospectus. Certain legal matters in connection with
the shares being offered hereby will be passed upon for the
underwriters by Baker & Botts, L.L.P., Houston, Texas.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our
consolidated financial statements and schedule at September 30, 1997
and 1998, and for each of the three years in the period ended
September 30, 1998, as set forth in their report. We have included
and incorporated by reference our financial statements in the
prospectus and elsewhere in the registration statement and have
incorporated by reference our financial statement schedule in the
prospectus in reliance on Ernst & Young LLP's report, given on their
authority as experts in accounting and auditing.
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information
we file with them, which means that we can disclose important
information to you by referring to these documents. The information
incorporated by reference is considered to be part of this
prospectus except to the extent the information is superceded by
information in this prospectus, and later information that we file
with the SEC will automatically update and supercede this
information.
We incorporate by reference the documents listed below and any
documents that we subsequently file with the Commission under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended until this offering is completed:
* Our Annual Report on Form 10-K for the fiscal year ended
September 30, 1998;
* Our amendment to our Annual Report on Form 10-K/A, filed
December 16, 1998;
* Our Quarterly Reports on Form 10-Q for the periods ended
December 31, 1998, March 31, 1999, and June 30, 1999; and
* The description of our common stock contained in our
Registration Statement on Form 8-A filed October 31, 1990;
* The description of our preferred share purchase rights
contained in our Registration Statement on Form 8-A filed
August 5, 1998; and
* Our amendment to our Registration Statement on Form 8-A/A,
filed July 7, 1999.
Our SEC file number is 0-30146. You may request a copy of these
filings, at no cost, by writing or telephoning us at the following
address: 16401 Swingley Ridge Road, Seventh Floor, Chesterfield,
Missouri 63017, Attention: Secretary, Telephone: (636) 733-1600.
48
<PAGE>
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements
and other information with the SEC. You may read and copy any
document we file at the following locations:
* At the public reference room of the SEC at 450 Fifth Street,
N.W., Washington, DC 20549;
* At the public reference rooms at the SEC's regional offices at
Seven World Trade Center, 13th Floor, New York, New York 10048
or Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661;
* By writing to the SEC, Public Reference Section, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, DC 20549;
* At the offices of the Nasdaq Stock Market, Inc., 8513 Key West
Avenue, Rockville, Maryland 20850; or
* From the SEC's web site at www.sec.gov.
Please call the SEC at 1-800-SEC-0330 for further information on
the public reference rooms. Some of these locations may charge a
prescribed or modest fee for copies.
We have filed with the SEC a registration statement on Form S-3
under the Securities Act of 1933, as amended, with respect to the
shares of common stock offered under this prospectus. As permitted
by the SEC, this prospectus, which constitutes a part of the
registration statement, does not contain all the information
included in the registration statement. You may obtain this
additional information from the locations described above.
Statements contained in this prospectus as to the contents of any
contract or other document are not necessarily complete. You should
refer to the contract or other document for all the details.
49
<PAGE>
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Independent Auditors.............................. F-1
Consolidated Balance Sheets as of September 30, 1998 and
1997 and (unaudited) June 30, 1999........................ F-2
Consolidated Statements of Operations for the years ended
September 30, 1998, 1997 and 1996 and (unaudited) for the
nine months ended June 30, 1999 and 1998.................. F-3
Consolidated Statements of Stockholders' Equity for the
years ended September 30, 1998, 1997 and 1996 and
(unaudited) for the nine months ended June 30, 1999....... F-4
Consolidated Statements of Cash Flows for the years ended
September 30, 1998, 1997 and 1996 and (unaudited) for the
nine months ended June 30, 1999 and 1998.................. F-5
Notes to Consolidated Financial Statements.................. F-6
50
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Maverick Tube Corporation
We have audited the accompanying consolidated balance sheets of
Maverick Tube Corporation and subsidiaries as of September 30, 1997
and 1998, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years in
the period ended September 30, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Maverick Tube Corporation and subsidiaries at
September 30, 1997 and 1998, and the consolidated results of their
operations and their cash flows for each of the three years in the
period ended September 30, 1998, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
St. Louis, Missouri
October 28, 1998
F-1
<PAGE>
<PAGE>
<TABLE>
MAVERICK TUBE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<CAPTION>
SEPTEMBER 30,
-------------------- JUNE 30,
1997 1998 1999
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents.............................. $ 2,886 $ 748 $ 485
Accounts receivable, less allowances of $388 and $391
in 1997 and 1998 and (unaudited) $713 at June 30,
1999, respectively................................... 27,714 15,515 15,200
Inventories............................................ 69,436 61,685 46,024
Deferred income taxes.................................. 5,104 1,827 1,725
Income taxes refundable................................ -- 5,078 3,138
Prepaid expenses and other current assets.............. 798 1,200 1,739
-------- -------- --------
Total current assets....................................... 105,938 86,053 68,311
Property, plant and equipment.............................. 55,506 69,879 76,475
Other assets............................................... 620 953 604
-------- -------- --------
$162,064 $156,885 $145,390
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable....................................... $ 31,477 $ 12,301 $ 20,731
Accrued expenses and other liabilities................. 12,614 9,153 6,969
Deferred revenue....................................... 16,251 3,584 2,205
Current maturities of long-term debt................... 604 653 694
-------- -------- --------
Total current liabilities.................................. 60,946 25,691 30,599
Long-term debt, less current maturities.................... 8,879 8,226 7,669
Revolving credit facility.................................. 10,000 27,400 22,300
Deferred income taxes...................................... 4,371 5,505 3,447
Commitments and contingencies (Notes 6, 12 and 13)......... -- -- --
Stockholders' Equity:
Preferred stock, $.01 par value; 5,000,000 authorized
shares............................................... -- -- --
Common stock, $.01 par value; 40,000,000 authorized
shares; 15,410,974 and 15,437,474 shares issued and
outstanding in 1997 and 1998 and (unaudited)
15,437,474 at June 30, 1999, respectively............ 154 154 154
Additional paid-in capital............................. 43,406 44,216 44,216
Retained earnings...................................... 34,308 45,693 37,005
-------- -------- --------
77,868 90,063 81,375
-------- -------- --------
$162,064 $156,885 $145,390
======== ======== ========
(See accompanying notes.)
</TABLE>
F-2
<PAGE>
<PAGE>
<TABLE>
MAVERICK TUBE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
NINE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
-------------------------------- --------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................. $204,182 $291,060 $265,389 $213,617 $118,410
Cost of goods sold.................... 182,042 252,803 232,038 183,843 118,047
-------- -------- -------- -------- --------
Gross profit.......................... 22,140 38,257 33,351 29,774 363
Selling, general and administrative... 10,198 13,966 14,815 9,335 10,528
Start-up costs........................ -- -- -- -- 2,496
-------- -------- -------- -------- --------
Income (loss) from operations......... 11,942 24,291 18,536 20,439 (12,661)
Interest expense, net................. 2,522 2,067 1,731 1,213 901
-------- -------- -------- -------- --------
Income (loss) before income taxes..... 9,420 22,224 16,805 19,226 (13,562)
Provision (credit) for income taxes... 1,882 7,339 5,420 6,619 (4,874)
-------- -------- -------- -------- --------
Net income (loss)..................... $ 7,538 $ 14,885 $ 11,385 $ 12,607 $ (8,688)
======== ======== ======== ======== ========
Basic earnings (loss) per share....... $ .50 $ .99 $ .74 $ .82 $ (.56)
======== ======== ======== ======== ========
Diluted earnings (loss) per share..... $ .50 $ .97 $ .73 $ .81 $ (.56)
======== ======== ======== ======== ========
(See accompanying notes.)
</TABLE>
F-3
<PAGE>
<PAGE>
<TABLE>
MAVERICK TUBE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS
---------- ------ ---------- --------
<S> <C> <C> <C> <C>
Balance at October 1, 1995......................... 14,880,458 $149 $37,469 $11,885
Net income.................................... -- -- -- 7,538
Exercise of stock options..................... 63,684 1 205 --
---------- ---- ------- -------
Balance at September 30, 1996...................... 14,944,142 150 37,674 19,423
Net income..................................... -- -- -- 14,885
Exercise of stock options...................... 466,832 4 2,482 --
Tax benefit associated with the exercise of
nonqualified stock options................... -- -- 3,250 --
---------- ---- ------- -------
Balance at September 30, 1997...................... 15,410,974 154 43,406 34,308
Net income..................................... -- -- -- 11,385
Exercise of stock options...................... 26,500 -- 162 --
Tax benefit associated with the exercise of
nonqualified stock options................... -- -- 648 --
---------- ---- ------- -------
Balance at September 30, 1998...................... 15,437,474 154 44,216 45,693
Net loss<F*>................................... -- -- -- (8,688)
---------- ---- ------- -------
Balance at June 30, 1999<F*>....................... 15,437,474 $154 $44,216 $37,005
========== ==== ======= =======
<FN>
- -------------------
<F*> Unaudited
(See accompanying notes.)
</TABLE>
F-4
<PAGE>
<PAGE>
<TABLE>
MAVERICK TUBE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<CAPTION>
NINE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
--------------------------------- --------------------
1996 1997 1998 1998 1999
-------- -------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)............................... $ 7,538 $ 14,885 $ 11,385 $ 12,607 $ (8,688)
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating
activities:
Depreciation and amortization............... 5,201 5,697 6,172 4,313 5,471
Deferred income taxes....................... 585 2,577 1,161 165 (1,956)
Provision for losses on accounts
receivable................................ 339 44 3 (132) 322
Loss (gain) on sale of equipment............ (3) 50 49 -- --
Loss on write-down of software development
costs..................................... -- -- 1,605 -- --
Changes in operating assets and liabilities:
Accounts receivable..................... 175 (9,358) 12,196 10,849 (7)
Inventories............................. (17,352) (18,812) 7,751 3,250 15,661
Prepaid expenses and other current
assets................................ 5 59 (1,582) (379) 1,659
Other assets............................ 207 (67) (381) -- --
Accounts payable........................ 5,623 8,435 (19,176) (13,545) 8,430
Accrued expenses and other
liabilities........................... 3,746 5,136 (3,461) (6,176) (2,184)
Deferred revenue........................ 8,176 8,075 (12,667) (11,639) (1,379)
-------- -------- --------- -------- --------
Cash provided (used) by operating activities.... 14,240 16,721 3,055 (687) 17,329
INVESTING ACTIVITIES
Expenditures for property, plant and
equipment..................................... (5,497) (9,537) (10,717) (8,053) (11,976)
Expenditures for purchase of production
facility...................................... -- -- (11,464) -- --
Proceeds from disposals of equipment............ 3 96 30 -- --
Collection of notes receivable.................. 15 18 -- -- --
-------- -------- --------- -------- --------
Cash used by investing activities............... (5,479) (9,423) (22,151) (8,053) (11,976)
FINANCING ACTIVITIES
Proceeds from long-term borrowings and notes.... 64,250 92,400 121,000 81,751 33,100
Principal payments on long-term borrowings and
notes......................................... (73,095) (99,911) (104,204) (75,228) (38,716)
-------- -------- --------- -------- --------
(8,845) (7,511) 16,796 6,523 (5,616)
Proceeds from exercise of stock options......... 206 2,486 162 162 --
-------- -------- --------- -------- --------
Cash provided (used) by financing activities.... (8,639) (5,025) 16,958 6,685 (5,616)
-------- -------- --------- -------- --------
Increase (decrease) in cash and cash
equivalents................................... 122 2,273 (2,138) (2,055) (263)
Cash and cash equivalents at beginning of
year.......................................... 491 613 2,886 2,886 748
-------- -------- --------- -------- --------
Cash and cash equivalents at end of year........ $ 613 $ 2,886 $ 748 $ 831 $ 485
======== ======== ========= ======== ========
Supplemental disclosures of cash flow
information:
Cash paid (received) during the year for:
Interest (net of amounts capitalized of
$81, $268, $355, $254 and $428,
respectively)......................... $ 2,677 $ 2,138 $ 1,733 $ 1,257 $ 1,198
Income taxes............................ 1,370 4,020 6,242 5,824 (5,277)
(See accompanying notes.)
</TABLE>
F-5
<PAGE>
<PAGE>
MAVERICK TUBE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION PERTAINING TO THE NINE MONTHS ENDED JUNE 30, 1999
IS UNAUDITED.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Statements. The interim financial information
as of June 30, 1999 and for the nine months ended June 30, 1999 and
1998 is unaudited and reflects all adjustments, consisting of only
normal recurring items, which management considers necessary for a fair
presentation. Also, all information in the footnotes dated subsequent
to September 30, 1998 is unaudited. The results for the interim periods
are not necessarily indicative of the results for the full year.
Principles of Consolidation. The consolidated financial
statements include the accounts of Maverick Tube Corporation and its
wholly owned subsidiaries (collectively referred to as the Company).
All significant intercompany accounts and transactions have been
eliminated.
Revenue Recognition. The Company records revenue from product
sales when the product is shipped from its facilities. Prior to
January 1, 1996, the Company had recorded revenue on the sale of
energy products to certain customers at the time the goods were set
aside for storage at the customer's request. Included in the results
of operations for the year ended September 30, 1996 was a one-time
effect of this change in practice which resulted in a reduction in
net sales, gross profit, net income and basic and diluted net income
per common share of $8,700,000, $1,000,000, $839,000 and $0.06,
respectively.
Inventories. Inventories are principally valued at the lower of
average cost or market.
Property, Plant and Equipment. Property, plant and equipment
are stated on the basis of cost. Depreciation is computed under the
straight-line method over the respective assets' useful lives.
Useful lives of the Company's assets are as follows:
<TABLE>
<S> <C>
Land and leasehold improvements.............. 10 to 20 years
Buildings.................................... 20 to 40 years
Transportation equipment..................... 4 to 5 years
Machinery and equipment...................... 5 to 12 years
Furniture and fixtures....................... 3 to 7 years
</TABLE>
Income Taxes. Deferred taxes are provided on an asset and
liability method whereby deferred tax assets are recognized for
deductible temporary differences and operating loss and other tax
credit carryforwards and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities
and their tax bases.
Stock-Based Compensation. As permitted by Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," the Company follows Accounting Principles
Board Opinion No. 25 and related interpretations in accounting for
its director and employee stock options. The Company grants stock
options for a fixed number of shares to directors and employees with
an exercise price equal to the fair value of the shares at the time
of the grant. Accordingly, the Company has not recognized
compensation expense for any of its stock option grants. If the
Company had elected to recognize compensation cost based on the fair
value of the options granted at the grant date as prescribed by SFAS
No. 123, net income and earnings per share for 1996, 1997 or 1998
would not have been reduced by a material amount. The compensation
cost associated with the fair value of the options calculated in
1996, 1997 and
F-6
<PAGE>
<PAGE>
MAVERICK TUBE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
1998 is not necessarily representative of the potential effects on
reported net income in future years.
Use of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to periodically make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
Earnings per Common Share. Effective December 31, 1997, the
Company adopted SFAS No. 128, "Earnings per share." SFAS No. 128
replaced the calculation of primary and fully diluted earnings
per share with basic and dilutive earnings per share. Basic
earnings per share excludes any dilutive effects of options. Diluted
earnings per share is very similar to the previously reported fully
diluted earnings per share. All earnings per share amounts have been
presented and, where appropriate, restated to conform to the SFAS
No. 128 requirements.
The reconciliation for diluted earnings per share for the years
ended September 30, 1996, 1997 and 1998 is as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Average shares outstanding utilized in the computation of
basic earnings per share.................................. 14,940 15,018 15,437
Dilutive effect of outstanding stock options................ 60 264 127
------- ------- -------
Average shares utilized in the computation of diluted
earnings per share........................................ 15,000 15,282 15,564
======= ======= =======
Net income used in basic and diluted earnings per share..... $ 7,538 $14,885 $11,385
======= ======= =======
</TABLE>
Business Segments. The Company's two identifiable segments are
energy products, consisting of Oil Country Tubular Goods (OCTG) and
line pipe products sold primarily to customers in the energy
industry, and industrial products, consisting primarily of
structural tubing and standard pipe products. Energy products are
used in the completion of new wells and the handling and
transporting of the oil and natural gas produced from these wells.
Industrial products are sold to customers in various industries
including construction, agriculture and transportation. The
Company's products are sold primarily to a network of distributors
and are sold throughout the United States and Canada.
Sales commission expenses are charged directly to the associated
business segments. Remaining selling, general and administrative
expenses are allocated based upon the net sales dollars generated by
each segment.
In 1997, the Financial Accounting Standards Board issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 131 specifies the presentation and disclosure
requirements for business segment information. The Company is
required to adopt this statement in fiscal 1999 and has determined
that SFAS No. 131 will have no significant impact on the Company's
disclosures.
Cash Equivalents. The Company's policy is to consider demand
deposits and short-term investments with a maturity of three months
or less when purchased as cash equivalents.
F-7
<PAGE>
<PAGE>
MAVERICK TUBE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Financial Instruments. Financial instruments consist of cash
and cash equivalents, accounts receivable, accounts payable and
long-term debt obligations. The carrying value of amounts reported
in the consolidated balance sheets for cash and cash equivalents,
accounts receivable and accounts payable approximate fair value.
Management's estimate of the fair value of long-term debt
obligations is discussed in Note 6 to the consolidated financial
statements.
2. START-UP COSTS (UNAUDITED)
During September 1998, the Company acquired assets to be used
in the production of cold drawn tubular products at a production
facility in Beaver Falls, Pennsylvania. The Company incurred net
costs of $2,496,000 in the first nine months of fiscal 1999 related
to the commencement of operations at this facility. These costs are
comprised primarily of salary and related costs for the production,
sales and administrative personnel prior to the fully integrated
operation of the facility.
3. PURCHASE OF PRODUCTION FACILITY
On September 18, 1998, the Company acquired assets that will be
used in the production of cold drawn tubular products at a
production facility in Beaver Falls, Pennsylvania from PMAC, Ltd.
for $11,464,000. This facility is expected to begin production
during the Company's first quarter of fiscal 1999.
4. WRITE-DOWN OF SOFTWARE DEVELOPMENTS COSTS
During the year ended September 30, 1998, the Company recorded a
pretax charge of $1,605,000 in selling, general and administrative
expense for the write-down of certain software development costs
relating to information systems being replaced by a new enterprise
resource planning system.
5. STOCK SPLIT
On August 1, 1997, the Company declared a two-for-one stock
split effected in the form of a 100% stock dividend to all
stockholders of record as of August 12, 1997. The dividend was paid
on August 21, 1997 and increased the number of shares outstanding
from 7,544,071 to 15,088,142. Approximately $75,000 was transferred
from retained earnings to common stock to record this dividend. All
share and per share amounts, including stock option information, in
the accompanying consolidated financial statements have been
restated to reflect this stock dividend.
F-8
<PAGE>
<PAGE>
MAVERICK TUBE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT AND REVOLVING CREDIT FACILITY
Long-term debt and revolving credit facility at September 30,
1997 and 1998 and (unaudited) at June 30, 1999 consists of the
following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Capital lease obligation, secured by property, plant and
equipment (net book value $9,359,000 at September 30,
1998); payable in monthly installments (including
interest at 8.0%) of $59,479; final payment due on
August 1, 2007............................................ $ 4,875 $ 4,540 $ 4,239
Capital lease obligation, secured by property and plant (net
book value $6,629,000 at September 30, 1998); interest of
7.5% payable monthly; payable in monthly principal
installments of approximately $20,000 (plus interest)
commencing on March 1, 1996; increasing to $31,250 in
years two through seven and increasing to $240,417 in
year eight; final payment due on February 1, 2004......... 4,608 4,339 4,124
Revolving credit notes, secured by all accounts receivable
and inventories; due on September 30, 2003; interest
payable monthly at either prime or the Eurodollar rate,
adjusted by an interest margin, depending upon certain
financial measurements.................................... 10,000 27,400 22,300
------- ------- -------
19,483 36,279 30,663
Less current maturities..................................... (604) (653) (694)
------- ------- -------
$18,879 $35,626 $29,969
======= ======= =======
</TABLE>
In September 1998, the Company entered a new revolving credit
facility. The new revolving credit agreement provides for advances
up to the lesser of $50,000,000 or the eligible borrowing base as
defined in the facility agreement. At September 30, 1998, there was
$27,400,000 outstanding under this line of credit at an interest
rate of 6.61 percent.
In addition, the Company had an outstanding letter of credit
under this revolving credit agreement of $350,000 at September 30,
1998 (which expires in September 1999). Additional available
borrowings at that date were $4,913,000. The agreement includes
restrictive covenants relating to levels of funded debt and other
financial measurements and restricts the amount of dividends that
can be paid on common stock. The revolving credit agreement requires
an annual commitment fee based upon certain financial measurements.
F-9
<PAGE>
<PAGE>
MAVERICK TUBE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT AND REVOLVING CREDIT FACILITY (CONTINUED)
The present value of future minimum lease payments under the
capital lease obligations as of September 30, 1998 is as follows (in
thousands):
<TABLE>
<CAPTION>
PRESENT VALUE
TOTAL MINIMUM OF MINIMUM
LEASE PAYMENTS INTEREST LEASE PAYMENTS
-------------- -------- --------------
<S> <C> <C> <C>
1999................................................... $ 1,313 $ 660 $ 653
2000................................................... 1,320 612 708
2001................................................... 1,315 555 760
2002................................................... 1,315 493 822
2003................................................... 2,711 371 2,340
Thereafter............................................. 4,072 476 3,596
------- ------ ------
$12,046 $3,167 $8,879
======= ====== ======
</TABLE>
Property, plant and equipment at September 30, 1997 and 1998
include $17,483,000 and $18,295,000, respectively, under leases that
have been capitalized. Accumulated depreciation for these assets was
$1,815,000 and $2,307,000 at September 30, 1997 and 1998,
respectively.
The fair value of the Company's long-term debt is based on
estimates using discounted cash flow analyses, based on quoted
market prices for similar issues. The estimated fair value of debt
at September 30, 1998 was $36,802,000.
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at September 30, 1997 and 1998 and
(unaudited) at June 30, 1999 consist of the following (in
thousands):
<TABLE>
<CAPTION>
JUNE 30,
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Land........................................................ $ 1,519 $ 1,520 $ 1,520
Land and leasehold improvements............................. 521 1,132 1,132
Buildings................................................... 22,212 23,392 24,297
Transportation equipment.................................... 1,204 1,356 1,375
Machinery and equipment..................................... 54,470 71,534 82,079
Furniture and fixtures...................................... 2,780 2,838 3,344
-------- -------- --------
82,706 101,772 113,747
Less accumulated depreciation............................... (27,200) (31,893) (37,272)
-------- -------- --------
$ 55,506 $ 69,879 $ 76,475
======== ======== ========
</TABLE>
F-10
<PAGE>
<PAGE>
MAVERICK TUBE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INVENTORIES
Inventories at September 30, 1997 and 1998 and (unaudited) at
June 30, 1999 consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Finished goods.............................................. $41,188 $34,674 $25,409
Work-in-process............................................. 3,589 2,868 1,830
Raw materials............................................... 14,065 12,042 9,703
In-transit materials........................................ 6,911 7,003 4,209
Storeroom parts............................................. 3,683 5,098 4,873
------- ------- -------
$69,436 $61,685 $46,024
======= ======= =======
</TABLE>
Finished goods at September 30, 1997 and 1998 and (unaudited) at
June 30, 1999 include $13,590,000, $3,538,000 and $2,323,000,
respectively of customer-obligated inventory.
9. INCOME TAXES
The components of the provision for income taxes for the years
ended September 30, 1996, 1997 and 1998 are as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Current:
Federal................................................. $1,297 $3,804 $4,120
State................................................... -- 958 139
Deferred.................................................... 585 2,577 1,161
------ ------ ------
$1,882 $7,339 $5,420
====== ====== ======
</TABLE>
The difference between the effective income tax rate and the
U.S. federal income tax rate for the years ended September 30, 1996,
1997 and 1998 is explained as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Provision at statutory tax rate............................. $3,203 $7,845 $5,714
State and local taxes, net of federal tax benefit........... -- 958 139
Alternative minimum tax..................................... 1,282 (510) --
Operating loss carryforwards................................ (1,192) -- --
Decrease in valuation allowance............................. (1,590) (1,147) --
Benefit of foreign sales corporation........................ -- -- (354)
Other items................................................. 179 193 (79)
------ ------ ------
$1,882 $7,339 $5,420
====== ====== ======
</TABLE>
The 1996 and 1997 decreases in the valuation allowance relates
primarily to the utilization of alternative minimum tax credit
carryforwards. Realization of the Company's deferred tax assets is
dependent on generating sufficient taxable income prior to the
expiration of the net operating loss carryforwards. Although
realization is not assured, management believes it is more likely
than not that the net deferred tax assets will be realized.
F-11
<PAGE>
<PAGE>
MAVERICK TUBE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES (CONTINUED)
Temporary differences which give rise to deferred tax assets and
liabilities at September 30, 1997 and 1998 are as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1998
------ -------
<S> <C> <C>
Deferred tax assets:
Various accrued liabilities and reserves.............. $1,419 $ 1,280
Net operating loss carryforwards...................... 1,288 818
Alternative minimum tax carryforwards................. 390 598
Tax benefit associated with the exercise of
nonqualified stock options.......................... 3,250 --
------ -------
Total deferred tax assets......................... 6,347 2,696
Deferred tax liabilities:
Accelerated depreciation.............................. 5,101 5,712
Asset valuations...................................... 513 662
------ -------
Total deferred tax liabilities.................... 5,614 6,374
------ -------
Net deferred tax assets (liabilities)............. $ 733 $(3,678)
====== =======
</TABLE>
The Company has available acquired net operating loss
carryforwards of $2,320,000 at September 30, 1998 which it may use
to offset future taxable income. The acquired net operating loss
carryforwards are limited to approximately $1,160,000 annually. Any
unused amounts can be carried forward to increase the limitation in
the following taxable year. These net operating loss carryforwards
expire in 2000. The total carryforwards will be applied to financial
statement earnings after temporary differences. At September 30,
1998, the Company had alternative minimum tax credit carryforwards
of $598,000 available for income tax purposes. These credit
carryforwards do not expire.
10. DEFINED CONTRIBUTION PLANS
The Company sponsors a defined contribution 401(k) plan that is
available to substantially all employees. The plan may be amended or
terminated at any time by the Board of Directors. The Company,
although not required to, has provided matching contributions to the
plan for the years ended September 30, 1996, 1997 and 1998 of
$343,000, $590,000 and $704,000, respectively.
The Company also began sponsoring two deferred compensation
plans covering officers and key employees in 1996. One plan provides
for discretionary contributions based solely upon the Company's
profitability and the individuals' gross wages. The other plan
provides for fixed contributions to certain officers of the Company.
The Company contribution to these plans for the years ended
September 30, 1996, 1997 and 1998 was $192,000, $200,000 and
$310,000, respectively.
F-12
<PAGE>
<PAGE>
MAVERICK TUBE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. SEGMENT INFORMATION
The following table sets forth data for the years ended
September 30, 1996, 1997 and 1998 for the reportable industry
segments of energy products and industrial products. Intersegment
sales are not material. Identifiable assets are those used in the
Company's operations in each segment.
<TABLE>
<CAPTION>
ENERGY INDUSTRIAL
PRODUCTS PRODUCTS CORPORATE TOTAL
-------- ---------- --------- --------
<S> <C> <C> <C> <C>
1996:
Net sales......................................... $147,555 $56,627 $ -- $204,182
Operating income.................................. 10,529 1,413 -- 11,942
Identifiable assets............................... 87,091 32,033 6,432 125,556
Depreciation and amortization..................... 3,375 1,331 495 5,201
Capital expenditures.............................. 3,757 894 846 5,497
1997:
Net sales......................................... $223,879 $67,181 $ -- $291,060
Operating income.................................. 17,641 6,650 -- 24,291
Identifiable assets............................... 116,433 34,565 11,066 162,064
Depreciation and amortization..................... 3,760 1,455 482 5,697
Capital expenditures.............................. 8,385 363 789 9,537
1998:
Net sales......................................... $184,824 $80,565 $ -- $265,389
Operating income (loss)........................... 14,680 5,461 (1,605)<F*> 18,536
Identifiable assets............................... 99,357 46,095 11,433 156,885
Depreciation and amortization..................... 4,255 1,448 469 6,172
Capital expenditures.............................. 7,512 12,186 2,483 22,181
<FN>
- -------------------
<F*> During the year ended September 30, 1998, the Company recorded a pre-tax
charge of $1.6 million in selling, general and administrative expense for
the write-down of certain software development costs relating to
information systems being replaced by a new enterprise resource planning
system.
</TABLE>
Transactions with one significant energy customer for the years
ended September 30, 1996 and 1998 represented approximately 16
percent and 14 percent of total sales, respectively. Transactions
with two significant energy customers for the year ended September
30, 1997 represented approximately 25 percent of total sales.
Export sales were $13,244,000, $26,665,000 and $18,828,000 for
the years ended September 30, 1996, 1997 and 1998, respectively.
These energy sales were primarily to Canadian customers.
F-13
<PAGE>
<PAGE>
MAVERICK TUBE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. OPERATING LEASES
The Company rents office facilities and equipment under various
operating leases. Future minimum payments under noncancellable
operating leases with initial or remaining terms in excess of one
year, are as follows at September 30, 1998 (in thousands):
<TABLE>
<S> <C>
1999................................................... $2,142
2000................................................... 1,971
2001................................................... 1,687
2002................................................... 1,316
2003................................................... 1,357
------
$8,473
======
</TABLE>
Rent expense for all operating leases was $973,000, $1,222,000
and $1,937,000 for the years ended September 30, 1996, 1997 and
1998, respectively.
13. CONTINGENCIES
Various claims, incidental to the ordinary course of business,
are pending against the Company. In the opinion of management, after
consultations with legal counsel, resolution of these matters is not
expected to have a material effect on the accompanying financial
statements.
14. STOCK OPTION PLANS
The Company sponsors two employee stock option plans (the "1990
Plan" and the "1994 Plan") allowing for incentive stock options and
nonqualified stock options. The Company also sponsors a stock option
plan for eligible directors (the "Director Plan") allowing for
non-qualified stock options. The 1990 Plan, 1994 Plan and the
Director Plan provide that 340,000, 1,000,000 and 200,000 shares,
respectively, may be issued under the plans at an option price not
less than the fair market value of the stock at the time the option
is granted. The 1990 Plan, 1994 Plan, and the Director Plan expire
in December 2000, November 1999 and November 2004, respectively. The
options vest pursuant to the schedule set forth for each option.
Effective August 29, 1997, the Compensation Committee of the Board
of Directors removed the exercise restriction with respect to
certain options granted in 1995 which made them immediately
exercisable. At September 30, 1997 and 1998, 272,500 and 607,500
shares were available for grant under the option plans.
The fair value of the options granted was estimated at the date
of grant using a Black-Scholes option pricing model with the
following weighted average assumptions for fiscal years ended
September 30, 1996, 1997 and 1998, respectively: risk-free interest
rate of 6.05%, 5.53% and 5.57%; no dividend payments expected;
volatility factors of the expected market price of the Company's
common stock of 0.478, 0.478 and 0.555; and a weighted-average
expected life of the options of 4.7 years, 1.0 year and 7.2 years.
The Black-Scholes option valuation model was developed for use
in estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option
valuation models require the input of subjective assumptions
including the expected stock price volatility. Because the Company's
stock options have characteristics significantly different from
those of traded options and because changes in the subjective input
assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide
a reliable single measure of the fair value of its stock options.
F-14
<PAGE>
<PAGE>
MAVERICK TUBE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. STOCK OPTION PLANS (CONTINUED)
The following table summarizes option activity and related
information for years ended September 30, 1996, 1997 and 1998:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
SHARES UNDER AVERAGE AVERAGE
OPTION EXERCISE PRICE FAIR VALUE
------------ -------------- ----------
<S> <C> <C> <C>
Options outstanding at October 1, 1995.................. 798,000 $ 5.26
Options exercised....................................... (63,684) 3.25
Options expired......................................... (146,316) 5.37
Options granted......................................... 284,000 5.29 $2.42
-------- ------
Options outstanding at September 30, 1996............... 872,000 5.39
Options exercised....................................... (466,832) 5.33
Options expired......................................... (3,000) 5.92
Options granted......................................... 37,500 8.50 $1.80
-------- ------
Options outstanding at September 30, 1997............... 439,668 5.71
Options exercised....................................... (26,500) 6.13
Options expired......................................... (60,000) 5.31
Options granted......................................... 125,000 15.11 $2.20
-------- ------
Options outstanding at September 30, 1998............... 478,168 $ 8.20
======== ======
</TABLE>
The following table summarizes information about fixed stock
options outstanding at September 30, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- -------------------------
RANGE OF WEIGHTED-AVERAGE WEIGHTED- WEIGHTED-
EXERCISE REMAINING AVERAGE AVERAGE
PRICES OPTIONS CONTRACTUAL LIFE EXERCISE PRICE OPTIONS EXERCISE PRICE
- -------- ------- ---------------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C>
$4.00 to $5.88................ 181,986 3.4 years $ 4.57 71,986 $ 5.44
$6.13 to $8.50................ 171,182 3.2 $ 7.00 81,182 $ 7.42
$11.38 to $21.75.............. 125,000 7.8 $15.11 45,000 $21.75
------- --------- ------ ------- ------
$4.00 to $21.75............... 478,168 4.5 $ 8.20 198,168 $ 9.96
======= ========= ====== ======= ======
</TABLE>
15. SHAREHOLDER RIGHTS PLAN
In July 1998, the Company's Board of Directors adopted a common
stock shareholder rights plan ("Right") which entitles each
shareholder of record to receive a dividend distribution of common
stock upon the occurrence of certain events. The Right becomes
exercisable the day that a public announcement is made that a person
or group of affiliated or associated persons has acquired, or
obtained the right to acquire, beneficial ownership of 20% or more
of the outstanding shares of common stock, or the tenth day
following the commencement of a tender offer or exchange offer that
would result in a person or a group becoming the beneficial owners
of 20% or more of such outstanding share of common stock. When
exercisable, each Right entitles the holder to purchase $100 worth
of the Company's common stock for $50. Until a Right is exercised or
exchanged, the holder thereof will have no rights as a shareholder
of the Company, including, without limitation, the right to receive
dividends. The Right is subject to redemption by the Company's Board
of Directors for $.01 per Right at any time prior to the date which
a person or
F-15
<PAGE>
<PAGE>
MAVERICK TUBE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. SHAREHOLDER RIGHTS PLAN (CONTINUED)
group acquires beneficial ownership of 20% or more of the Company's
common stock or subsequent thereto at the option of the Board of
Directors. The Rights expire July 23, 2008.
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
The results of operations by quarter for 1997 and 1998 were as
follows (in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1996 1997 1997 1997
------------ --------- -------- -------------
<S> <C> <C> <C> <C>
1997
Net sales...................................... $64,190 $66,920 $74,669 $85,281
Gross profit................................... 6,663 7,692 9,794 14,108
Net income..................................... 2,608 2,978 3,938 5,361
Basic earnings per share....................... .18 .20 .26 .35
Diluted earnings per share..................... .18 .19 .25 .35
<CAPTION>
QUARTER ENDED
------------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1997 1998 1998 1998
------------ --------- -------- -------------
<S> <C> <C> <C> <C>
1998
Net sales...................................... $86,479 $70,548 $56,590 $51,773
Gross profit................................... 13,774 10,329 5,671 3,578
Net income (loss).............................. 6,570 4,707 1,330 (1,221)<F*>
Basic earnings (loss) per share................ .43 .30 .09 (.08)<F*>
Diluted earnings (loss) per share.............. .42 .30 .09 (.08)<F*>
<FN>
- -------------------
<F*> During the quarter ended September 30, 1998, the Company recorded a
pre-tax charge of $1.6 million in selling, general and administrative
expense for the write-down of certain software development costs relating
to information systems being replaced by a new enterprise resource
planning system.
</TABLE>
17. SUBSEQUENT EVENTS (UNAUDITED)
The Company entered into an Asset Purchase Agreement dated
September 3, 1999 to purchase mill equipment at a purchase price of
$11.75 million. This equipment will be used by the Company in
connection with the construction and equipping of a new large
diameter pipe and tubing facility adjacent to its existing
facilities in Hickman, Arkansas. The Company estimates that the
total cost for this project will be $35 million. The funding for
this project will be raised primarily from a public offering of
common stock of the Company.
F-16
<PAGE>
<PAGE>
[PHOTO]
Hickman, Arkansas
Maverick Plants are located in Hickman, Arkansas; Conroe, Texas;
and Beaver Falls, Pennsylvania. Sold through a network of
distributors and service centers, Maverick products are used
throughout the United States and Canada.
[PHOTO]
Conroe, Texas
<PAGE>
<PAGE>
==========================================================
- ----------------------------------------------------------
TABLE OF CONTENTS
PAGE
----
Forward-looking Statements...................... 3
Prospectus Summary.............................. 4
Risk Factors.................................... 8
Use of Proceeds................................. 12
Price Range of Common Stock..................... 12
Dividend Policy................................. 13
Capitalization.................................. 13
Selected Consolidated Financial Data............ 14
Management's Discussion and Analysis Of
Financial Condition and Results
of Operations................................. 15
Business........................................ 26
Management...................................... 38
Principal Stockholders.......................... 40
Description of Capital Stock.................... 40
Underwriting.................................... 46
Legal Matters................................... 48
Experts......................................... 48
Incorporation of Documents by
Reference..................................... 48
Where You Can Find More
Information................................... 49
Index to Consolidated Financial Statements...... 50
- ----------------------------------------------------------
==========================================================
==========================================================
- ----------------------------------------------------------
2,000,000 SHARES
[Maverick Logo]
COMMON STOCK
-------------------
P R O S P E C T U S
-------------------
RAYMOND JAMES &
ASSOCIATES, INC.
MORGAN KEEGAN &
COMPANY, INC.
, 1999
- ----------------------------------------------------------
==========================================================
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses expected
to be incurred in connection with the issuance and distribution of
the shares being registered, other than the underwriting discounts
and commissions. Except for the SEC registration fee and the NASD
filing fee, all expenses are estimated.
<TABLE>
<S> <C>
SEC registration fee................................. $ 14,066
NASD review fee...................................... 5,560
Nasdaq listing fee................................... 17,500
Printing and engraving expenses...................... 60,000
Legal fees and expenses.............................. 100,000
Accounting fees and expenses......................... 60,000
Transfer Agent fees.................................. 5,000
Miscellaneous........................................ 62,874
--------
Total............................................ $325,000
========
</TABLE>
Item 15. Indemnification of Directors and Officers
Section 145 of the General Corporation Law of the State of
Delaware permits indemnification by a corporation of certain
officers, directors, employees and agents. Consistent therewith,
Article III, Section 16 of Maverick's Amended and Restated Bylaws
(the "BYLAWS") requires that Maverick indemnify all persons whom it
may indemnify pursuant thereto to the fullest extent permitted by
Section 145. Article III, Section 16 of the Bylaws also provides
that expenses incurred by an officer or director of Maverick or any
of its direct or indirect wholly owned subsidiaries, in defending a
civil or criminal action, suit or proceeding, will be paid by
Maverick in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such
officer, director, employee or agent to repay such amount if it
shall ultimately be determined that he is not entitled to be
indemnified by Maverick as authorized. Such expenses incurred by
other employees and agents may be so paid upon such terms and
conditions, if any, as the Board of Directors deems appropriate.
Maverick maintains a claims-made policy of directors' and
officers' liability and company reimbursement insurance. The
directors' and officers' liability portion of such policy covers all
directors and officers of Maverick and subsidiary companies, more
than 50 percent of the outstanding voting stock of which is directly
or indirectly owned by Maverick. The policy provides for a payment
on behalf of the directors and officers up to the policy limits for
all Losses (as defined) which the directors and officers, or any of
them, shall become legally obligated to pay, from claims made
against them during the policy period for Wrongful Acts (as
defined), which include: errors, misstatements, misleading
statements, acts or omissions and neglect or breach of duty in the
discharge of their duties, solely in their capacity as directors and
officers of Maverick or a subsidiary thereof, individually or
collectively, or in connection with any matter claimed against them
solely by reason of their being directors or officers of Maverick or
such subsidiary. The insurance includes the cost of defenses,
appeals, bonds, settlements and judgments. The insurer's limit of
liability under the policy is $5,000,000 in the aggregate for all
Losses per year. The policy contains various reporting requirements
and exclusions. Maverick also maintains a claims-made policy which
provides coverage for Maverick, its directors and officers, against
loss, liability, cost or expense (as defined) incurred under the
federal securities laws.
II-1
<PAGE>
<PAGE>
Item 16. Exhibits
EXHIBIT
NUMBER DESCRIPTION
------- -----------
1.1 Form of Underwriting Agreement (filed herewith).
3.1 Amended and Restated Certificate of Incorporation of the
Registrant, incorporated herein by reference to Exhibit 3.2
to the Registrant's Registration Statement on Form S-1, File
No. 33-37363.
3.2 Certificate of Designations of Rights, Preferences and
Privileges of Series I Junior Participating Preferred Stock
(filed with initial filing).
3.3 Amendment of Certificate of Amended and Restated Certificate
of Incorporation dated September 2, 1998 (filed with initial
filing).
3.4 Amended and Restated Bylaws of the Registrant as amended,
incorporated herein by reference to Exhibit 3.2 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended September 30, 1998.
4.1 Shareholder Rights Agreement dated as of July 24, 1998
between the Registrant and Harris Trust and Savings Bank as
Rights Agent incorporated herein by reference to Exhibit 1
of the Registrant's Form 8-A filed on August 5, 1998.
4.2 Form of Stock Certificate for Common Stock, incorporated
herein by reference to Exhibit 4.1 to the 1991 Registration
Statement.
5.1 Opinion of Gallop, Johnson & Neuman, L.C. (filed herewith).
23.1 Consent of Ernst & Young LLP, independent auditors (filed
herewith).
23.2 Consent of Gallop, Johnson & Neuman, L.C. (included in
Exhibit 5.1).
24.1 Power of Attorney (included on signature page of initial filing).
99.1 Asset Purchase Agreement dated as of September 3, 1999
for the Registrant's purchase of certain equipment to be used
in the manufacture of large-diameter steel pipe and tubular
products (filed herewith).
Item 17. Undertakings
1. The undersigned registrant hereby undertakes that:
* For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus
filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of
this registration statement as of the time it was declared
effective.
* For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
* For purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report
pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934 (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be
a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
<PAGE>
2. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the SEC such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Securities Act of
1933 and will be governed by the final adjudication of such issue.
II-3
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-3 and has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chesterfield,
State of Missouri, on September 20, 1999.
Maverick Tube Corporation
/s/ Gregg M. Eisenberg
-----------------------------------------------
Gregg M. Eisenberg
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in
the capacities on the dates indicated.
<TABLE>
<C> <S> <C>
/s/ Gregg M. Eisenberg Chairman, President and September 20, 1999
------------------------------------------- Chief Executive Officer
Gregg M. Eisenberg and Director
/s/ Barry R. Pearl Vice President Finance September 20, 1999
------------------------------------------- and Administration
Barry R. Pearl Principal Financial and
Accounting Officer
William E. Macaulay<F*> Director September 20, 1999
-------------------------------------------
William E. Macaulay
John M. Fox<F*> Director September 20, 1999
-------------------------------------------
John M. Fox
C. Robert Bunch<F*> Director September 20, 1999
-------------------------------------------
C. Robert Bunch
C. Adams Moore<F*> Director September 20, 1999
-------------------------------------------
C. Adams Moore
Director , 1999
------------------------------------------- ------------
David H. Kennedy
Wayne P. Mang<F*> Director September 20, 1999
-------------------------------------------
Wayne P. Mang
<FN>
<F*>/s/ Barry R. Pearl
-------------------------------------------
Barry R. Pearl, as attorney-in-fact
</TABLE>
II-4
<PAGE>
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
1.1 Form of Underwriting Agreement (filed herewith).
3.1 Amended and Restated Certificate of Incorporation of the
Registrant, incorporated herein by reference to Exhibit 3.2
to the Registrant's Registration Statement on Form S-1, File
No. 33-37363.
3.2 Certificate of Designations of Rights, Preferences and
Privileges of Series I Junior Participating Preferred Stock
(filed with initial filing).
3.3 Amendment of Certificate of Amended and Restated Certificate
of Incorporation dated September 2, 1998 (filed with initial
filing).
3.4 Amended and Restated Bylaws of the Registrant as amended,
incorporated herein by reference to Exhibit 3.2 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended September 30, 1998.
4.1 Shareholder Rights Agreement dated as of July 24, 1998
between the Registrant and Harris Trust and Savings Bank as
Rights Agent incorporated herein by reference to Exhibit 1
of the Registrant's Form 8-A filed on August 5, 1998.
4.2 Form of Stock Certificate for Common Stock, incorporated
herein by reference to Exhibit 4.1 to the 1991 Registration
Statement.
5.1 Opinion of Gallop, Johnson & Neuman, L.C. (filed herewith).
23.1 Consent of Ernst & Young LLP, independent auditors (filed
herewith).
23.2 Consent of Gallop, Johnson & Neuman, L.C. (included in
Exhibit 5.1).
24.1 Power of Attorney (included on signature page of initial filing).
99.1 Asset Purchase Agreement dated as of September 3, 1999
for the Registrant's purchase of certain equipment to be used
in the manufacture of large-diameter steel pipe and tubular
products (filed herewith).
II-5
<PAGE>
2,000,000 SHARES
MAVERICK TUBE CORPORATION
COMMON STOCK
__________
UNDERWRITING AGREEMENT
St. Petersburg, Florida
September __, 1999
Raymond James & Associates, Inc.
Morgan Keegan & Company, Inc.
As Representatives of the Several Underwriters
c/o Raymond James & Associates, Inc.
880 Carillon Parkway
St. Petersburg, Florida 33716
Dear Sirs:
Maverick Tube Corporation, a Delaware corporation (the "Company"),
proposes to issue and sell to the underwriters named in Schedule I
annexed hereto (the "Underwriters") an aggregate of 2,000,000 shares of
Common Stock, par value $.01 per share (the "Common Stock"), of the
Company. As used herein, all references to "Common Stock" shall include
the associated Preferred Stock Purchase Rights issued pursuant to the
Shareholder Rights Agreement dated as of July 24, 1998 between the
Company and Harris Trust and Savings Bank, as rights agent. The
aggregate of 2,000,000 shares to be purchased from the Company are
herein called the "Firm Shares." In addition, the Company has agreed to
sell to the Underwriters, upon the terms and conditions set forth
herein, up to 300,000 additional shares of Common Stock (the "Additional
Shares") to cover over-allotments by the Underwriters, if any. The Firm
Shares and, to the extent such option is exercised, the Additional
Shares are hereinafter collectively referred to as the "Shares." Raymond
James & Associates, Inc. and Morgan Keegan & Company, Inc. are acting as
the representatives of the several Underwriters and in such capacity are
hereinafter referred to as the "Representatives."
The Company wishes to confirm as follows its agreement with you
and the other several Underwriters, on whose behalf you are acting, in
connection with the several purchases of the Shares from the Company.
1. SECTION 1. REGISTRATION STATEMENT AND PROSPECTUS. The
Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations of
the Commission thereunder (collectively, the "Act"), a registration
statement on Form S-3 (File No. 333-87045), including a prospectus
subject to completion, relating to the Shares. Such registration
statement (including all financial schedules and exhibits), as amended
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<PAGE>
RAYMOND JAMES & ASSOCIATES, INC. Page 2
at the time when it becomes effective and as thereafter amended by any
post effective amendment, is referred to in this Agreement as the
"Registration Statement." The prospectus in the form included in the
Registration Statement, or, if the prospectus included in the
Registration Statement omits information in reliance upon Rule 430A
under the Act and such information is included in a prospectus filed
with the Commission pursuant to Rule 424(b) under the Act or as part of
a post-effective amendment to the Registration Statement after the
Registration Statement becomes effective, the prospectus as so filed, is
referred to in this Agreement as the "Prospectus." If the Company
elects to rely on Rule 434 under the Act, all references to the
Prospectus shall be deemed to include, without limitation, the form of
prospectus and the term sheet contemplated by Rule 434, taken together,
provided to the Underwriters by the Company in reliance on Rule 434
under the Act. If the Company files another registration statement with
the Commission to register a portion of the Shares pursuant to Rule
462(b) under the Act (the "Rule 462 Registration Statement"), then any
reference to "Registration Statement" herein shall be deemed to include
the registration statement on Form S-3 (File No. 87045) and the Rule 462
Registration Statement, as each such registration statement may be
amended pursuant to the Act. The prospectus subject to completion in
the form included in the Registration Statement at the time of the
initial filing of such Registration Statement with the Commission and as
such prospectus is amended from time to time until the date of the
Prospectus are collectively referred to in this Agreement as the
"Prepricing Prospectus." Any reference in this Agreement to the
Registration Statement, any Prepricing Prospectus or the Prospectus
shall be deemed to refer to and include the documents incorporated by
reference therein pursuant to Item 12 of Form S-3 under the Act, as of
the date of the Registration Statement, such Prepricing Prospectus or
the Prospectus, as the case may be, and any reference to any amendment
or supplement to the Registration Statement, any Prepricing Prospectus
or the Prospectus shall be deemed to refer to and include any documents
filed after such date under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") which, upon filing, are incorporated by
reference therein, as required by paragraph (b) of Item 12 of Form S-3.
As used herein, the term "Incorporated Documents" means the documents
which at the time are incorporated by reference in the Registration
Statement, any Prepricing Prospectus, the Prospectus, or any amendment
or supplement thereto.
SECTION 2. AGREEMENTS TO SELL AND PURCHASE. The Company hereby
agrees to sell the Firm Shares to the Underwriters and, upon the basis
of the representations, warranties and agreements of the Company herein
contained and subject to all the terms and conditions set forth herein,
each Underwriter agrees, severally and not jointly, to purchase from the
Company at a purchase price of $______ per Share (the "purchase price
per Share"), the number of Firm Shares set forth opposite the name of
such Underwriter in Schedule I hereto (or such number of Firm Shares as
adjusted pursuant to Section 10 hereof).
The Company also agrees to sell up to 300,000 Additional Shares to
the Underwriters and, upon the basis of the representations, warranties
and agreements of the Company herein contained and subject to all the
terms and conditions set forth herein, the Underwriters shall have the
right for 30 days from the date of this Agreement to purchase from the
Company up to 300,000 Additional Shares at the purchase price per Share
for the Firm Shares. The Additional Shares may be purchased solely for
the purpose of covering over-allotments, if any, made in connection with
the offering of the Firm Shares. If any Additional Shares are to be
purchased, each Underwriter agrees, severally and not jointly, to
purchase the number of Additional Shares
<PAGE>
<PAGE>
RAYMOND JAMES & ASSOCIATES, INC. Page 3
(subject to such adjustments as you may determine to avoid fractional
shares) which bears the same proportion to the total number of
Additional Shares to be sold as the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I hereto (or such
number of Firm Shares as adjusted pursuant to Section 10 hereof) bears
to 2,000,000.
SECTION 3. TERMS OF PUBLIC OFFERING. The Company has been
advised by you that the Underwriters propose to make a public offering
of their respective portions of the Shares as soon after the
Registration Statement and this Agreement have become effective as in
your judgment is advisable and initially to offer the Shares upon the
terms set forth in the Prospectus.
SECTION 4. DELIVERY OF THE SHARES AND PAYMENT THEREFOR. Delivery
to the Underwriters of the Firm Shares and payment therefor shall be
made at the offices of Raymond James & Associates, Inc., 880 Carillon
Parkway, St. Petersburg, Florida, at 10:00 a.m., St. Petersburg, Florida
time, on ___________, 1999 (the "Closing Date"). The place of delivery
for the Firm Shares and the Closing Date may be varied by agreement
between the Representatives and the Company.
Delivery to the Underwriters of and payment for any Additional
Shares to be purchased by the Underwriters shall be made at the offices
of Raymond James & Associates, Inc., 880 Carillon Parkway, St.
Petersburg, Florida, at 10:00 a.m., St. Petersburg, Florida time, on
such date or dates (the "Additional Closing Date") (which may be the
same as the Closing Date but shall in no event be earlier than the
Closing Date nor earlier than three nor later than ten business days
after the giving of the notice hereinafter referred to), as shall be
specified in a written notice from you on behalf of the Underwriters to
the Company, of the Underwriters' determination to purchase a number,
specified in such notice, of Additional Shares. Such notice may be
given to the Company by you at any time within 30 days after the date of
this Agreement. The place of delivery for the Additional Shares and the
Additional Closing Date may be varied by agreement between you and the
Company.
Certificates for the Firm Shares and for any Additional Shares to
be purchased hereunder shall be registered in such names and in such
denominations as you shall request prior to 1:00 p.m., St. Petersburg,
Florida time, on the second business day preceding the Closing Date or
the Additional Closing Date, as the case may be. Such certificates
shall be made available to you in St. Petersburg, Florida for inspection
and packaging not later than 9:30 a.m., St. Petersburg, Florida time, on
the business day immediately preceding the Closing Date or the
Additional Closing Date, as the case may be. The certificates
evidencing the Firm Shares and any Additional Shares to be purchased
hereunder shall be delivered to you on the Closing Date or the
Additional Closing Date, as the case may be, against payment of the
purchase price therefor by wire transfer in immediately available funds,
to the account specified by the Company to the Underwriters no later
than the business day prior to the Closing Date.
SECTION 5. AGREEMENTS OF THE COMPANY. The Company agrees with
the several Underwriters as follows:
(a) The Company will use commercially reasonable efforts
to cause the Registration Statement to become effective, if it has
not already become effective, and will advise you promptly and, if
requested by you, will confirm such advice in writing (i)
<PAGE>
<PAGE>
RAYMOND JAMES & ASSOCIATES, INC. Page 4
when the Registration Statement has become effective and when any
post-effective amendment thereto becomes effective, (ii) if
Rule 430A under the Act is employed, when the Prospectus or term
sheet (as described in Rule 434(b) under the Act) has been timely
filed pursuant to Rule 424(b) under the Act, (iii) of any request
by the Commission for amendments or supplements to the
Registration Statement, any Prepricing Prospectus or the
Prospectus or for additional information, (iv) of the issuance by
the Commission of any stop order suspending the effectiveness of
the Registration Statement or of the suspension of qualification
of the Shares for offering or sale in any jurisdiction or the
initiation (or threatened initiation) of any proceeding for such
purposes, and (v) within the period of time referred to in Section
5(e) below, of any change in the Company's condition (financial or
other), business, prospects, properties, net worth or results of
operations, or of any event that comes to the attention of the
Company that makes any statement made in the Registration
Statement or the Prospectus (as then amended or supplemented)
untrue in any material respect or that requires the making of any
additions thereto or changes therein in order to make the
statements therein not misleading, or of the necessity to amend or
supplement the Prospectus (as then amended or supplemented) to
comply with the Act or any other law. If at any time the
Commission shall issue any stop order suspending the effectiveness
of the Registration Statement, the Company will use commercially
reasonable efforts to obtain the withdrawal or lifting of such
order at the earliest possible time. If the Company elects to
rely on Rule 434 under the Act, the Company will provide the
Underwriters with copies of the form of Rule 434 Prospectus
(including copies of a term sheet that complies with the
requirements of Rule 434 under the Act), in such number as the
Underwriters may reasonably request, and file with the Commission
in accordance with Rule 424(b) of the Act the form of Prospectus
complying with Rule 434(c) of the Act before the close of business
on the first business day immediately following the date hereof.
If the Company elects not to rely on Rule 434 under the Act, the
Company will provide the Underwriters with copies of the form of
Prospectus, in such number as the Underwriters may reasonably
request, and file with the Commission such Prospectus in
accordance with Rule 424(b) of the Act before the close of
business on the first business day immediately following the date
hereof.
(b) The Company will furnish to you, without charge, such
copies of the Registration Statement as originally filed with the
Commission and of each amendment thereto, including financial
statements and all exhibits thereto, as you may reasonably request
and will also furnish to you, without charge, such number of
conformed copies of the Registration Statement as originally filed
and of each amendment thereto as you may reasonably request.
(c) The Company will not file any Rule 462 Registration
Statement or any amendment to the Registration Statement or make
any amendment or supplement to the Prospectus of which you shall
not previously have been advised (with a reasonable opportunity to
review such amendment or supplement) or to which you have
reasonably objected after being so advised and having been given a
reasonable opportunity to review same.
(d) Prior to the execution and delivery of this Agreement,
the Company has delivered or will deliver to you, without charge,
in such quantities as you have requested
<PAGE>
<PAGE>
RAYMOND JAMES & ASSOCIATES, INC. Page 5
or may hereafter reasonably request, copies of each form of the
Prepricing Prospectus. The Company consents to the use, in
accordance with the provisions of the Act and with the securities
or Blue Sky laws of the jurisdictions in which the Shares are
offered by the several Underwriters and by dealers, prior to the
date of the Prospectus, of each Prepricing Prospectus so furnished
by the Company.
(e) As soon after the execution and delivery of this
Agreement as is reasonably practicable and thereafter from time to
time for such period as in the reasonable opinion of counsel for
the Underwriters a prospectus is required by the Act to be
delivered in connection with sales by any Underwriter or a dealer,
and for so long a period as you may request for the distribution
of the Shares, the Company will deliver to each Underwriter and
each dealer, without charge, as many copies of the Prospectus (and
of any amendment or supplement thereto) as they may reasonably
request. The Company consents to the use of the Prospectus (and
of any amendment or supplement thereto) in accordance with the
provisions of the Act and with the securities or Blue Sky laws of
the jurisdictions in which the Shares are offered by the several
Underwriters and by all dealers to whom Shares may be sold, both
in connection with the offering and sale of the Shares and for
such period of time thereafter as the Prospectus is required by
the Act to be delivered in connection with sales by any
Underwriter or dealer. If at any time prior to the later of (i)
the completion of the distribution of the Shares pursuant to the
offering contemplated by the Registration Statement or (ii) the
expiration of the prospectus delivery requirements with respect to
the Shares under section 4(3) of the Act and Rule 174 thereunder,
any event shall occur that in the judgment of the Company or in
the opinion of counsel for the Underwriters is required to be set
forth in the Prospectus (as then amended or supplemented) or
should be set forth therein in order to make the statements
therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary to supplement or amend
the Prospectus to comply with the Act or any other law, the
Company will forthwith prepare and, subject to Section 5(a) and
5(c) hereof, file with the Commission and use its best efforts to
cause to become effective as promptly as possible an appropriate
supplement or amendment thereto, and will furnish to each
Underwriter and to each dealer who has previously requested
Prospectuses, without charge, a reasonable number of copies
thereof.
(f) The Company will cooperate with you and counsel for
the Underwriters in connection with the registration or
qualification of the Shares for offering and sale by the several
Underwriters and by dealers under the securities or Blue Sky laws
of such jurisdictions as you may reasonably designate and will
file such consents to service of process or other documents as may
be reasonably necessary in order to effect and maintain such
registration or qualification for so long as required to complete
the distribution of the Shares; provided that in no event shall
the Company be obligated to qualify to do business in any
jurisdiction where it is not now so qualified, to subject itself
to taxation as a result of doing business in any jurisdiction
where it is not now so subject to taxation, to qualify as a dealer
in securities in any jurisdiction or to take any action which
would subject it to service of process in suits, other than those
arising out of the offering or sale of the Shares, in any
jurisdiction where it is not now so subject. In the event that
the qualification of the Shares in any jurisdiction is suspended,
the Company shall so advise you promptly in writing.
<PAGE>
<PAGE>
RAYMOND JAMES & ASSOCIATES, INC. Page 6
(g) The Company will make generally available to its
security holders a consolidated earnings statement, which need not
be audited, covering a period of at least twelve months commencing
after the effective date of the Registration Statement and the
Rule 462 Registration Statement, if any, and ending not later than
15 months thereafter, as soon as reasonably practicable after the
end of such period, which consolidated earnings statement shall
satisfy the provisions of Section 11 (a) of the Act and Rule 158
promulgated thereunder.
(h) During the period ending five years from the date
hereof, the Company will furnish to you and, upon your request, to
each of the other underwriters (i) as soon as available, a copy of
each report or proxy statement, quarterly or annual report or
other report of the Company mailed to stockholders or filed with
the Commission, the National Association of Securities Dealers,
Inc. (the "NASD") or the Nasdaq National Market or any securities
exchange, and (ii) from time to time such other information
concerning the Company as you may reasonably request.
(i) If this Agreement shall terminate or shall be
terminated after execution pursuant to any provisions hereof
(other than as a result of a failure by the Representatives or any
Underwriter to fulfill their or its obligations hereunder or
pursuant to clauses (i)-(iii) of Section 11) or if this Agreement
shall be terminated by the Underwriters because of any failure or
refusal on the part of the Company to comply with the terms or
fulfill any of the conditions of this Agreement, the Company
agrees to reimburse the Representatives for all out-of-pocket
expenses (including fees and expenses of counsel for the
Underwriters but excluding wages and salaries paid by the
Representatives) reasonably incurred by you in connection
herewith.
(j) The Company will apply the net proceeds from the sale
of the Shares to be sold by it hereunder in accordance with the
description set forth in the Prospectus under the caption "Use of
Proceeds."
(k) If Rule 430A under the Act is employed, the Company
will timely file the Prospectus or term sheet (as described in
Rule 434(b) under the Act) pursuant to Rule 424(b) under the Act.
(l) The Company will not (i) offer, pledge, sell, contract
to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant for
the sale of or otherwise dispose of or transfer any shares of
Common Stock or securities convertible into or exchangeable or
exercisable for shares of Common Stock, whether now owned or
acquired after the date of the Prospectus or with respect to which
the power of disposition is acquired after the date of the
Prospectus, or file any registration statement under the Act with
respect to any of the foregoing; or (ii) enter into any swap or
other agreement or any other agreement that transfers, in whole or
in part, directly or indirectly, the economic consequences of
ownership of shares of Common Stock whether any such swap or
transaction is to be settled by delivery of Common Stock or other
securities, in cash or otherwise except to the Underwriters
pursuant to this Agreement for a period of 180 days from the date
of the Prospectus without the prior written consent of Raymond
James & Associates, Inc.; provided, however, that the
<PAGE>
<PAGE>
RAYMOND JAMES & ASSOCIATES, INC. Page 7
Company may issue shares of Common Stock or securities convertible
into or exercisable or exchangeable for shares of Common Stock
pursuant to the Maverick Tube Corporation Amended and Restated
1990 Stock Option Plan, the Maverick Tube Corporation 1994 Stock
Option Plan, the Maverick Tube Corporation Director Stock Option
Plan dated February 15, 1995 and pursuant to other employee
benefit and compensation arrangements currently in effect.
(m) The Company will not, directly or indirectly, take any
action which would constitute, or any action designed or which
might reasonably be expected to cause or result in or constitute,
under Act or otherwise, stabilization or manipulation of the price
of any security of the Company to facilitate the sale or resale of
the Shares.
(n) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of its incorporation or the rules
of the Nasdaq National Market or any national securities exchange
on which the Common Stock is listed, a registrar (which, if
permitted by applicable laws and rules, may be the same entity as
the transfer agent) for its Common Stock.
(o) Prior to the Closing Date or the Additional Closing
Date, as the case may be, the Company will furnish to you, as
promptly as possible, copies of any unaudited interim consolidated
financial statements of the Company and each of the subsidiaries
of the Company identified on Schedule II attached hereto
("Subsidiary" or, collectively, the "Subsidiaries") for any period
subsequent to the periods covered by the financial statements
appearing in the Prospectus.
(p) The Company will comply with all provisions of any
undertakings contained in the Registration Statement.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company represents and warrants to each Underwriter on the date hereof,
and shall be deemed to represent and warrant to each Underwriter on the
Closing Date and the Additional Closing Date, as the case may be, that:
(a) The Company satisfies all of the requirements of the
Act for use of Form S-3 for the offering of Shares contemplated
hereby. Each Prepricing Prospectus included as part of the
Registration Statement as originally filed or as part of any
amendment or supplement thereto, or filed pursuant to Rule 424(a)
under the Act, complied when so filed with the provisions of the
Act.
(b) The Commission has not issued any order preventing or
suspending the use of any Prepricing Prospectus, and the
Prepricing Prospectus included as part of the Registration
Statement declared effective by the Commission complies as to form
with the requirements of the Act. The Registration Statement
(including any Rule 462 Registration Statement), in the form in
which it becomes effective and also in such form as it may be when
any post-effective amendment thereto shall become effective, and
the Prospectus, and any supplement or amendment thereto when filed
with the Commission under Rule 424(b) under the Act, will comply
with the provisions of the Act and will not
<PAGE>
<PAGE>
RAYMOND JAMES & ASSOCIATES, INC. Page 8
at any such times contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, except
that this representation and warranty does not apply to statements
in or omissions from the Registration Statement or the Prospectus
(or any amendment or supplement thereto) made in reliance upon and
in conformity with information relating to any Underwriter
furnished to the Company in writing by or on behalf of any
Underwriter through you expressly for use therein.
(c) The Incorporated Documents heretofore filed, when they
were filed (or, if any amendment with respect to any such document
was filed, when such amendment was filed), conformed in all
material respects with the requirements of the Exchange Act and
the rules and regulations thereunder, and any further Incorporated
Documents so filed will, when they are filed, conform in all
material respects with the requirements of the Exchange Act and
the rules and regulations thereunder; no such Incorporated
Document when it was filed (or, if an amendment with respect to
any such document was filed, when such amendment was filed),
contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary
in order to make the statements therein not misleading; and no
such further Incorporated Document, when it is filed, will contain
an untrue statement of a material fact or will omit to state a
material fact required to be stated therein or necessary in order
to make the statements therein not misleading.
(d) The capitalization of the Company is as set forth in
the Prospectus as of the date set forth therein. All the
outstanding shares of Common Stock of the Company have been duly
authorized by all necessary corporate action on the part of the
Company and validly issued, are fully paid and nonassessable and
were not issued in violation of or subject to any preemptive
rights arising under the Company's Amended and Restated
Certificate of Incorporation or Bylaws, in each case as amended,
or under the Delaware General Corporation Law or similar rights;
the Shares to be issued and sold to the Underwriters by the
Company hereunder have been duly authorized by all necessary
corporate action on the part of the Company and, when issued and
delivered to the Underwriters against payment therefor in
accordance with the terms hereof, will be validly issued, fully
paid and nonassessable and free of any preemptive or similar
rights; the capital stock of the Company conforms to the
description thereof in the Registration Statement and the
Prospectus (or any amendment or supplement thereto); and upon
delivery of certificates for the Shares pursuant to the terms of
this Agreement and payment for the Shares the Underwriters will
receive valid and marketable title to the Shares, free and clear
of any voting trust arrangements, liens, encumbrances, equities,
claims or defects in title to the several Underwriters purchasing
the Shares in good faith and without notice of any lien, claim or
encumbrance. Except as set forth in the Prospectus, the Company
is not a party to or bound by any outstanding options, warrants,
or similar rights to subscribe for, or contractual obligations to
issue, sell, transfer or acquire, any of its capital stock or any
securities convertible into or exchangeable for any of such
capital stock.
(e) The Company is a corporation duly organized and
validly existing in good standing under the laws of the State of
Delaware with full corporate power and authority
<PAGE>
<PAGE>
RAYMOND JAMES & ASSOCIATES, INC. Page 9
to own, lease and operate its properties and to conduct its
business as presently conducted and as described in the
Registration Statement and the Prospectus (and any amendment or
supplement thereto), and is duly registered and qualified to
conduct its business and is in good standing in each jurisdiction
or place where the nature of its properties or conduct of its
business requires such registration or qualification, except where
the failure to so register or qualify does not have a material
adverse effect on the condition (financial or other), business,
prospects, properties, net worth or results of operations of the
Company.
(f) Each of the Subsidiaries is a corporation duly
organized, validly existing and in good standing in its
jurisdiction of incorporation or is a limited partnership duly
formed and validly existing in its jurisdiction of organization
except as described in the Prospectus, as the case may be, and
each Subsidiary has full corporate or partnership power and
authority to own, lease and operate its properties and to conduct
its business as presently conducted and as described in the
Registration Statement and the Prospectus (and any amendment or
supplement thereto), and is duly registered and qualified to
conduct its business and is in good standing in each jurisdiction
or place where the nature of its properties or the conduct of its
business requires such qualification or registration, except where
the failure to so qualify or register does not have a material
adverse effect on the condition (financial or other), business,
prospects, properties, net worth or results of operations of the
Company and the Subsidiaries, taken as a whole (a "Material
Adverse Effect"). The outstanding shares of capital stock of, and
the partnership interests in, each of the Subsidiaries, will have
been duly authorized and validly issued, are fully paid to the
extent required and nonassessable except as such nonassessability
may be affected by the partnership agreement of Maverick Tube,
L.P. or the partnership law of the state of the formation of such
partnership, and are owned by the Company directly or indirectly
through one of the other Subsidiaries, free and clear on any lien,
adverse claim, security interest, equity or other encumbrance
(except as set forth in the Prospectus). Except for the
Subsidiaries, the Company does not own a material interest in or
control, directly or indirectly, any other corporation,
partnership, joint venture, association, trust or other business
organization or entity.
(g) There are no legal or governmental proceedings pending
or, to the knowledge of the Company, threatened, against the
Company or any of the Subsidiaries, or to which any of their
property, is subject, that are required to be described in the
Registration Statement or the Prospectus (or any amendment or
supplement thereto) but are not described as required. Except as
described in the Prospectus, there is no action, suit, inquiry,
proceeding, or investigation by or before any court or
governmental or other regulatory or administrative agency or
commission pending or, to the best knowledge of the Company,
threatened against or involving the Company or any Subsidiary, nor
is there any basis for any such action, suit, inquiry, proceeding
or investigation. There are no agreements, contracts, indentures,
leases or other instruments that are required to be described in
the Registration Statement or the Prospectus (or any amendment or
supplement thereto) or to be filed as an exhibit to or
incorporated by reference in the Registration Statement that are
not described or filed or incorporated by reference as required.
All such agreements, contracts, indentures, leases or other
instruments to which the Company or any of the Subsidiaries is a
party or to which any of their assets may be subject and that are
described in the Registration Statement or the Prospectus (or any
<PAGE>
<PAGE>
RAYMOND JAMES & ASSOCIATES, INC. Page 10
amendment or supplement thereto) or filed as an exhibit to or
incorporated by reference in the Registration Statement have been
duly authorized, executed and delivered by the Company or a
Subsidiary, constitute valid and binding agreements of the Company
or such Subsidiary and are enforceable against the Company or such
Subsidiary in accordance with the terms thereof.
(h) Neither the Company nor any Subsidiary is in violation
of its certificate or articles of incorporation or bylaws, or
other organizational documents, or of any law, ordinance,
administrative or governmental rule or regulation applicable to
the Company or any Subsidiary or of any decree of any court or
governmental agency or body having jurisdiction over the Company
or any Subsidiary, or in default in the performance of any
obligation, agreement or condition contained in any bond,
debenture, note or any other evidence of indebtedness or in any
material agreement, indenture, lease or other instrument to which
the Company or any Subsidiary is a party or by which any of their
respective properties may be bound, except for such violations or
defaults which would not have a Material Adverse Effect, and there
does not exist any state of facts which constitutes an event of
default on the part of the Company or any of the Subsidiaries as
defined in such documents or which, with notice or lapse of time
or both, would constitute such an event of default.
(i) The execution and delivery of this Agreement and the
performance by the Company of its obligations under this Agreement
have been duly and validly authorized by the Company, and this
Agreement has been duly executed and delivered by the Company and
constitutes the valid and legally binding agreement of the
Company, enforceable against the Company in accordance with its
terms.
(j) None of the issuance and sale of the Shares, the
execution, delivery or performance of this Agreement by the
Company nor the consummation by the Company of the transactions
contemplated hereby (i) is or may be void or voidable by any
person or entity, (ii) requires any consent, approval,
authorization or other order of or registration or filing with,
any court, regulatory body, administrative agency or other
governmental body, agency or official (except such as may be
required for the registration of the Shares under the Act, the
listing of the Shares for quotation on the Nasdaq National Market
and compliance with the securities or Blue Sky laws of various
jurisdictions and the clearance of the offering of the Shares with
the NASD, all of which will be, or have been, effected in
accordance with this Agreement) or conflicts or will conflict with
or constitutes or will constitute a breach of, or a default under,
the certificate or articles of incorporation or bylaws, or other
organizational documents, of the Company or any Subsidiary, or
(iii) conflicts or will conflict with or constitutes a breach of,
or a default under (or an event which, with notice or lapse of
time or both, would constitute such an event), any agreement,
contract, indenture, lease or other instrument to which the
Company or any Subsidiary is a party or by which any of them or
any of their respective properties may be bound, or violates any
statute, law, regulation or filing or judgment, injunction, order
or decree applicable to the Company or any Subsidiary or any of
their respective properties, or results in the creation or
imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any Subsidiary pursuant to
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RAYMOND JAMES & ASSOCIATES, INC. Page 11
the terms of any agreement or instrument to which any of them is
a party or by which any of them may be bound or to which any of
their property or assets is subject.
(k) Each contract, agreement or arrangement to which the
Company or any Subsidiary is a party or by which it is bound, or
to which any of the property or assets of the Company or any
Subsidiary is subject, which is material to the condition
(financial or other), business, prospects, properties, net worth
or results of operations of the Company and its Subsidiaries,
taken as a whole, has been duly and validly authorized, executed
and delivered by the Company or such Subsidiary, as applicable,
and neither the Company nor any Subsidiary is in breach or default
of any obligation, agreement, covenant or condition contained in
any such contract, agreement or arrangement, except for such
breaches or defaults as would not have a Material Adverse Effect;
the Company knows of no present condition or fact which would
prevent compliance by the Company or any Subsidiary or any other
party thereto with the terms of any such contract, agreement or
arrangement in all material respects; neither the Company nor any
of its Subsidiaries has any present intention to exercise any
rights that it may have to cancel any such contract, agreement or
arrangement or otherwise to terminate its rights and obligations
thereunder, and none of them has any knowledge that any other
party to any such contract, agreement or arrangement has any
intention not to render full performance in all material respects
as contemplated by the terms thereof.
(l) Except as described in the Prospectus, the Company
does not have outstanding and at the Closing Date (and the
Additional Closing Date, if applicable) will not have outstanding
any options to purchase, or any warrants to subscribe for, or any
securities or obligations convertible into or exchangeable for, or
any contracts or commitments to issue or sell, any shares of
Common Stock or any such warrants or convertible or exchangeable
securities or obligations. No holder of securities of the Company
has rights to the registration of any securities of the Company
because of or in connection with the filing of the Registration
Statement, except (i) with respect to the Shares and (ii) any such
rights for which the Company has received valid and enforceable
waivers.
(m) Ernst & Young LLP, the certified public accountants
who have certified the financial statements filed as part of the
Registration Statement and the Prospectus (or any amendment or
supplement thereto) are independent public accountants as required
by the Act.
(n) The financial statements, together with related
schedules and notes, forming part of the Registration Statement
and the Prospectus (and any amendment or supplement thereto),
present fairly in all material respects both the historical and
pro forma consolidated financial position, results of operations
and changes in financial position of the Company and the
Subsidiaries on the basis stated in the Registration Statement at
the respective dates or for the respective periods to which they
apply; such statements and related schedules and notes have been
prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved,
except as disclosed therein; and the other financial and
statistical information and data set forth in the Registration
Statement and Prospectus (and any amendment or
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RAYMOND JAMES & ASSOCIATES, INC. Page 12
supplement thereto) are in all material respects accurately
presented and prepared on a basis consistent with such financial
statements and the books and records of the Company. No financial
statements or schedules are required to be included in the
Registration Statement other than those that are so included
(o) Neither the Company nor any of the Subsidiaries has
sustained since June 30, 1999, any loss or interference with its
business from fire, explosion, flood or other calamity, whether or
not covered by insurance, or from any labor dispute or court or
governmental action, order or decree, which loss or interference
is material to the Company and the Subsidiaries, taken as a whole;
and, since the respective dates as of which information is given
in the Registration Statement and the Prospectus, there has not
been, and prior to the Closing Date there will not be, any change
in the capital stock (other than shares issued pursuant to
exercise of employee stock options that the Prospectus indicates
are outstanding) or short-term debt or long-term debt of the
Company or any of the Subsidiaries, or any material adverse
change, or any development involving a prospective material
adverse change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of operations
of the Company and the Subsidiaries, taken as a whole, otherwise
than as set forth or contemplated in the Prospectus;
(p) The Company or each Subsidiary, as the case may be,
has good and marketable title to all property (real and personal)
described in the Prospectus as being owned by them, in each case
free and clear of all liens, claims, security interests or other
encumbrances except such as are described in the Registration
Statement and the Prospectus, in a document filed as an exhibit to
the Registration Statement or incorporated by reference in the
Registration Statement or such as are not materially burdensome
and do not interfere in any material respect with the use of the
property or the conduct of the business of the Company and the
Subsidiaries, taken as a whole, and the property (real and
personal) held under lease by each of the Company or the
Subsidiaries, as the case may be, is held by it under valid,
subsisting and enforceable leases with only such exceptions as in
the aggregate are not materially burdensome and do not interfere
in any material respect with the conduct of the business of the
Company and the Subsidiaries, taken as a whole.
(q) The Company has not distributed and will not
distribute prior to the Closing Date any offering material in
connection with the offering and sale of the Shares other than the
Prepricing Prospectus, the Registration Statement, the Prospectus
and such other materials permitted by the Act.
(r) The Company has not taken, directly or indirectly, any
action which constituted, or any action designed or which might
reasonably be expected to cause or result in or constitute, under
the Act or otherwise, stabilization or manipulation of the price
of any security of the Company to facilitate the sale or resale of
the Shares.
(s) The Company is not an "investment company" or a
company "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940, as amended.
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RAYMOND JAMES & ASSOCIATES, INC. Page 13
(t) The Company and each of the Subsidiaries have all
permits, licenses, franchises, approvals, consents and
authorizations of governmental or regulatory authorities or
private persons or entities (hereinafter "permit" or "permits") as
are necessary to own its properties and to conduct its business in
the manner described in the Prospectus, subject to such
qualifications as may be set forth in the Prospectus, except where
the failure to have obtained any such permit has not and will not
have a Material Adverse Effect; the Company and each of the
Subsidiaries have fulfilled and performed all of their material
obligations with respect to each such permit and no event has
occurred which allows, or after notice or lapse of time would
allow, revocation or termination of any such permit or result in
any other material impairment of the rights of the holder of any
such permit, subject in each case to such qualification as may be
set forth in the Prospectus; and, except as described in the
Prospectus, such permits contain no restrictions that are
materially burdensome to the Company or any Subsidiary.
(u) The Company and each Subsidiary are insured by
insurers of recognized financial responsibility against such
losses and risks and in such amounts as are prudent and customary
in the businesses in which it is engaged; and neither the Company
nor any Subsidiary has reason to believe that it will not be able
to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may
be necessary to continue its business at a comparable cost, except
as disclosed in the Registration Statement and the Prospectus.
(v) The Company and the Subsidiaries have complied and
will comply in all material respects with wage and hour
determinations issued by the U.S. Department of Labor under the
Service Contract Act of 1965 and the Fair Labor Standards Act in
paying its employees' salaries, fringe benefits and other
compensation for the performance of work or other duties in
connection with contracts with the U.S. government, and have
complied and will comply in all material respects with the
requirements of the Americans with Disabilities Act of 1990, the
Family and Medical Leave Act of 1993, the Employee Retirement
Income Security Act of 1974, the Civil Rights Act of 1964 (Title
VII), the Age Discrimination in Employment Act and state labor
laws, each as amended, except where the failure to comply with any
such requirements has not, and will not, have a Material Adverse
Effect.
(w) The Company and the Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions
are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii) access
to assets is permitted only in accordance with management's
general or specific authorizations; and (iv) the recorded
accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect
to any differences.
(x) Neither the Company nor any Subsidiary has directly or
indirectly, at any time during the past five years (i) made any
unlawful contribution to any candidate for political office, or
failed to disclose fully any contribution in violation of law, or
(ii)
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RAYMOND JAMES & ASSOCIATES, INC. Page 14
made any payment to any federal, state or foreign governmental
official, or other person charged with similar public or quasi-
public duties, other than payments required or permitted by the
laws of the United States or any jurisdiction thereof or
applicable foreign jurisdictions.
(y) The Company and the Subsidiaries have obtained all required
permits, licenses and other authorizations, if any, which are
required under federal, state, regional, county, local and foreign
statutes, codes, ordinances and other laws relating to pollution
or protection of the environment, including laws relating to
emissions, discharges, releases, spilling, injecting, leaching, or
disposing into the environment or threatened releases of
pollutants, contaminants, chemicals or industrial, hazardous or
toxic materials or wastes into the environment (including, without
limitation, ambient air, surface water, ground water, land
surface, or subsurface strata) or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, discharge into the environment, transport, or handling
of pollutants, contaminants, chemicals or industrial, hazardous or
toxic materials or wastes, or any regulation, rule, code, plan,
order, decree, judgment, injunction, notice or demand letter
issued, entered, promulgated, or approved thereunder
("Environmental Laws"), except for such permits, licenses and
other authorizations which if not obtained would not have a
Material Adverse Effect. The Company and the Subsidiaries are in
material compliance with all terms and conditions of all required
permits, licenses, and authorizations, and are also in material
compliance with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and
timetables contained in the Environmental Laws. There is no
pending or, to the best knowledge of the Company, after due
inquiry, threatened civil or criminal litigation, notice of
violation, warning letter or administrative proceeding relating in
any way to the Environmental Laws (including, without limitation,
notices, demand letters or claims under the Resource Conservation
and Recovery Act of 1976, as amended ("RCRA"), the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended ("CERCLA"), as amended by the Superfund Amendments
Reauthorization Act of 1987 ("SARA"), the Toxic Substances Control
Act of 1976, the Emergency Planning and Community Right-to-Know
Act of 1986, the Clean Water Act of 1977, and the Clear Air Act of
1966, all as amended, and similar foreign, state, or local laws)
involving the Company. There have not been and there are not any
past, present, or foreseeable future events, conditions,
circumstances, activities, practices, incidents, actions or plans
involving the Company which may interfere with or prevent
continued compliance, or which may give rise to any common law or
legal liability, or otherwise form the basis of any present or
future claim, action, demand, suit, proceeding, hearing, study or
investigation, based on or related to the manufacture, processing,
distribution, use, treatment, storage, disposal, arrangement for
disposal, transport, arrangement for transport or handling, or the
emission, discharge, release, or threatened release into the
environment, of any pollutant, contaminant, chemical or
industrial, hazardous or toxic material or waste, including,
without limitation, any liability arising, or any claim, action,
demand, suit, proceeding, hearing, study or investigation which
may be brought, under RCRA, CERCLA, SARA, or similar foreign,
state, regional, county, or local laws, except for such events,
conditions, circumstances, activities, practices, incidents,
actions and plans which would not have a Material Adverse Effect.
<PAGE>
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RAYMOND JAMES & ASSOCIATES, INC. Page 15
(z) All offers and sales of the Company's capital stock
and debt or other securities prior to the date hereof were made in
compliance with or were the subject of an available exemption from
the Act and all other applicable state and federal laws or
regulations, or any actions under the Act or any state or federal
laws or regulations in respect of any such offers or sales are
effectively barred by effective waivers or statutes of limitation.
(aa) The Company and the Subsidiaries own and have full
right, title and interest in and to, or have valid licenses to
use, each material trade name, trademark or service mark under
which the Company and the Subsidiaries conduct all or any material
part of their business, and the Company has created no lien or
encumbrance on, or granted any right or license with respect to,
any such trade name, trademark or service mark; there is no claim
pending against the Company or any of the Subsidiaries with
respect to any trade name, trademark or service mark and neither
the Company nor any of the Subsidiaries has received notice that
any trade name, trademark or service mark which it uses or has
used in the conduct of its business infringes upon or conflicts
with the rights of any third party. Neither the Company nor any
of the Subsidiaries has become aware that any material trade name,
trademark or service mark which it uses or has used in the conduct
of its business infringes upon or conflicts with the rights of any
third party.
(bb) All federal, state, local and foreign tax returns
required to be filed by or on behalf of the Company and each
Subsidiary with respect to all periods ended prior to the date of
this Agreement have been filed (or are the subject of valid
extensions) with the appropriate federal, state, local and foreign
authorities and all such tax returns, as filed, are accurate in
all material respects, except where the failure to file such state
and local returns would not have a Material Adverse Effect. All
federal, state, local and foreign taxes (including estimated tax
payments) required to be shown on all such tax returns or claimed
to be due from or with respect to the business of the Company and
each Subsidiary have been paid or reflected as a liability on the
financial statements of the Company and the Subsidiaries for
appropriate periods, except where the failure to pay or reflect as
a liability such federal, state, local and foreign taxes would not
have a Material Adverse Effect. All deficiencies asserted as a
result of any federal, state, local or foreign tax audits have
been paid or finally settled and, except as previously disclosed
to the Representatives in writing, no issue has been raised in any
such audit which by application of the same or similar principals,
reasonably could be expected to result in a proposed deficiency
for any other period not so audited. To the best knowledge of the
Company, no state of facts exists or has existed which would
constitute grounds for the assessment of any tax liability with
respect to the periods which have not been audited by appropriate
federal, state, local or foreign authorities, except for such tax
liability which would not have a Material Adverse Effect. There
are no outstanding agreements or waivers extending the statutory
period of limitation applicable to any federal, state, local or
foreign tax return for any period.
(cc) No relationship, direct or indirect, exists between or
among the Company or any Subsidiary on the one hand, and the
directors, officers, stockholders, customers or suppliers of the
Company or any Subsidiary on the other hand, which is required by
the
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RAYMOND JAMES & ASSOCIATES, INC. Page 16
Act to be described in the Registration Statement and the
Prospectus which is not so described.
(dd) The Shares have been approved for quotation on the
Nasdaq National Market, subject only to official notice of
issuance.
SECTION 7. EXPENSES. The Company hereby agrees with the several
Underwriters that the Company will pay or cause to be paid the costs and
expenses associated with the following: (i) the preparation, printing or
reproduction, and filing with the Commission of the Registration
Statement (including financial statements and exhibits thereto), each
Prepricing Prospectus, the Prospectus, and each amendment or supplement
to any of them; (ii) the printing (or reproduction) and delivery
(including postage, air freight charges and charges for counting and
packaging) of such copies of the Registration Statement, each Prepricing
Prospectus, the Prospectus, and all amendments or supplements to any of
them as may be reasonably requested for use in connection with the
offering and sale of the Shares; (iii) the preparation, printing,
authentication, issuance and delivery of certificates for the Shares,
including any stamp taxes in connection with the offering of the Shares;
(iv) the printing (or reproduction) and delivery of this Agreement, the
preliminary and supplemental Blue Sky Memoranda and all other agreements
or documents printed (or reproduced) and delivered in connection with
the offering of the Shares; (v) the registration of the Common Stock
under the Exchange Act and the listing of the Shares on the Nasdaq
National Market; (vi) the registration or qualification of the Shares
for offer and sale under the securities or Blue Sky laws of the several
states as provided in Section 5(f) hereof (including the reasonable fees
and expenses of counsel for the Underwriters relating to the
preparation, printing or reproduction, and delivery of the preliminary
and supplemental Blue Sky Memoranda and such registration and
qualification); (vii) the filing fees and the reasonable fees and
expenses of counsel for the Underwriters in connection with any filings
required to be made with the NASD in connection with the offering;
(viii) the transportation, lodging, graphics and other expenses
incidental to the Company's preparation for and participation in the
"roadshow" for the offering contemplated hereby; (ix) the fees and
expenses of the Company's accountants and the fees and expenses of
counsel for the Company; and (x) the performance by the Company of its
other obligations under this Agreement. Notwithstanding the foregoing,
in the event that the proposed offering is terminated for the reasons
set forth in Section 5(i) hereof, the Company agrees to reimburse the
Underwriters as provided in Section 5(i).
SECTION 8. INDEMNIFICATION AND CONTRIBUTION. The Company agrees
to indemnify and hold harmless you and each other Underwriter and each
person, if any, who controls any Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, from and
against any and all losses, claims, damages, liabilities and expenses
(including reasonable costs of investigation) arising out of or based
upon any untrue statement or alleged untrue statement of a material fact
contained in any Prepricing Prospectus or in the Registration Statement
or the Prospectus or in any amendment or supplement thereto, or arising
out of or based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading, or arising out of or based upon any untrue
statement or alleged untrue statement of any material fact contained in
any audio or visual materials prepared by or on behalf of the Company
and used in connection with the marketing of the Shares, including,
without limitation, slides, videos, films and tape recordings prepared
by or on behalf of the
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RAYMOND JAMES & ASSOCIATES, INC. Page 17
Company, except insofar as such losses, claims, damages, liabilities or
expenses arise out of or are based upon an untrue statement or omission
or alleged untrue statement or omission which has been made therein or
omitted therefrom in reliance upon and in conformity with the
information relating to an Underwriter furnished in writing to the
Company by or on behalf of any Underwriter through you expressly for use
in connection therewith; provided, however, that such indemnity with
respect to any Prepricing Prospectus shall not inure to the benefit of
any Underwriter or person controlling such Underwriter from whom the
person asserting such loss, claim, damage or liability purchased the
Shares which are the subject thereof if such person did not receive a
copy of the Prospectus at or prior to the confirmation of the sale of
such Shares to such person in any case where such delivery is required
by the Act and the untrue statement or omission of a material fact
contained in such Prepricing Prospectus was corrected in the Prospectus,
provided that the Company has delivered the Prospectus to the
Underwriters on a timely basis in order to permit the Prospectus to be
sent or given.
In addition to its other obligations under this Section 8, the
Company agrees that, as an interim measure during the pendency of any
claim, action, investigation, inquiry or other proceeding arising out of
or based upon any untrue statement or omission, or any inaccuracy in the
representations and warranties of the Company herein or failure to
perform its obligations hereunder, all as set forth in this Section 8,
it will reimburse each Underwriter on a quarterly basis for all
reasonable legal or other out-of-pocket expenses incurred in connection
with investigating or defending any such claim, action, investigation,
inquiry or other proceeding, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the obligation
of the Company to reimburse each Underwriter for such expenses and the
possibility that such payments might later be held to have been improper
by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, each
Underwriter shall promptly return it to the person(s) from whom it was
received, together with interest compounded daily determined on the
basis of the base lending rate announced from time to time by Chase
Manhattan Bank, N.A. (the "Prime Rate"). Any such interim reimbursement
payments which are not made to the Underwriters within 30 days of a
request for reimbursement shall bear interest at the Prime Rate from the
date of such request.
If any action or claim shall be brought against any Underwriter or
any person controlling any Underwriter in respect of which indemnity may
be sought against the Company, such Underwriter or such controlling
person shall promptly notify in writing the party or parties against
whom indemnification is being sought (the "indemnifying party" or
"indemnifying parties"), and such indemnifying party or parties shall
assume the defense thereof, including the employment of counsel
reasonably acceptable to such Underwriter or such controlling person and
payment of all fees and expenses. Such Underwriter or any such
controlling person shall have the right to employ separate counsel in
any such action and participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Underwriter or
such controlling person unless (i) the indemnifying party or parties has
or have agreed in writing to pay such fees and expenses, (ii) the
indemnifying party or parties has or have failed to assume the defense
and employ counsel reasonably acceptable to the Underwriter or such
controlling person within a reasonable period of time following notice
from such Underwriter or such controlling person, or (iii) the named
parties to any such action (including any impleaded parties) include
both such Underwriter or such controlling person and the indemnifying
party or parties, and such Underwriter or such controlling person shall
have been advised by such counsel that
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RAYMOND JAMES & ASSOCIATES, INC. Page 18
representation of such indemnified party and any indemnifying party or
parties by the same counsel would be inappropriate under applicable
standards of professional conduct (whether or not such representation by
the same counsel has been proposed) due to actual or potential differing
interests between them (in which case the indemnifying party or parties
shall not have the right to assume the defense of such action on behalf
of such Underwriter or such controlling person); provided, however, that
counsel selected by such Underwriter or controlling person is reasonably
acceptable to the indemnifying party; and provided further that it is
understood and agreed that the Company shall not, in connection with any
one such action or separate but substantially similar or related actions
in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one
separate firm of attorneys for all such Underwriters and controlling
persons (in addition to local counsel), which firm shall be designated
in writing by Raymond James & Associates, Inc. The indemnifying party
or parties shall not be liable for any settlement of any such action
effected without its or their prior written consent, but if settled with
such prior written consent, or if there be a final judgment for the
plaintiff in any such action, the indemnifying party or parties agree to
indemnify and hold harmless any Underwriter and any such controlling
person from and against any loss, claim, damage, liability or expense by
reason of such settlement or judgment, but in the case of a judgment
only to the extent stated in the immediately preceding paragraph.
Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement, and any person who controls the Company within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act,
to the same extent as the foregoing indemnity from the Company to each
Underwriter, but only with respect to information relating to such
Underwriter furnished in writing by or on behalf of such Underwriter
through you expressly for use in the Registration Statement, the
Prospectus or any Prepricing Prospectus, or any amendment or supplement
thereto. If any action or claim shall be brought or asserted against
the Company, any of its directors, any such officers, or any such
controlling person based on the Registration Statement, the Prospectus
or any Prepricing Prospectus, or any amendment or supplement thereto,
and in respect of which indemnity may be sought against any Underwriter
pursuant to this paragraph, such Underwriter shall have the rights and
duties given to the Company by the preceding paragraph (except that if
the Company shall have assumed the defense thereof such Underwriter
shall not be required to do so, but may employ separate counsel therein
and participate in the defense thereof, but the fees and expenses of
such counsel shall be at such Underwriter's expense), and the Company,
its directors, any such officers, and any such controlling persons shall
have the rights and duties given to the Underwriters by the immediately
preceding paragraph.
In any event, the Company will not, without the prior written
consent of the Representatives, settle or compromise or consent to the
entry of any judgment in any proceeding or threatened claim, action,
suit or proceeding in respect of which indemnification may be sought
hereunder (whether or not the Representatives or any person who controls
the Representatives within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act is a party to such claim, action, suit or
proceeding) unless such settlement, compromise or consent includes an
unconditional release of all Underwriters and such controlling persons
from all liability arising out of such claim, action, suit or
proceeding.
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RAYMOND JAMES & ASSOCIATES, INC. Page 19
If the indemnification provided for in this Section 8 is
unavailable or insufficient for any reason whatsoever to an indemnified
party in respect of any losses, claims, damages, liabilities or expenses
referred to therein, then an indemnifying party, in lieu of indemnifying
such indemnified party, shall contribute to the amount paid or payable
by such indemnified party as a result of such losses, claims, damages,
liabilities or expenses (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand
and the Underwriters on the other hand from the offering of the Shares
or (ii) if the allocation provided by clause (i) above is not permitted
by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the
relative fault of the Company on the one hand and the Underwriters on
the other in connection with the statements or omissions that resulted
in such losses, claims, damages, liabilities or expenses, as well as any
other relevant equitable considerations. The relative benefits received
by the Company on the one hand and the Underwriters on the other shall
be deemed to be in the same proportion as the total net proceeds from
the offering (before deducting expenses) received by the Company bear to
the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page
of the Prospectus (or any related term sheet used in reliance on Rule
434(b) under the Act); provided that, in the event that the Underwriters
shall have purchased any Additional Shares hereunder, any determination
of the relative benefits received by the Company or the Underwriters
from the offering of the Shares shall include the net proceeds (before
deducting expenses) received by the Company, and the underwriting
discounts and commissions received by the Underwriters, from the sale of
such Additional Shares, in each case computed on the basis of the
respective amounts set forth in the notes to the table on the cover page
of the Prospectus (or any related term sheet used in reliance on Rule
434(b) under the Act). The relative fault of the Company on the one
hand and the Underwriters on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Company on
the one hand or by the Underwriters on the other hand and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just
and equitable if contribution pursuant to this Section 8 was determined
by a pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation that does
not take account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages,
liabilities and expenses referred to in this Section 8 shall be deemed
to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 8, no Underwriter shall
be required to contribute any amount in excess of the amount by which
the total price of the Shares underwritten by it and distributed to the
public exceeds the amount of any damages which such Underwriter has
otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters'
obligations to contribute pursuant to this Section 8 are several in
proportion to the respective numbers of Firm
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RAYMOND JAMES & ASSOCIATES, INC. Page 20
Shares set forth opposite their names in Schedule I hereto (or such
numbers of Firm Shares increased as set forth in Section 10 hereof) and
not joint.
Notwithstanding the second paragraph of this Section 8, any
losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under
this Section 8 shall be paid by the indemnifying party to the
indemnified party as such losses, claims, damages, liabilities or
expenses are incurred. The indemnity and contribution agreements
contained in this Section 8 and the representations and warranties of
the Company set forth in this Agreement shall remain operative and in
full force and effect, regardless of (i) any investigation made by or on
behalf of any Underwriter or any person controlling any Underwriter, the
Company, its directors or officers or any person controlling the
Company, (ii) acceptance of any Shares and payment therefor hereunder,
and (iii) any termination of this Agreement. A successor to any
Underwriter or any person controlling any Underwriter, or to the
Company, its directors or officers, or any person controlling the
Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 8.
It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in the second paragraph
of this Section 8, including the amounts of any requested reimbursement
payments and the method of determining such amounts, shall be settled
by arbitration conducted pursuant to the Code of Arbitration Procedure
of the NASD. Any such arbitration must be commenced by service of a
written demand for arbitration or written notice of intention to
arbitrate, therein electing the arbitration tribunal. In the event the
party demanding arbitration does not make such designation of an
arbitration tribunal in such demand or notice, then the party responding
to said demand or notice is authorized to do so. Such an arbitration
would be limited to the operation of the interim reimbursement
provisions contained in the second paragraph of this Section 8, and
would not resolve the ultimate propriety or enforceability of the
obligation to reimburse expenses which is created by the provisions of
the second paragraph of this Section 8.
SECTION 9. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several
obligations of the Underwriters to purchase the Firm Shares hereunder
are subject to the following conditions:
(a) The Registration Statement shall have become effective
not later than 12:00 noon, New York City time, on the date hereof,
or at such later date and time as shall be consented to in writing
by you, and all filings required by Rules 424(b), 430A and 462
under the Act shall have been timely made.
(b) Subsequent to the effective date of the Registration
Statement there shall not have occurred any change, or any
development involving, or which might reasonably be expected to
involve, a potential future material adverse change, in the
condition (financial or other), business, prospects, properties,
net worth or results of operations of the Company, not
contemplated by the Prospectus (or any supplement thereto), that
in your reasonable opinion, as Representatives of the several
Underwriters, would materially and adversely affect the market for
the Shares.
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RAYMOND JAMES & ASSOCIATES, INC. Page 21
(c) You shall have received on the Closing Date (and the
Additional Closing Date, if any) an opinion of Gallop, Johnson &
Neuman, L.C., counsel for the Company, dated the Closing Date (and
the Additional Closing Date, if any), satisfactory to you, to the
effect that:
(i) The Company has been duly and validly
incorporated and is validly existing as a corporation in
good standing under the laws of the State of Delaware, and
is qualified to do business and is in good standing in each
jurisdiction in which its ownership or leasing of properties
requires such qualification or the conduct of its business
requires such qualification (except where the failure to so
qualify would not have a material adverse effect on the
Company and the Subsidiaries as a whole); and the Company
has all necessary corporate power and, to the knowledge of
such counsel, all material governmental authorizations,
permits and approvals required to own its properties and
conduct its business as described in the Prospectus;
(ii) Each of the Subsidiaries has been duly and
validly formed and is validly existing as a corporation or
limited partnership, as applicable, in good standing under
the laws of the jurisdiction of its formation, and is
qualified or registered to do business and is in good
standing in each jurisdiction in which its ownership or
leasing of properties requires such qualification or the
conduct of its business requires such qualification (except
where the failure to so qualify would not have a material
adverse effect on the Company and the Subsidiaries as a
whole); and each Subsidiary has all necessary corporate or
partnership power and, to the knowledge of such counsel, all
material governmental authorizations, permits and approvals
required to own its properties and to conduct its business
as described in the Prospectus;
(iii) All the outstanding shares of capital stock or
partnership interests, as applicable, of each of the
Subsidiaries are validly issued and outstanding and are
owned by the Company of record and, to the best knowledge of
such counsel, (A) beneficially and (B) free and clear of all
liens, charges or encumbrances of any nature whatsoever;
and, to the knowledge of such counsel, neither the Company
nor any of the Subsidiaries has granted any outstanding
options, warrants or commitments with respect to any shares
of its capital stock or partnership interests, as
applicable, whether issued or unissued, except as otherwise
described in the Prospectus;
(iv) The Company has an authorized capitalization as
set forth in the Registration Statement and all the issued
shares of capital stock of the Company have been duly and
validly authorized and issued, are fully paid and non-
assessable, are free of any preemptive rights, and were
issued and sold in compliance with all applicable federal
securities laws; the Common Stock of the Company has been
registered under the Exchange Act; the Shares being sold by
the Company have been duly and validly authorized and, when
duly countersigned by the Company's Transfer Agent and
Registrar and issued and delivered in accordance with the
provisions of the Registration Statement and this Agreement,
will be duly and validly issued, fully paid and
nonassessable; and the Shares conform to the
<PAGE>
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RAYMOND JAMES & ASSOCIATES, INC. Page 22
description of the Common Stock in the Prospectus; and the
Shares have been duly authorized for listing on the Nasdaq
National Market.
(v) Such counsel does not know of any litigation or
any governmental proceeding pending or threatened against
the Company or any of the Subsidiaries which would affect
the subject matter of this Agreement or is required to be
disclosed in the Prospectus which is not disclosed and
correctly summarized therein;
(vi) This Agreement has been duly authorized,
executed and delivered by the Company and is a legal, valid
and binding agreement of the Company enforceable in
accordance with its terms, except as enforceability of the
same may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting
creditors' rights generally and by general equitable
principles and except as enforceability of those provisions
relating to indemnity may be limited by the federal
securities laws and principles of public policy;
(vii) The Company has full corporate power and
authority to execute, deliver and perform this Agreement,
and the execution, delivery and performance of this
Agreement, the consummation of the transactions herein
contemplated and the issue and sale of the Shares and the
compliance by the Company with all the provisions of this
Agreement will not conflict with, or result in a breach of
any of the terms or provisions of, or constitute a default
under, or result in the creation or imposition of any lien,
charge or encumbrance upon, any of the property or assets of
the Company or the Subsidiaries pursuant to, the terms of
any indenture, mortgage, deed of trust, loan agreement or
other material agreement or instrument known to such counsel
to which the Company or any of the Subsidiaries is a party
or by which the Company or any of the Subsidiaries is bound
or to which any of the property or assets of the Company or
any of the Subsidiaries is subject, nor will such action
result in any violation of the provisions of the Amended and
Restated Certificate of Incorporation or the Bylaws, in each
case as amended, of the Company, or any statute, or, to the
best of such counsel's knowledge, any order, rule or
regulation of any court or governmental agency or body
having jurisdiction over the Company or any of the
Subsidiaries or any of their properties;
(viii) No consent, approval, authorization, order,
registration or qualification of or with any court or any
regulatory authority or other governmental body is required
for the issue and sale of the Shares or the consummation of
the other transactions contemplated by this Agreement,
except such as have been obtained under the Act and such
consents, approvals, authorizations, registrations or
qualifications as may be required under state securities or
Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters;
(ix) To the best of such counsel's knowledge, neither
the Company nor any of the Subsidiaries is currently in
breach of or in default under, any indenture, mortgage, deed
of trust, lease, bank loan or credit agreement or (in any
respect that is material in light of the financial condition
of the Company and the Subsidiaries
<PAGE>
<PAGE>
RAYMOND JAMES & ASSOCIATES, INC. Page 23
taken as a whole) any other agreement or instrument of which
such counsel has knowledge to which the Company or any of
the Subsidiaries is a party or by which any of them or any
of their property may be bound or affected;
(x) There are no preemptive or other rights to
subscribe for or to purchase, nor any restriction upon the
voting or transfer of, any Shares pursuant to the Company's
Amended and Restated Certificate of Incorporation or Bylaws,
in each case as amended, or any agreement or other
instrument known to such counsel; and no holders of
securities of the Company have rights to the registration
thereof under the Registration Statement or, if any such
holders have such rights, such holders have waived such
rights;
(xi) Such counsel has read all contracts referred to
or incorporated by reference in the Registration Statement
and the Prospectus and all other loan agreements and, to the
extent material, such contracts are fairly summarized as
disclosed therein, conform in all material respects to the
descriptions thereof contained therein, and are filed as
exhibits thereto or incorporated by reference therein, and
such counsel does not know of any contracts or other
documents required to be so summarized or disclosed, or so
filed or so incorporated by reference, which have not been
so summarized or disclosed, or so filed or so incorporated
by reference, and there are no statutes or regulations or
pending or threatened legal or governmental proceedings
required to be disclosed in the Prospectus which have not
been disclosed as required;
(xii) The Registration Statement has become effective
under the Act, the Prospectus has been filed in accordance
with Rule 424(b) of the rules and regulations of the
Commission under the Act, including the applicable time
periods set forth therein, or such filing is not required,
and no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings
for that purpose have been instituted or are pending or, to
the knowledge of such counsel, contemplated under the Act,
and the Registration Statement, the Prospectus and each
amendment or supplement thereto, as of their respective
effective or issue dates, complied as to form in all
material respects with the requirements of the Act and the
rules and regulations thereunder; the documents incorporated
by reference in the Prospectus comply as to form in all
material respects with the requirements of the Exchange Act
and the rules and regulations of the Commission thereunder;
it being understood that such counsel need express no
opinion as to the financial statements or other financial
data contained or incorporated by reference in the
Registration Statement or the Prospectus.
Such counsel shall also state that nothing has come to such
counsel's attention that would lead such counsel to believe that
the Registration Statement contains any untrue statement of
material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein, not
misleading, or that the Prospectus contains any untrue statement
of material fact or omits to state a material fact required to be
stated therein
<PAGE>
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RAYMOND JAMES & ASSOCIATES, INC. Page 24
or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.
In rendering their opinions set forth in Section 9(c) above,
such counsel may rely, to the extent deemed advisable by such
counsel, (a) upon certificates of state officials, (b) on opinions
of other counsel (provided, however, that you shall have received
a copy of each of such opinions which shall be dated the Closing
Date, addressed to you or otherwise authorizing you to rely
thereon; and that Gallop, Johnson & Neuman, L.C. in its opinion to
you delivered pursuant to this subsection, shall state that such
counsel are satisfactory to them and Gallop, Johnson & Neuman,
L.C. has no reason to believe that you and they are not entitled
to so rely), and (c) on officers' certificates as to factual
matters;
(d) You shall have received on the Closing Date (and the
Additional Closing Date, if any) an opinion of Baker & Botts,
L.L.P., counsel for the Underwriters, dated the Closing Date (and
the Additional Closing Date, if any), with respect to the issuance
and sale of the Firm Shares, the Registration Statement and other
related matters as you may reasonably request and the Company and
its counsel shall have furnished to your counsel such documents as
they may reasonably request for the purpose of enabling them to
pass upon such matters.
(e) You shall have received letters addressed to you and
dated the date hereof and the Closing Date (and the Additional
Closing Date, if any) from Ernst & Young LLP, independent
certified public accountants, substantially in the forms
heretofore approved by you.
(f) (i) No stop order suspending the effectiveness of
the Registration Statement shall have been issued and no
proceedings for that purpose shall have been taken or, to the
knowledge of the Company, shall be contemplated by the Commission
at or prior to the Closing Date; (ii) there shall not have been
any change in the capital stock of the Company nor any material
increase in the short-term or long-term debt of the Company (other
than borrowings under the Revolving Credit Facility in the
ordinary course of business) from that set forth or contemplated
in the Registration Statement or the Prospectus (or any amendment
or supplement thereto), or any development involving or which may
reasonably be expected to involve a potential future material
adverse change (present or potential future) in the condition
(financial or other), business, prospects, properties, net worth
or results of operations of the Company and the Subsidiaries,
taken as a whole; (iii) the Company and the Subsidiaries shall not
have any liabilities or obligations, direct or contingent (whether
or not in the ordinary course of business) that are material to
the Company and the Subsidiaries, taken as a whole, other than
those reflected in the Registration Statement or the Prospectus
(or any amendment or supplement thereto); and (iv) the
representations and warranties of the Company contained in this
Agreement shall be true and correct in all material respects on
and as of the date hereof and on and as of the Closing Date (and
the Additional Closing Date, if any) as if made on and as of the
Closing Date (and the Additional Closing Date, if any), and you
shall have received a certificate, dated the Closing Date (and the
Additional Closing Date, if any) and signed by the chief executive
officer or president and the chief
<PAGE>
<PAGE>
RAYMOND JAMES & ASSOCIATES, INC. Page 25
financial officer or treasurer of the Company (or such other
officers as are acceptable to you) to the effect set forth in this
Section 9(f) and in Sections 9(b) and 9(h) hereof.
(g) The Company shall not have failed in any material
respect at or prior to the Closing Date (and the Additional
Closing Date, if any) to have performed or complied with any of-
its agreements herein contained and required to be performed or
complied with by it hereunder at or prior to the Closing Date (and
the Additional Closing Date, if any).
(h) The Company shall have furnished or caused to have
been furnished to you such further certificates and documents as
you shall have reasonably requested.
(i) At or prior to the Closing Date, you shall have
received the written commitment of each of the Company's
executive officers and directors not to directly or indirectly (i)
offer, pledge, sell, contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, grant any
option, right or warrant for the sale of or otherwise dispose of
or transfer any shares of Common Stock or securities convertible
into or exchangeable or exercisable for shares of Common Stock,
whether now owned or acquired after the date of the Prospectus or
with respect to which the power of disposition is acquired after
the date of the Prospectus, or file any registration statement
under the Act with respect to any of the foregoing; or (ii) enter
into any swap or other agreement or any other agreement that
transfers, in whole or in part, directly or indirectly, the
economic consequences of ownership of shares of Common Stock
whether any such swap or transaction is to be settled by delivery
of Common Stock or other securities, in cash or otherwise; other
than as provided in such written commitment before the expiration
of 180 days from the Closing Date, without the prior written
consent of Raymond James & Associates, Inc.
(j) At or prior to the effective date of the Registration
Statement, you shall have received a letter from the Corporate
Financing Department of the NASD confirming that such Department
has determined to raise no objections with respect to the fairness
or reasonableness of the underwriting terms and arrangements of
the offering contemplated hereby.
All such opinions, certificates, letters and other documents will
be in compliance with the provisions hereof only if they are reasonably
satisfactory in form and substance to you.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the satisfaction on and as of the
Additional Closing Date of the conditions set forth in this Section 9,
except that, if the Additional Closing Date is other than the Closing
Date, the certificates, opinions and letters referred to in
paragraphs (c) through (j) shall be dated as of the Additional Closing
Date and the opinions and letters called for by paragraphs (c), (d) and
(e) shall be revised to reflect the sale of Additional Shares.
SECTION 10. EFFECTIVE DATE OF AGREEMENT. This Agreement shall
become effective upon the later of (a) the execution and delivery hereof
by the parties hereto, or (b) release of oral notification of the
effectiveness of the Registration Statement by the Commission.
<PAGE>
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RAYMOND JAMES & ASSOCIATES, INC. Page 26
If any one or more of the Underwriters shall fail or refuse to
purchase Firm Shares which it or they have agreed to purchase hereunder,
and the aggregate number of Firm Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase is
not more than one-tenth of the aggregate number of the Firm Shares, each
non-defaulting Underwriter shall be obligated, severally, in the
proportion which the number of Firm Shares set forth opposite its name
in Schedule I hereto bears to the aggregate number of Firm Shares set
forth opposite the names of all non-defaulting Underwriters or in such
other proportion as you may specify in the Agreement Among Underwriters,
to purchase the Firm Shares which such defaulting Underwriter or
Underwriters agreed, but failed or refused, to purchase. If any
Underwriter or Underwriters shall fail or refuse to purchase Firm Shares
and the aggregate number of Firm Shares with respect to which such
default occurs is more than one-tenth of the aggregate number of Firm
Shares and arrangements satisfactory to you and the Company for the
purchase of such Firm Shares are not made within 96 hours after such
default, this Agreement will terminate without liability on the part of
any non-defaulting Underwriter or the Company. In any such case which
does not result in termination of this Agreement, either you or the
Company shall have the right to postpone the Closing Date, but in no
event for longer than seven (7) days, in order that the required
changes, if any, in the Registration Statement and the Prospectus or any
other documents or arrangements may be effected. Any action taken under
this paragraph shall not relieve any defaulting Underwriter from
liability in respect of any such default of any such Underwriter under
this Agreement.
SECTION 11. TERMINATION OF AGREEMENT. This Agreement shall be
subject to termination in your absolute discretion, without liability on
the part of any Underwriter to the Company by notice to the Company, if
prior to the Closing Date or the Additional Closing Date (if different
from the Closing Date and then only as to the Additional Shares), as the
case may be, (i) trading in securities generally on the New York Stock
Exchange, American Stock Exchange or the Nasdaq National Market shall
have been suspended or materially limited, (ii) trading of any
securities of the Company, including the Shares, on the Nasdaq National
Market shall have been suspended or materially limited, whether as the
result of a stop order by the Commission or otherwise, (iii) a general
moratorium on commercial banking activities in New York or Florida shall
have been declared by either federal or state authorities, (iv) there
shall have occurred any outbreak or escalation of hostilities or other
international or domestic calamity, crisis or change in political,
financial or economic conditions or other material event the effect of
which on the financial markets of the United States is such as to make
it, in your judgment, impracticable or inadvisable to market the Shares
or to enforce contracts for the sale of the Shares, or (v) the Company
or any Subsidiary shall have, in the sole judgment of the
Representatives, sustained any material loss or interference with their
respective businesses or properties from fire, flood, hurricane,
accident, or other calamity, whether or not covered by insurance, or
from any labor disputes or any legal or governmental proceeding, or
there shall have been any material adverse change (including, without
limitation, a material change in management or control of the Company)
in the condition (financial or otherwise), business, prospects,
properties, net worth or results of operations of the Company and the
Subsidiaries, taken as a whole, except in each case as described in, or
contemplated by, the Prospectus (excluding any amendment or supplement
thereto). Notice of such cancellation shall be promptly given to the
Company and its counsel by facsimile or telephone and shall be
subsequently confirmed by letter.
<PAGE>
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RAYMOND JAMES & ASSOCIATES, INC. Page 27
SECTION 12. INFORMATION FURNISHED BY THE UNDERWRITERS. The
Company acknowledges that the statements set forth in the last paragraph
on the front cover page of the Prospectus, the information set forth in
the first table on page 46 of the Prospectus under the caption
"Underwriting" and the information set forth in the fifth, seventh,
eighth and ninth paragraphs of the Prospectus under the caption
"Underwriting," constitute all the information furnished by or on behalf
of the Underwriters through you or on your behalf as such information is
referred to in Sections 6(b) and 8 hereof.
SECTION 13. MISCELLANEOUS. Except as otherwise provided in
Sections 5, 10 and 11 hereof, notice given pursuant to any of the
provisions of this Agreement shall be in writing and shall be delivered
(i) to the Company:
Maverick Tube Corporation
16401 Swingley Ridge Road, Seventh Floor
Chesterfield, Missouri 63017
Attention: Gregg M. Eisenberg, President
Facsimile: (636) 733-1671
with copy to:
Gallop, Johnson & Neuman, L.C.
1600 Interco Corporate Tower
101 South Hanley
St. Louis, Missouri 63105
Attention: Robert H. Wexler
Facsimile: (314) 862-1219
(ii) to the Underwriters:
Raymond James & Associates, Inc.
5847 San Felipe, #720
Houston, Texas 77057
Attention: Steve Grant, Senior Vice President
Facsimile: (713) 266-4117
and to:
Morgan Keegan & Company, Inc.
50 N. Front Street
19th Floor
Memphis, Tennessee 38103
Attention: Michael J. Harris, Managing Director
Facsimile: (901) 579-4355
<PAGE>
<PAGE>
RAYMOND JAMES & ASSOCIATES, INC. Page 28
with copy to:
Baker & Botts, L.L.P.
3000 One Shell Plaza
Houston, Texas 77002-4995
Attention: Gene J. Oshman
Facsimile: (713) 229-1522
This Agreement has been and is solely for the benefit of the
several Underwriters, the Company, its directors and officers, and the
other controlling persons referred to in Section 8 hereof, and their
respective successors and assigns, to the extent provided herein, and no
other person shall acquire or have any right under or by virtue of this
Agreement. Neither of the terms "successor" and "successors and
assigns" as used in this Agreement shall include a purchaser from you of
any of the Shares in his status as such purchaser.
SECTION 14. APPLICABLE LAW; COUNTERPARTS. THIS AGREEMENT SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK, WITHOUT REFERENCE TO CHOICE OF LAW PRINCIPLES THEREUNDER.
THIS AGREEMENT MAY BE SIGNED IN VARIOUS COUNTERPARTS WHICH TOGETHER
SHALL CONSTITUTE ONE AND THE SAME INSTRUMENT. THIS AGREEMENT SHALL BE
EFFECTIVE WHEN, BUT ONLY WHEN, AT LEAST ONE COUNTERPART HEREOF SHALL
HAVE BEEN EXECUTED ON BEHALF OF EACH PARTY HERETO.
<PAGE>
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RAYMOND JAMES & ASSOCIATES, INC. Page 29
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that
purpose, whereupon this letter and your acceptance shall constitute a
binding agreement between us.
Very truly yours,
MAVERICK TUBE CORPORATION
By:
-------------------------------
Name:
Title:
CONFIRMED as of the date first above
mentioned, on behalf of itself and
the other several Underwriters named
in Schedule I hereto.
RAYMOND JAMES & ASSOCIATES, INC.
MORGAN KEEGAN & COMPANY, INC.
By: RAYMOND JAMES & ASSOCIATES, INC.
By:
---------------------------------
Authorized Representative
<PAGE>
<PAGE>
RAYMOND JAMES & ASSOCIATES, INC. Page 30
SCHEDULE I
NUMBER OF FIRM
NAME SHARES
- ------------------------------------------------ ------------------
Raymond James & Associates, Inc. _________
Morgan Keegan & Company, Inc. _________
TOTAL =========
<PAGE>
<PAGE>
RAYMOND JAMES & ASSOCIATES, INC. Page 31
SCHEDULE II
Maverick Investment Corporation, a Delaware corporation
Maverick Tube, L.P., a Delaware limited partnership
Maverick Tube International, Inc., a Barbados corporation
<PAGE>
September 17, 1999
Board of Directors
Maverick Tube Corporation
16401 Swingley Ridge Road, Seventh Floor
Chesterfield, Missouri 63017
Re: Registration Statement on Form S-3 (File No. 333-87045)
Gentlemen:
We have acted as counsel for Maverick Tube Corporation, a Delaware
corporation (the "Company"), in connection with the various legal
matters relating to the filing of a Registration Statement on Form S-3,
File No. 333-87045 (the "Registration Statement") under the Securities
Act of 1933, as amended, relating to 2,300,000 shares of the common
stock of the Company, $0.01 par value per share, together with one
associated preferred stock purchase right per common share
(collectively, the "Common Stock"), to be sold by the Company to Raymond
James & Associates, Inc. and Morgan Keegan & Company, Inc., as
representatives of the several underwriters, which shares include up to
300,000 shares of Common Stock to be issued upon exercise of an option
granted to the representatives solely to cover over-allotments, if any.
We have examined such corporate records of the Company, such laws
and such other information as we have deemed relevant, including the
Registration Statement, the Company's Amended and Restated Certificate
of Incorporation, as amended, the Company's Amended and Restated Bylaws,
resolutions adopted by the Board of Directors of the Company relating to
such offering and certificates received from state officials and from
officers of the Company. In delivering this opinion, we have assumed,
without independent investigation, the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, the
conformity to the originals of all documents submitted to us as
certified, photostatic or conformed copies, and the correctness of all
statements submitted to us by officers of the Company.
Based solely on the foregoing, the undersigned is of the opinion
that the Common Stock being offered by the Company, if sold and issued
in the manner described in the Registration Statement, will be duly
authorized, validly issued, fully paid and non-assessable.
<PAGE>
<PAGE>
Board of Directors
September 17, 1999
Page 2
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the Registration
Statement and related Prospectus in the section of the Prospectus
entitled "Legal Matters." We also consent to your filing copies of this
opinion as an exhibit to the Registration Statement with agencies of
such states as you deem necessary in the course of complying with the
laws of such states regarding the issuance of the Common Stock being
sold.
Very truly yours,
/s/ GALLOP, JOHNSON & NEUMAN, L.C.
GALLOP, JOHNSON & NEUMAN, L.C.
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption
"Experts" in Amendment No. 1 to the Registration Statement (Form S-3
No. 333-87045) and related Prospectus of Maverick Tube Corporation
for the registration of 2,000,000 shares of its common stock and to
the use and incorporation by reference therein of our reports dated
October 28, 1998, with respect to the consolidated financial statements
of Maverick Tube Corporation included and incorporated by reference
in the Registration Statement and related Prospectus and incorporated
by reference in its Annual Report (Form 10-K) for the year ended
September 30, 1998 and the related financial statement schedule
included therein and incorporated herein by reference, filed with
the Securities and Exchange Commission.
/s/ Ernst & Young LLP
St. Louis, Missouri
September 16, 1999
<PAGE>
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
MAVERICK TUBE, L.P.
AS BUYER
AND
EX-L-TUBE OF KANSAS, INC.
AS SELLER
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<PAGE>
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
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<S> <C>
SECTION 1. DEFINITIONS 1
SECTION 2. SALE AND TRANSFER OF ASSETS; ASSUMPTION OF ASSUMED
LIABILITIES; CLOSING 6
2.1 Purchase and Sale 6
2.2 Purchase Price/Escrow 6
2.3 No Assumption of Liabilities 7
2.4 Closing 7
2.5 Pending the Closing 7
2.6 Transactions at Closing 8
2.7 Taxes 9
2.8 Excluded Assets 10
SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLER 10
3.1 Organization and Good Standing 10
3.2 Authority; No Conflict 10
3.3 Leased Property 11
3.4 Good Title to Assets 11
3.5 Condition of Assets; Limitations on Warranty 11
3.6 Systems and Equipment Year 2000 Compliant 11
3.7 Legal Proceedings; Orders 11
3.8 Contracts; No Defaults 12
3.9 Disclosure 13
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER 13
4.1 Organization and Good Standing 13
4.2 Authority; No Conflict 13
SECTION 5. COVENANTS 14
5.1 Access and Investigation 14
5.2 Maintenance of Assets 14
5.3 Required Approvals 14
5.4 Notification 14
5.5 No Negotiation 15
5.6 Best Efforts 15
5.7 Removal 15
SECTION 6. EMPLOYMENT MATTERS 15
6.1 Termination and Severance Pay 15
SECTION 7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE 15
7.1 Accuracy of Representations 15
7.2 Performance by Seller 16
7.3 Consents 16
7.4 Additional Documents 16
(i)
7.5 No Prohibition 16
7.6 Material Adverse Change 16
SECTION 8. CONDITIONS PRECEDENT TO THE OBLIGATION OF SELLER TO CLOSE 16
8.1 Accuracy of Representations 16
8.2 Buyer's Performance 17
8.3 Consents 17
8.4 Additional Documents 17
8.5 No Injunction 17
SECTION 9. TERMINATION 17
9.1 Termination Events 17
9.2 Effect of Termination 18
SECTION 10. INDEMNIFICATION; REMEDIES 18
10.1 Survival; Right to Indemnification Not Affected by Knowledge;
Exceptions 18
10.2 Indemnification and Payment of Damages by Seller 19
10.3 Environmental Acknowledgment 19
10.4 Time Limitations 20
10.5 Limitation on Amount - Seller 20
10.6 Indemnification and Payment of Damages by Buyer 20
10.7 Procedure for Indemnification - Third Party Claims 20
10.8 Procedure for Indemnification - Other Claims 21
10.9 Legal Fees and Expenses 21
SECTION 11. ARBITRATION 21
11.1 Arbitration 21
SECTION 12. GENERAL PROVISIONS 22
12.1 Expenses 22
12.2 Public Announcements 22
12.3 Confidentiality 22
12.4 Notices 23
12.5 Waiver 23
12.6 Bulk Sales Laws 24
12.7 Entire Agreement and Modification 24
12.8 Assignments; Successors; No Third-Party Rights 24
12.9 Severability 24
12.10 Section Headings; Construction 24
12.11 Time of Essence 24
12.12 Governing Law 24
12.13 Counterparts. 24
12.14 Waiver of Jury Trial 25
</TABLE>
(ii)
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<PAGE>
LIST OF SCHEDULES AND EXHIBITS
Exhibits
- --------
Exhibit A Equipment
Exhibit B Escrow Agreement - Kansas City Leased Equipment
Exhibit C Opinion of Meagher & Geer, P.L.L.P.
Exhibit D Opinion of Gallop, Johnson & Neuman, L.C.
Disclosure Schedules
- --------------------
3.2(b) No Conflict
3.3 Leasehold Interests
3.4 Exception to Good Title
3.6 Exception to Year 2000 Compliance
3.7(a) Exception to Pending Proceedings
3.7(b) Exception to Orders
3.7(c) Exception to Compliance of Orders
3.8(a) Lease, Rental or Occupancy Agreements
3.8(b) Exception to Contracts In Full Force
3.8(c) Exception to Compliance
3.8(d) Exception to Renegotiations
(iii)
<PAGE>
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT ("Agreement") is made and entered
into as of September 3, 1999, by and between MAVERICK TUBE, L.P., a
Delaware limited partnership ("Buyer"), on the one hand, and EX-L-TUBE
OF KANSAS, INC., a Kansas corporation ("Seller"), on the other hand.
RECITALS
A. Seller owns or leases certain machinery, equipment, related
tooling and spare parts used for the manufacture of steel tubular
products.
B. Seller desires to sell and assign its ownership or other
interest in such machinery, equipment and related tooling and spare
parts to Buyer and Buyer desires to purchase Seller's ownership and/or
other interest in such machinery, equipment and related tooling and
spare parts, to be removed by Buyer from the Premises within 30 days
following the Closing, for the consideration and on the terms and
conditions set forth in this Agreement.
C. Simultaneously with the execution of this Agreement, Buyer
has delivered to Seller the Deposit.
AGREEMENT
The parties, in consideration of the recitals and the mutual
covenants contained herein, intending to be legally bound, agree as
follows:
SECTION 1.
DEFINITIONS
For purposes of this Agreement, the following terms have the
meanings specified or referred to in this SECTION 1:
"AFFILIATE" OR "AFFILIATES" -- any Person controlled by,
controlling or under common control with a party to this Agreement,
including (without limitation) any subsidiary of a party to this
Agreement. For purposes of this definition, "control," when used with
respect to any specified Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise.
"ASSURANCE AMOUNT" -- the sum of Two Million Dollars
($2,000,000.00).
"BEST EFFORTS" -- the efforts that a prudent Person desirous of
achieving a result would use in similar circumstances to ensure that
such result is achieved as expeditiously as possible.
"BILL OF SALE" -- as defined in Section 2.6(a)(i).
"BONDS" -- as defined in Section 2.2(c).
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"BREACH" -- a "Breach" of a representation, warranty, covenant,
obligation, or other provision of this Agreement or any instrument
delivered pursuant to this Agreement will be deemed to have occurred if
there is or has been any inaccuracy in or breach of, or any failure to
perform or comply with, such representation, warranty, covenant,
obligation, or other provision.
"BUYER" -- as defined in the first paragraph of this Agreement.
"BUYER INDEMNIFIED PERSONS" -- as defined in Section 10.2.
"BUYER CLOSING DOCUMENTS" -- as defined in Section 4.2.
"CITY" - the Unified Government of Wyandotte County/Kansas City,
Kansas, successor to Kansas City, Kansas.
"CLEANUP" -- as defined under "Environmental, Health and Safety
Liabilities."
"CLOSING" -- the consummation of the Contemplated Transactions.
"CLOSING DATE" -- the date and time as of which the Closing
occurs.
"CODE" -- the Internal Revenue Code of 1986, as amended.
"CONSENT" -- any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"CONTEMPLATED TRANSACTIONS" --the sale of the EX-L Assets by
Seller to Buyer.
"CONTRACTS" -- as defined in Section 3.8(a).
"CRANES" - all cranes located on the Premises, including but not
limited to, the 30 ton P&H Overhead Crane and four (4) 10 ton Overhead
Cranes that are subject to the Private Activity Revenue Bonds
Transaction.
"CREDIT ENTITY" - ABN AMRO Bank, N.V., a Netherlands bank.
"DAMAGES" -- as defined in Section 10.2.
"DEFEASANCE AMOUNT" -- the amount required to defease the Bonds
pursuant to Section 7.01 of the Trust Indenture under which the Bonds
were issued.
"DEPOSIT" -- the sum of One Hundred Twenty-Five Thousand Dollars
($125,000.00), payable by Buyer upon execution of this Agreement.
"EMPLOYEE OBLIGATION" - any liability or obligation of Seller to
any current or former employee, agent, partner, officer, director, or
shareholder of Seller based upon facts or exposures occurring or
existing on or prior to the Closing Date, including without limitation,
any actual or alleged tortuous or unlawful conduct of the Seller or any
of its employees or agents, or any obligation under any existing or pre-
existing employment agreements, or severance pay, or relocation
expenses, or accrued salaries, wages or commissions, accrued vacation,
sick leave, employee benefits or incentives, or any other obligations to
employees of the Seller including,
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but not limited to, payments due under, or with respect to the
termination of, any pension, profit sharing, retirement, health, life
insurance or other benefit plans, and the offering of COBRA
"Continuation Coverage" to any current or former employee of Seller, or
any eligible beneficiary of such an employee, receiving COBRA coverage
prior to the Closing Date for any reason or to any employee of Seller or
any spouse or dependent of such an employee.
"ENCUMBRANCE" -- any charge, claim, community property interest,
condition, encumbrance, covenant, equitable interest, lien, option,
pledge, security interest, right of first refusal, or restriction of any
kind, including any restriction on use, transfer, receipt of income, or
exercise of any other attribute of ownership with respect to any
personal property arising out of the use or ownership of such property
by Seller, but excluding any lien created by personal property taxes
assessed in 2000.
"ENVIRONMENT" -- soil, land surface or subsurface strata, surface
waters (including navigable waters, ocean waters, streams, ponds,
drainage basins, and wetlands), ground waters, drinking water supply,
stream sediments, ambient air (including indoor air), plant and animal
life, and any other environmental medium or natural resource.
"ENVIRONMENTAL, HEALTH AND SAFETY LIABILITIES" -- any cost,
expense, liability, obligation, or other responsibility arising from or
under Environmental, Health and Safety Requirements and consisting of or
relating to: (a) any environmental, health, or safety matters or
conditions (including on-site or off-site contamination, occupational
safety and health, and regulation of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands and
response action, investigative, remedial, or inspection costs and
expenses; (c) financial responsibility for cleanup costs or corrective
action, including any investigation, cleanup, removal, containment, or
other remediation or response actions ("Cleanup") (whether or not such
Cleanup has been required or requested by any Governmental Body or any
other Person) and for any natural resource damages; (d) liability for
personal injury, property damage or natural resource damage; or (e) any
other compliance, corrective, investigative, or remedial measures under
Environmental, Health and Safety Requirements. The terms "removal,"
"remedial," and "response action," include the types of activities
covered by the United States Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. Section 9601 et seq., as
amended ("CERCLA").
"ENVIRONMENTAL, HEALTH AND SAFETY REQUIREMENTS" -- all federal,
state, local and foreign statutes, regulations, ordinances and other
provisions having the force or effect of law, all judicial and
administrative orders and determinations, all contractual obligations
and all common law concerning public health and safety, worker health
and safety, and pollution or protection of the Environment, including
without limitation all those relating to the presence, use, production,
generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, release,
threatened release, control, or cleanup of any hazardous materials,
substances or wastes, chemical substances or mixtures, pesticides,
pollutants, contaminants, toxic chemicals, petroleum products or
byproducts, asbestos, polychlorinated biphenyls, noise or radiation,
each as amended and as now or hereafter in effect.
"ENVIRONMENTAL LIABILITIES" -- as defined in Section 10.2(e)
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"EQUIPMENT" -- that machinery and equipment in the possession of
Seller, the Kansas City Leased Equipment and the other Leased Equipment,
all as described on EXHIBIT A.
"EX-L ASSETS" -- the Equipment, related tooling, spare parts, all
manuals, prints, and documentation relating to the mill and slitter
identified on EXHIBIT A, and software for the exit system on the mill
identified on EXHIBIT A.
"EXCLUDED ASSETS" -- all real and personal property of Seller
other than the EX-L Assets, including, without limitation, the accounts
receivable, inventory, Contracts, Cranes, trademarks, trademark
applications, trademark rights, trade names and all derivations thereof
(including, without limitation, all rights to the name EX-L-Tube used in
connection with the business operated by Seller or any Affiliate of
Seller with or without the EX-L Assets), fictitious business names,
service mark, logos, copyrights, uncopyrighted work, and accounting and
inventory control software computer package.
"EXPENSES" -- as defined in Section 10.2.
"GOVERNMENTAL AUTHORIZATION" -- any approval, consent, license,
permit, waiver, or other authorization issued, granted, given, or
otherwise made available by or under the authority of any Governmental
Body or pursuant to any Legal Requirement.
"GOVERNMENTAL BODY" -- any: (a) nation, state, county, city,
town, village, district, or other jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or other government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official, or
entity and any court or other tribunal); (d) multi-national organization
or body; or (e) body exercising, or entitled to exercise, any
administrative, executive, judicial, legislative, police, regulatory, or
taxing authority or power of any nature.
"KANSAS CITY LEASED EQUIPMENT" - the machinery and equipment
described on EXHIBIT A and designated thereon as being leased from the
City pursuant to that certain Lease Agreement dated as of October 1,
1995, between the City, as Lessor, and Seller, as Lessee (the "Kansas
City Equipment Lease").
"KANSAS CITY EQUIPMENT LEASE" -- as defined under "Kansas City
Leased Equipment."
"KNOWLEDGE" -- an individual will be deemed to have "Knowledge" of
a particular fact or other matter if: (a) such individual is actually
aware of such fact or other matter; or (b) a prudent individual could be
expected to discover or otherwise become aware of such fact or other
matter in the course of conducting a reasonably comprehensive
investigation concerning the existence of such fact or other matter.
"LEASED EQUIPMENT" -- that machinery and equipment described on
EXHIBIT A and designated thereon as being subject to a lease, including
the Kansas City Leased Equipment.
"LEGAL REQUIREMENT" -- any federal, state, local, municipal,
foreign, international, multinational, or other administrative order,
constitution, law, ordinance, principle of common law, regulation,
statute, or treaty.
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"ORDER" -- any award, decision, injunction, judgment, order,
ruling, subpoena, or verdict entered, issued, made, or rendered by any
court, administrative agency, or other Governmental Body or by any
arbitrator.
"ORDINARY COURSE OF BUSINESS" -- an action taken by a Person will
be deemed to have been taken in the "Ordinary Course of Business" of
such Person only if: (a) such action is consistent with the past
practices of such Person and is taken in the ordinary course of the
normal day-to-day operations of such Person; (b) such action is not
required to be authorized by the board of directors of such Person (or
by any Person or group of Persons exercising similar authority); and
(c) such action is similar in nature and magnitude to actions
customarily taken, without any authorization by the board of directors
(or by any Person or group of Persons exercising similar authority), in
the ordinary course of the normal day-to-day operations of other Persons
that are in the same line of business as such Person.
"PERSON" -- any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company,
joint venture, estate, trust, association, organization, labor union, or
other entity or Governmental Body.
"PREMISES" -- the real property on which the Equipment is located,
and any facilities located thereon.
"PREDECESSOR" -- any Person having an ownership or possessory
interest in the Premises prior to that of Seller.
"PRIVATE ACTIVITY REVENUE BONDS TRANSACTION" - the issuance, sale
and delivery by the City of Kansas City, Kansas (n/k/a the City), of its
Private Activity Revenue Bonds, Series 1995 (EX-L-TUBE of Kansas, Inc.
Project) dated October 30, 1995, in the original principal amount of
$6,456,000.
"PROCEEDING" -- any action, arbitration, audit, hearing,
investigation, litigation, or suit (whether civil, criminal,
administrative, or investigative) commenced, brought, conducted, or
heard by or before any Governmental Body or arbitrator.
"PURCHASE PRICE" -- as defined in Section 2.2(a).
"REMOVAL" - as defined in Section 5.7.
"SELLER CLOSING DOCUMENTS" -- as defined in Section 3.2(a).
"SELLER" -- as defined in the first paragraph of this Agreement.
"SELLER INDEMNIFIED PERSONS" -- as defined in Section 10.6.
"TERMINATION DATE" -- as defined in Section 5.1.
"THREATENED" -- a claim, Proceeding, dispute, action, or other
matter will be deemed to have been "Threatened" if any demand or
statement has been made (orally or in writing) or any notice has been
given (orally or in writing), to the Person that is affected by such
claim
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Proceeding, dispute, action, or other matter, that such a claim,
Proceeding, dispute, action, or other matter is likely to be asserted,
commenced, taken, or otherwise pursued in the future.
"TRUST INDENTURE" -- that certain indenture under which the Bonds
were issued.
"TRUSTEE" - BNY Trust Company of Missouri, and any successor
trustee at the time serving in connection with the Private Activity
Revenue Bonds Transaction.
SECTION 2.
SALE AND TRANSFER OF ASSETS; ASSUMPTION OF ASSUMED LIABILITIES; CLOSING
2.1 PURCHASE AND SALE. Subject to the terms and conditions of
this Agreement, at the Closing, Seller will sell, transfer, convey and
assign ownership of the EX-L Assets to Buyer, and Buyer will purchase
the EX-L Assets from Seller, free and clear of all Encumbrances.
2.2 PURCHASE PRICE/ESCROW.
(a) The total purchase price (the "Purchase Price") for the EX-L
Assets will be the sum of Eleven Million Seven Hundred and Fifty
Thousand Dollars ($11,750,000), payable at Closing by wire transfer of
immediately available funds pursuant to wire transfer instructions
delivered by Seller to Buyer no less than two (2) business days prior to
Closing, subject and pursuant to Section 2.6(b), subject to the deposit
of a portion of such funds in escrow pursuant to paragraph (c) of this
Section 2.2 and subject to any adjustments required by Section 2.7.
(b) Buyer and Seller acknowledge and agree that the EX-L Assets
are personal property and will be characterized as such in all tax
returns and filings with federal and state taxing authorities.
(c) Buyer and Seller acknowledge that legal title to the Kansas
City Leased Equipment is held by the City, subject to Seller's leasehold
interest therein and cannot be transferred to Buyer free and clear of
the interest of the City and the secured interest of the Trustee, until
(i) payment of the Defeasance Amount with respect to the Bonds issued
pursuant to the Private Activity Revenue Bonds Transaction (the "Bonds")
shall have been provided for by irrevocably depositing with the Trustee
in trust, and irrevocably setting aside exclusively for such payment,
funds constituting "Eligible Moneys" under the Trust Indenture
sufficient for such payment; (ii) all necessary and proper fees,
compensation and expenses of the Trustee and the City pertaining to the
Bonds shall have been paid or deposited with the Trustee; (iii) an
opinion of independent counsel shall have been delivered stating that
the funds deposited in escrow do not constitute preferential payments
within the provisions of Section 547(b) of the U.S. Bankruptcy Code,
(iv) the Bonds have been deemed redeemed in full and the full purchase
price for the Kansas City Leased Equipment has been paid or deposited
with the Trustee, and (v) Seller has provided to the City and/or the
Trustee any further documentation or payments as required under the
Trust Indenture and Kansas City Equipment Lease. At Closing, an amount
equal to the sum of the Defeasance Amount plus any additional amount
required to purchase the all of the property subject to the Kansas City
Equipment Lease shall be withheld from the Purchase Price and either
(i) deposited into an interest bearing escrow account to be held by the
Trustee pursuant to an escrow agreement, in the form and substance
substantially the same as
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EXHIBIT B attached hereto, provided that the amount to be withheld will
be determined taking into account the Assurance Amount that will already
have been so deposited, and any interest that will have accrued thereon,
or (ii) used to reimburse the Credit Entity and/or General Electric
Capital Corporation, as appropriate. Also at the Closing, all right,
title and interest in, to and under the Kansas City Leased Equipment
will be transferred to Buyer, free and clear of all Encumbrances
pursuant to an Assignment and Bill of Sale duly executed by the Seller,
which shall have received all right, title and interest in, to and under
the Kansas City Leased Equipment pursuant to an Assignment and Bill of
Sale duly executed by the City and a release of security interest
executed by the Trustee. NOTWITHSTANDING ANYTHING CONTAINED IN THIS
AGREEMENT TO THE CONTRARY, SELLER SHALL NOT BE IN DEFAULT UNDER THIS
AGREEMENT AND BUYER SHALL NOT HAVE ANY TERMINATION RIGHTS UNDER
SECTION 9 DUE TO THE FACT THAT THE CITY WILL HAVE AN OWNERSHIP INTEREST
IN THE KANSAS CITY LEASED EQUIPMENT UNTIL THE DEFEASANCE OF THE BONDS
AND THE PURCHASE OF THE KANSAS CITY LEASED EQUIPMENT AT CLOSING, AND THE
TRUSTEE WILL HAVE A SECURITY INTEREST IN THE KANSAS CITY LEASED
EQUIPMENT UNTIL THE DEFEASANCE OF THE BONDS AT CLOSING.
2.3 NO ASSUMPTION OF LIABILITIES. Except as expressly provided
in this Agreement, in no event shall Buyer assume or incur any liability
or obligation hereunder of Seller or any of its subsidiaries or
Affiliates. Without limiting the generality of the foregoing, Buyer
assumes no liability hereunder with respect to (i) liabilities or
obligations arising out of Seller's failure to perform any agreement,
contract, commitment or lease in accordance with its terms prior to or
after the Closing, (ii) any product liability, claim of defective
products or similar claim for injury to person (including death) or
property or for recall of a defective product, regardless of when made
or asserted, for any products made or sold by Seller, (iii) any trade or
other account payable, (iv) any liability or obligation of Seller under
any mortgage, deed of trust, security agreement, financing statement or
capital lease or any note, bond or other instruments secured thereby,
(v) any liability or obligation of Seller existing at or arising after
the Closing under any contract or agreement which results from the
breach or wrongful action or inaction of Seller prior to the Closing,
(vi) any Employee Obligation, including, without limitation, any
liability or obligation of Seller in respect of any plan, agreement,
arrangement or understanding under which benefits or employment is
provided to any employee, (vii) any liability arising out of Seller's
operation of its business or the EX-L Assets, including all
Environmental Health and Safety Liabilities and the breach of any
product warranty, whether explicit or implied, made by Seller, or
(viii) any federal or state tax liability, including sales and use tax,
accruing prior to the Closing.
2.4 CLOSING. The Closing provided for in this Agreement will
take place at the offices of Gallop, Johnson & Neuman, L.C., 101 South
Hanley, Suite 1600, St. Louis, Missouri 63105 at 9:00 a.m. on January 3,
2000, or at such other time and place as the Buyer and Seller may agree
in writing.
2.5 PENDING THE CLOSING.
(a) The parties acknowledge that concurrent with the execution
hereof, Buyer has delivered to Seller the Deposit by wire transfer of
immediately available funds pursuant to Seller's wire transfer
instructions. The Deposit constitutes a partial payment of the Purchase
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Price as set forth herein, and, subject only to the provisions of
Section 9.2, shall be non-refundable.
(b) On September 17, 1999, if this Agreement has not been
terminated in accordance with the provisions hereof on or before such
date, Buyer shall deposit into the interest bearing escrow account
described in Section 2.2(c), by wire transfer of immediately available
funds pursuant to Seller's wire transfer instructions delivered to Buyer
no later than September 15, 1999, an amount equal to the Assurance
Amount. The Assurance Amount constitutes a partial payment of the
Purchase Price as set forth herein, and shall be entirely refundable to
Buyer if Buyer terminates this Agreement pursuant to Section 9.1(a)(i),
9.1(b)(i) or 9.1(e), or if this Agreement is terminated pursuant to
Section 9.1(d). If Seller terminates this Agreement pursuant to Section
9.1(a)(ii) or 9.1(b)(ii), the Assurance Amount shall be distributed from
escrow to Seller.
2.6 TRANSACTIONS AT CLOSING. Except for the Escrow Agreement
referred to in paragraphs (a)(ii) and (b)(ii) below, which shall be
executed upon Buyer's deposit of the Assurance Amount as provided in
Section 2.5 above, and on the basis of the representations, warranties,
covenants and agreements made herein and in the Exhibits and Disclosure
Schedules hereto and in the certificates and other instruments delivered
pursuant hereto, and subject to the terms and conditions hereof:
(a) Seller will deliver to Buyer:
(i) an Assignment and Bill of Sale and any other title
transfer documents reasonably requested by Buyer with respect to
all of the EX-L Assets executed by Seller on terms reasonably
acceptable to Buyer (the "Bill of Sale") and security interest and
lien terminations with respect to all Encumbrances on such EX-L
Assets or reasonably acceptable payoff letters and/or executed
releases from the party holding an Encumbrance if the funds
necessary to satisfy such Encumbrance are collected or escrowed at
Closing for disbursement to the party holding the Encumbrance,
including the parties described in Section 2.2(c);
(ii) copies of the Escrow Agreement in form and substance
substantially the same as EXHIBIT B attached hereto (having
previously been executed and delivered) indicating the receipt by
the Trustee of the Defeasance Amount;
(iii) a good standing certificate regarding Seller, issued
as of a recent date by the Secretary of State of Seller's state of
organization;
(iv) resolutions duly adopted by the directors of Seller,
and the shareholder(s) of Seller authorizing the execution,
delivery and performance of the terms of this Agreement and the
consummation of the transactions contemplated by this Agreement,
certified to Buyer's reasonable satisfaction;
(v) copies of the books and records maintained by Seller
that relate to the operation of the Equipment;
(vi) evidence reasonably satisfactory to Buyer that the
Trustee has released its security interest in the Kansas City
Leased Equipment;
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(vii) evidence reasonably satisfactory to Buyer that all
obligations of the Seller to the Credit Entity have been paid in
full;
(viii) an Assignment and Bill of Sale from the City to
Seller for the Kansas City Leased Equipment;
(ix) Instructions from the Trustee with respect to the
Defeasance Amount required to be escrowed under Section 2.2(c);
(x) the certificate referred to in Section 10.1; and
(xi) such other documents required pursuant to the terms of
this Agreement or as reasonably requested by Buyer, the City, the
Trustee and/or the Credit Entity in order to facilitate or effect
the transfer and conveyance of the EX-L Assets to Buyer.
(b) Buyer will deliver to Seller:
(i) by wire transfer of immediately available funds, an
amount equal to the Purchase Price, less (A) the Deposit, (B) the
Assurance Amount, and (C) any other amounts deposited into Escrow
pursuant to Sections 2.2(c);
(ii) copies of the Escrow Agreement in form and substance
substantially the same as EXHIBIT B attached hereto (having
previously been executed and delivered) indicating the receipt by
the Trustee of the Defeasance Amount;
(iii) good standing certificates with respect to Buyer and
its general partner, issued as of a recent date by the Secretary
of State of Buyer's and its general partner's state of
organization;
(iv) resolutions duly adopted by the directors of Buyer's
general partner authorizing the execution, delivery and
performance of the terms of this Agreement and the consummation of
the transactions contemplated by this Agreement, certified to
Seller's reasonable satisfaction;
(v) the certificate referred to in Section 10.1; and
(vi) any such other documents required pursuant to the
terms of this Agreement or as reasonably requested by Seller, the
City, the Trustee and/or the Credit Entity.
2.7 TAXES. Seller shall be responsible for all personal
property taxes, and payments in lieu of personal property taxes, with
respect to the EX-L Assets that were assessed, due or payable in 1999
and all prior years. Buyer shall be responsible for all personal
property taxes assessed in January, 2000, and payments in lieu of
personal property taxes payable in 2000, with respect to the EX-L
Assets. Buyer and Seller shall make appropriate adjustments at Closing
to reflect any such personal property taxes and payments in lieu of
personal property taxes that are prepaid and to reflect any such
personal property taxes and payments in lieu of personal property taxes
that are accrued but unpaid, all in accordance with the previous two
sentences. All real estate and other transfer taxes which are payable
or arise as a result of this Agreement or the
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Closing pursuant to this Agreement shall be paid by Seller
notwithstanding how such taxes are imposed by statute. Buyer and Seller
agree to cooperate in good faith to allocate between them payments due
in lieu of taxes in 2000 and payments due for taxes assessed in January
2000, based on property that is subject to such payments, owned by each
of them immediately following the Closing.
2.8 EXCLUDED ASSETS. Notwithstanding the foregoing, Seller
shall not transfer to Buyer, and Buyer shall not acquire, and the EX-L
Assets shall not include, any of the Excluded Assets.
SECTION 3.
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer, as follows:
3.1 ORGANIZATION AND GOOD STANDING. Seller is a corporation,
duly organized, validly existing, and in good standing under the laws of
the State of Kansas, with full corporate power and authority to conduct
its business as it is now being conducted, and to own or use the
properties and assets that it purports to own or use.
3.2 AUTHORITY; NO CONFLICT.
(a) This Agreement constitutes the legal, valid, and binding
obligation of Seller, enforceable against Seller in accordance with its
terms. Upon the execution and delivery by Seller of the documents
described in Section 2.6(a) (collectively, the "Seller Closing
Documents"), the Seller Closing Documents will constitute the legal,
valid, and binding obligations of Seller enforceable against Seller in
accordance with their respective terms. Seller has the absolute and
unrestricted corporate right, power, authority, and capacity to execute
and deliver this Agreement and the Seller Closing Documents and to
perform its obligations under this Agreement and the applicable Seller
Closing Documents.
(b) Except as set forth on DISCLOSURE SCHEDULE 3.2(B), neither
the execution and delivery of this Agreement nor the consummation or
performance of any of the Contemplated Transactions will (with or
without notice or lapse of time):
(i) contravene, conflict with, or result in a violation of
(A) any provision of Seller's articles of incorporation or by-
laws, or (B) any resolution adopted by the board of directors or
the stockholders of Seller;
(ii) contravene, conflict with, or result in a violation of
any of the terms or requirements, or give any Governmental Body or
other Person the right to challenge any of the Contemplated
Transactions, or to exercise any remedy or obtain any relief
under, any Legal Requirement or any Order to which Seller or any
EX-L Asset is or would be bound;
(iii) contravene, conflict with, or result in a violation of
any of the terms or requirements of, or give any Governmental Body
the right to revoke, withdraw, suspend,
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cancel, terminate, or modify, any Governmental Authorization that
is held by Seller and that otherwise relates to, or affects, any
EX-L Asset;
(iv) cause Buyer to become subject to, or to become liable
for the payment of, any tax (including, but not limited to,
transfer, sales, income, gross receipts, license, payroll,
employment, excise, severance, stamp occupation, premium, windfall
profit, environmental, customs, duties, capital stock, franchise,
real property, registration, including any interest or penalty
interest or addition thereto) with the exception of those incurred
in the ordinary course of Buyer's business after the Closing Date
and unrelated to the Contemplated Transactions;
(v) to Seller's Knowledge, cause any EX-L Asset to be
reassessed or revalued by any taxing authority or other
Governmental Body; or
(vi) result in the imposition or creation of any
Encumbrance upon or with respect to any EX-L Asset.
3.3 LEASED PROPERTY. DISCLOSURE SCHEDULE 3.3 contains a
complete and accurate list of all leasehold interests in personal
property which constitute part of the EX-L Assets. Seller has delivered
or made available to Buyer copies of such leases.
3.4 GOOD TITLE TO ASSETS. Except as set forth on DISCLOSURE
SCHEDULE 3.4, (a) Seller has good title to all of the EX-L Assets,
(b) all of the EX-L Assets are free and clear of restrictions on or
conditions to transfer or assignment, and (c) all of the EX-L Assets are
free and clear of all Encumbrances.
3.5 CONDITION OF ASSETS; LIMITATIONS ON WARRANTY.
(a) Except as expressly set forth in Section 3.6, Seller makes
no warranties as to the physical condition of the Equipment, all of
which will be sold "AS IS", "WHERE IS" at the Closing.
3.6 SYSTEMS AND EQUIPMENT YEAR 2000 COMPLIANT. Except as set
forth on DISCLOSURE SCHEDULE 3.6, to Seller's Knowledge, all Equipment
containing imbedded microchips necessary to enable the operation of the
Equipment (including systems and equipment supplied by others or with
which the Equipment interfaces) is Year 2000 Compliant. Seller has
furnished to Buyer copies of all programs and plans of Seller, if any
currently exist related to making the Equipment Year 2000 Compliant.
For purposes of this Section 3.6, the term "Year 2000 Compliant" means
that such systems and equipment shall be able accurately to process
(including, without limitation, calculate, compare and sequence) date
and time data from, into and between the years 1999 and 2000 and any
other years in the Twentieth and Twenty-first Centuries. Except as set
forth on DISCLOSURE SCHEDULE 3.6, Seller has no actual knowledge of any
inability on the part of any supplier or customer of, or service
provider to, Seller at the Facilities to timely ensure that its systems
and equipment are Year 2000 Compliant.
3.7 LEGAL PROCEEDINGS; ORDERS.
(a) Except as set forth on DISCLOSURE SCHEDULE 3.7(a) there is
no pending Proceeding: (i) that has been commenced by or against Seller
or that otherwise relates to or may affect the
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EX-L Assets; or (ii) that challenges, or that may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any
of the Contemplated Transactions. No such Proceeding has been
Threatened, and to Seller's Knowledge, no event has occurred or
circumstance exists that may give rise to or serve as a basis for the
commencement of any such Proceeding. Seller has made available to Buyer
copies of all pleadings, correspondence, and other documents relating to
each Proceeding listed on DISCLOSURE SCHEDULE 3.7(a).
(b) Except as set forth on DISCLOSURE SCHEDULE 3.7(b): (i) there
is no Order to which any of the EX-L Assets is subject; and (ii) Seller
is not subject to any Order that relates to the EX-L Assets.
(c) Except as set forth on DISCLOSURE SCHEDULE 3.7(c): (i) Seller
is, and at all times since January 1, 1997, has been, in full compliance
compliance with all of the terms and requirements of each Order listed
or required to be listed on DISCLOSURE SCHEDULE 3.7(b); (ii) to Seller's
Knowledge, no event has occurred or circumstance exists that may
constitute or result in (with or without notice or lapse of time) a
violation of or failure to comply with any term or requirement of any
Order to which any of the EX-L Assets is subject; and (iii) Seller has
not received, at any time since January 1, 1997, any notice or other
communication (whether oral or written) from any Governmental Body
regarding any actual, alleged, possible, or potential violation of, or
failure to comply with, any term or requirement of any Order to which
any of the EX-L Assets is subject.
3.8 CONTRACTS; NO DEFAULTS.
(a) DISCLOSURE SCHEDULE 3.8(a) contains a complete and accurate
list, and Seller has delivered to Buyer true and complete copies, of
each lease, license, installment and conditional sale agreement, and
other contract in full force and effect and affecting the ownership of,
leasing of, title to, use of, or any leasehold or other interest in, any
EX-L Asset and each amendment, supplement, and modification (whether
oral or written) in respect of any of the foregoing (collectively, the
"Contracts"). Buyer waives compliance with the delivery requirements
described in the immediately preceding sentence to the extent noted on
DISCLOSURE SCHEDULE 3.8(a).
(b) Except as set forth on DISCLOSURE SCHEDULE 3.8(b), each
Contract identified on DISCLOSURE SCHEDULE 3.8(a) is in full force and
effect and is valid and enforceable in accordance with its terms.
(c) Except as set forth on DISCLOSURE SCHEDULE 3.8(c):
(i) Seller is, and at all times has been, in full
compliance with all material terms and requirements of each
Contract;
(ii) Seller has not given to or received from any other
Person, any notice or other communication (whether written or
oral) regarding any actual, alleged, possible, or potential
violation or breach of, or default under, any Contract.
(d) Except as set forth on DISCLOSURE SCHEDULE 3.8(d), there are
no renegotiations of, attempts to renegotiate, or outstanding rights to
renegotiate any material amounts payable by
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Seller under current or completed Contracts with any Person and no such
Person has made written demand for such re-negotiation.
3.9 DISCLOSURE.
(a) No representation or warranty of Seller in this Agreement
and no statement in a Disclosure Schedule to this Agreement contains any
untrue statement of material fact or omits to state a material fact
necessary in order to make the statements made herein or therein, in the
light of the circumstances under which they were made, not misleading.
No notice given pursuant to Section 5.4 will contain any untrue
statement or omit to state a material fact necessary to make the
statements therein or in this Agreement, in the light of the
circumstances under which they were made, not misleading.
(b) Seller has conducted a reasonable investigation with respect
to the representations and warranties contained in this Agreement.
SECTION 4.
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
4.1 ORGANIZATION AND GOOD STANDING. Buyer is a limited
partnership duly organized, validly existing, and in good standing under
the laws of the State of Delaware. Buyer's general partner is a
corporation, duly organized, validly existing, and in good standing
under the laws of the State of Delaware.
4.2 AUTHORITY; NO CONFLICT.
(a) This Agreement constitutes the legal, valid, and binding
obligation of Buyer, enforceable against Buyer in accordance with its
terms. Upon the execution and delivery by Buyer of the documents
described in Section 2.6(b) (collectively, the "Buyer Closing
Documents"), the Buyer Closing Documents will constitute the legal,
valid and binding obligation of Buyer, enforceable against Buyer in
accordance with their terms. Buyer has the absolute and unrestricted
right, power, and authority to execute and deliver this Agreement and,
subject to the approval of Buyer's general partner, Buyer has the
absolute and unrestricted right, power, and authority to execute and
deliver the Buyer Closing Documents and to perform its obligations under
this Agreement and the Buyer Closing Documents.
(b) Neither the execution and delivery of this Agreement by
Buyer nor the consummation or performance of any of the Contemplated
Transactions by Buyer will give any Person the right to prevent, delay,
or otherwise interfere with any of the Contemplated Transactions
pursuant to:
(i) any provision of Buyer's certificate of limited
partnership;
(ii) any resolution adopted by the general partner of
Buyer;
(iii) any Legal Requirement or Order to which Buyer may be
subject; or
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(iv) any Contract to which Buyer is a party or by which
Buyer may be bound.
SECTION 5.
COVENANTS
5.1 ACCESS AND INVESTIGATION. Between the date of this
Agreement and the earlier of the date this Agreement is terminated
pursuant to SECTION 9 (the "Termination Date") and the Closing Date,
Seller will permit representatives, agents, employees, surveyors,
contractors, lenders, appraisers and engineers designated by Buyer
access to and entry upon the Premises during normal business hours to
examine, sample, inspect, measure and test any of the EX-L Assets at
Buyer's cost and expense.
5.2 MAINTENANCE OF ASSETS. Between the date of this Agreement
and the earlier of the Termination Date and the Closing Date, Seller
will:
(a) maintain the EX-L Assets in customary repair, order and
condition, damage by casualty excepted, maintain all insurance with
respect to the EX-L Assets in effect on the date of this Agreement, and,
in the event of casualty, loss or damage to any EX-L Asset prior to the
Closing Date for which it is insured, either repair or replace such
damaged property or, at the Buyer's option, transfer the proceeds of
such insurance to Buyer at the Closing upon Buyer's payment of the full
Purchase Price; and
(b) comply in all material respects with all Legal Requirements
and contractual obligations applicable to the EX-L Assets including,
without limitation, any leases regarding the EX-L Assets. The
disclosure by Seller in DISCLOSURE SCHEDULE 3.8(C) shall not be deemed a
Breach of this Section 5.2(b).
5.3 REQUIRED APPROVALS. As promptly as practicable after the
date of this Agreement, Seller will make all filings required by Legal
Requirements to be made by Seller in order to consummate the
Contemplated Transactions. Between the date of this Agreement and the
earlier of the Termination Date and the Closing Date, on a Best Efforts
basis, Seller will cooperate with Buyer with respect to all filings that
Buyer elects to make or is required by Legal Requirements to make in
connection with the Contemplated Transactions.
5.4 NOTIFICATION. Between the date of this Agreement and the
earlier of the Termination Date and the Closing Date, Seller will
promptly notify Buyer in writing if Seller becomes aware of any fact or
condition that causes or constitutes a Breach of any of the
representations and warranties of Seller as of the date of this
Agreement, or if Seller becomes aware of the occurrence after the date
of this Agreement of any fact or condition that would cause or
constitute a Breach of any such representation or warranty had such
representation or warranty been made as of the time of occurrence or
discovery of such fact or condition. Should any such fact or condition
require any change in a Disclosure Schedule hereto if the Disclosure
Schedule were dated the date of the occurrence or discovery of any such
fact or condition, Seller will promptly deliver to Buyer a supplement to
such Disclosure Schedule specifying such change. During the same
period, Seller will promptly notify Buyer of the occurrence of any
Breach of any covenant of Seller in this SECTION 5 or of the occurrence
of any event that may make the satisfaction of the conditions in
SECTION 7 impossible or unlikely.
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5.5 NO NEGOTIATION. Until such time, if any, as this Agreement
is terminated pursuant to SECTION 9, neither Seller nor any of its
shareholders will, and Seller will notify each of its agents or brokers
not to, directly or indirectly solicit, initiate, or encourage any
inquiries or proposals from, discuss or negotiate with, provide any non-
public information to, or consider the merits of any unsolicited
inquiries or proposals from, any Person (other than Buyer) relating to
any transaction involving the sale of the EX-L Assets (other than in the
Ordinary Course of Business), or any of the capital stock of Seller, or
any merger, consolidation, business combination, or similar transaction
involving Seller.
5.6 BEST EFFORTS. Between the date of this Agreement and the
earlier of the Termination Date and the Closing Date, Seller and Buyer
will use their respective reasonable Best Efforts to cause the
conditions in SECTION 7 and SECTION 8 to be satisfied.
5.7 REMOVAL. For a period of thirty (30) days following the
Closing, Seller will permit representatives, agents, employees,
surveyors, contractors, lenders, appraisers and engineers designated by
Buyer access to and entry upon the Premises during normal business hours
to prepare for and to carry out Buyer's removal of the EX-L Assets (the
"Removal"). Buyer will use its Best Efforts to complete the Removal in
a workmanlike manner during such thirty (30) day period. Seller will
permit Buyer to maintain the EX-L Assets at and within the Premises
pending the Removal, without additional expense to Buyer for the first
30 days following the Closing (by way of lease or otherwise), although
risk of loss with respect to the EX-L Assets shall pass to Buyer at
Closing. Furthermore, if the EX-L Assets shall not have been removed by
the thirtieth day following the Closing, Buyer shall pay to Seller a
reasonable market rental until the EX-L Assets shall be removed.
SECTION 6.
EMPLOYMENT MATTERS
6.1 TERMINATION AND SEVERANCE PAY. Seller will be responsible
for any and all Employee Obligations related to or arising in connection
with the consummation of the Contemplated Transactions, including,
without limitation, termination and severance pay related to or arising
in connection with any termination of Seller's employees, and Buyer
shall not assume or be responsible for any Employee Obligation.
SECTION 7.
CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the EX-L Assets and to take the
other actions required to be taken by Buyer at the Closing is subject to
the satisfaction, at or prior to the Closing, of each of the following
conditions (any of which may be waived by Buyer, in whole or in part):
7.1 ACCURACY OF REPRESENTATIONS. All of the representations and
warranties of Seller in this Agreement (considered collectively), and
each of these representations and warranties (considered individually),
must be accurate in all material respects as of the Closing Date as if
made on the Closing Date, without giving effect to any supplement to the
Disclosure Schedules; provided that each of the representations and
warranties of Seller in Section 3.4 must have been accurate in all
respects as of the date of this Agreement (or any such inaccuracy must
have been cured by the Seller as of the Closing Date), and must be
accurate in all respects as of the Closing
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Date as if made on the Closing Date, without giving effect to any
supplement to the Disclosure Schedule described in such Section 3.4.
7.2 PERFORMANCE BY SELLER. All of the covenants and obligations
that Seller is required to perform or to comply with pursuant to this
Agreement at or prior to the Closing (considered collectively), and each
of these covenants and obligations (considered individually), must have
been duly performed and complied with in all material respects. Each
document required to be delivered pursuant to Section 2.6(a) must have
been delivered, and each of the other covenants and obligations in
Sections 5.3 and 5.6 must have been performed and complied with in all
respects.
7.3 CONSENTS. Each of the Consents identified on DISCLOSURE
SCHEDULE 3.2(b), must have been obtained and must be in full force and
effect.
7.4 ADDITIONAL DOCUMENTS. Each of the following documents must
have been delivered to Buyer:
(a) an opinion of Meagher & Geer, P.L.L.P., counsel to Seller,
dated the Closing Date, substantially in the form of EXHIBIT C;
(b) a certificate of Seller representing and warranting to Buyer
that the conditions set forth in Sections 7.1, 7.2 and 7.5 have been
fulfilled; and
(c) such other documents as Buyer may reasonably request for the
purpose of (i) enabling its counsel to provide the opinion referred to
in Section 8.4(a), (ii) evidencing the accuracy of any of the
representations and warranties of Seller, (iii) evidencing the
performance by Seller of, or the compliance by Seller with, any covenant
or obligation required to be performed or complied with by the Seller,
(iv) evidencing the satisfaction of any condition referred to in this
SECTION 7, or (v) otherwise facilitating the consummation or performance
of any of the Contemplated Transactions.
7.5 NO PROHIBITION. There must not be in effect any Legal
Requirement or any injunction or other Order that (a) prohibits the sale
of the EX-L Assets by Seller to Buyer, and (b) has been adopted or
issued, or has otherwise become effective, since the date of this
Agreement.
7.6 MATERIAL ADVERSE CHANGE. There shall not have occurred any
material adverse change to the condition of the EX-L Assets.
SECTION 8.
CONDITIONS PRECEDENT TO THE OBLIGATION OF SELLER TO CLOSE
The obligation of Seller to sell the EX-L Assets and the
obligation of Seller to take such other actions required to be taken by
Seller at the Closing are subject to the satisfaction, at or prior to
the Closing, of each of the following conditions (any of which may be
waived by Seller in whole or in part):
8.1 ACCURACY OF REPRESENTATIONS. All of Buyer's representations
and warranties in this Agreement (considered collectively), and each of
these representations and warranties
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(considered individually), must be accurate in all material respects as
of the Closing Date as if made on the Closing Date.
8.2 BUYER'S PERFORMANCE.
(a) All of the covenants and obligations that Buyer is required
to perform or to comply with pursuant to this Agreement at or prior to
the Closing (considered collectively), and each of these covenants and
obligations (considered individually), must have been performed and
complied with in all material respects. Buyer's covenants and
obligations in Section 5.6 must have been performed and complied with in
all respects.
(b) Buyer must have delivered each of the documents required to
be delivered by Buyer pursuant to Section 2.6(b) and must have paid the
Purchase Price as required pursuant to Section 2.6(b).
8.3 CONSENTS. Each of the Consents identified on DISCLOSURE
SCHEDULE 3.2(b) must have been obtained and must be in full force and
effect.
8.4 ADDITIONAL DOCUMENTS. Buyer must have caused the following
documents to be delivered to Seller:
(a) an opinion of Gallop, Johnson & Neuman, L.C., counsel to
Buyer, dated the Closing Date, substantially in the form of EXHIBIT D;
(b) a certificate of Buyer representing and warranting to Seller
that the conditions set forth in Sections 8.1, 8.2 and 8.5 have been
fulfilled; and
(c) such other documents as Seller may reasonably request for
the purpose of (i) enabling Seller's counsel to provide the opinion
referred to in Section 7.4(a), (ii) evidencing the accuracy of any
representation or warranty of Buyer, (iii) evidencing the performance by
Buyer of, or the compliance by Buyer with, any covenant or obligation
required to be performed or complied with by Buyer, (iv) evidencing the
satisfaction of any condition referred to in this SECTION 8, or
(v) otherwise facilitating the consummation of any of the Contemplated
Transactions.
8.5 NO INJUNCTION. There must not be in effect any Legal
Requirement or any injunction or other Order that (a) prohibits the sale
of the EX-L Assets by Seller to Buyer, and (b) has been adopted or
issued, or has otherwise become effective, since the date of this
Agreement.
SECTION 9.
TERMINATION
9.1 TERMINATION EVENTS. This Agreement may, by notice given
prior to or at the Closing (except for Subparagraph (c) below), be
terminated:
(a) (i) by Buyer, if a material Breach of any provision of this
Agreement has been committed by Seller and Seller has not cured such
Breach within thirty (30) days after receipt of such notice but in no
event later than the Closing, and (ii) by Seller if a material Breach of
any
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provision of this Agreement has been committed by Buyer and Buyer has
not cured such Breach within thirty (30) days after receipt of such
notice but in no event later than the Closing, provided that the non-
Breaching party has not waived such Breach;
(b) (i) by Buyer if any of the conditions in SECTION 7 have not
been satisfied as of the Closing Date or if satisfaction of such a
condition is or becomes impossible (other than through the failure of
Buyer to comply with its obligations under this Agreement) and Buyer has
not waived such condition on or before the Closing Date; or (ii) by
Seller if any of the conditions in SECTION 8 have not been satisfied as
of the Closing Date or if satisfaction of such a condition is or becomes
impossible (other than through the failure of Seller to comply with its
obligations under this Agreement) and Seller has not waived such
condition on or before the Closing Date;
(c) by Buyer, on or before September 17, 1999, if the Board of
Directors of Buyer's General Partner, Maverick Tube Corporation, a
Delaware corporation, shall have failed to approve this Agreement and
the consummation of the Contemplated Transactions for any reason or no
reason, including, without limitation, the availability of financing
with respect to the Contemplated Transactions in such amount and on such
terms as shall be satisfactory to such Board of Directors in its sole
and absolute discretion.
(d) by mutual written consent of Buyer and Seller; and/or
(e) by Buyer or Seller if the Closing has not occurred (other
than through the failure of any party seeking to terminate this
Agreement to comply fully with its obligations under this Agreement) on
or before February 28, 2000, or such later date as the parties may agree
upon.
9.2 EFFECT OF TERMINATION. Each party's right of termination
under Section 9.1 is in addition to any other rights it may have under
this Agreement or otherwise, and the exercise of a right of termination
will not be an election of remedies. If this Agreement is terminated
pursuant to Section 9.1, all further obligations of the parties under
this Agreement will terminate, except that the obligations in this
Section 9.2 and Sections 12.1 and 12.3 will survive. If this Agreement
is terminated by Buyer pursuant to Section 9.1(a)(i), 9.1(b)(i) or
9.1(e), then Seller shall pay to Buyer an amount equal to the Deposit.
SECTION 10.
INDEMNIFICATION; REMEDIES
10.1 SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY
KNOWLEDGE; EXCEPTIONS. All representations, warranties, covenants, and
obligations in this Agreement, the Disclosure Schedules, the supplements
to the Disclosure Schedules, and any other certificate or document
delivered pursuant to this Agreement will survive the Closing. The
right to indemnification, payment of Damages or other remedy based on
such representations, warranties, covenants, and obligations will not be
affected by any investigation conducted with respect to, or any
Knowledge acquired (or capable of being acquired) at any time, whether
before or after the execution and delivery of this Agreement or the
Closing Date, with respect to the accuracy or inaccuracy of or
compliance with, any such representation, warranty, covenant, or
obligation; provided that Seller and Buyer shall each sign a certificate
at Closing disclosing whether such party has Knowledge with respect to
the inaccuracy of or noncompliance with any
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representation, warranty, covenant, or obligation by the other party.
The waiver of any condition based on the accuracy of any representation
or warranty, or on the performance of or compliance with any covenant or
obligation, will not affect the right to indemnification, payment of
Damages, or other remedy based on such representations, warranties,
covenants, and obligations.
10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLER. Seller
will indemnify and hold harmless Buyer, and its partners, controlling
persons, and Affiliates (collectively, the "Buyer Indemnified Persons")
for, and will pay to the Buyer Indemnified Persons the amount of, any
loss, liability, claim, damage (excluding consequential damages),
expense (including costs of investigation and defense and reasonable
attorney's fees) (collectively, the "Expenses") or diminution of value,
whether or not involving a third-party claim incurred by the Buyer
Indemnified Persons (collectively, "Damages") and arising from or in
connection with:
(a) any Breach of any representation or warranty made by Seller
in this Agreement, the Disclosure Schedules (without giving effect to
any supplement to the Disclosure Schedules), or any other certificate or
document delivered by Seller pursuant to this Agreement;
(b) any Breach of any representation or warranty made by Seller
in this Agreement as if such representation or warranty were made on and
as of the Closing Date;
(c) any Breach by Seller of any covenant or obligation of Seller
in this Agreement;
(d) any claim against Buyer by any Person that Buyer is liable
to any extent for any liability of Seller other than obligations
specifically assumed hereunder, including, without limitation any claim
with respect to an Employee Obligation; or
(e) any Damages (including costs of Cleanup, containment or
other remediation) arising, directly or indirectly, before or after
Closing, out of, relating to, or based upon any Environmental
Liabilities (as defined below) arising out of or relating to the EX-L
Assets (before the Closing) or the Premises (at any time), except to the
extent that any such Damages are directly caused by the negligent acts
or willful misconduct of Buyer or its agents, officers, directors, or
employees following the Closing. For purposes of this Agreement, the
term Environmental Liabilities shall mean those Environmental, Health
and Safety Liabilities that arise due to (i) environmental conditions on
the Premises or (ii) any other compliance, corrective, investigative or
remedial measures concerning pollution or protection of the Environment.
10.3 ENVIRONMENTAL ACKNOWLEDGMENT. Seller acknowledges that,
prior to Closing, Buyer has not generated, handled, stored, treated,
transported, disposed of, or in any way whatsoever taken responsibility
for any toxic or hazardous substance or other material found,
identified, or as yet unknown at the Premises. Buyer and Seller further
acknowledge and understand that the Buyer's Removal may result in the
discovery or exposure of certain conditions, including without
limitation the potential discovery of friable asbestos on the Premises.
Accordingly, Seller waives any claim against the Buyer Indemnified
Persons and hereby agrees to indemnify, defend, and hold harmless the
Buyer Indemnified Persons from any Damages allegedly arising from, or in
connection with, Buyer's Removal activities, including without
limitation, the existence of actual or suspected friable asbestos or
other hazardous materials or contamination, but excluding any Damages
described in Section 10.6(e) which are subject to indemnification by
Buyer. If Buyer discovers any hazardous material or other
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environmental conditions during the Removal, Buyer shall promptly
notify Seller of such discovery.
10.4 TIME LIMITATIONS. Seller will have no liability (for
indemnification or otherwise) with respect to the matters described in
Section 10.2, other than Section 10.2(e) unless on or before six months
from the Closing Date, Buyer notifies Seller of a Breach or claim
described in Section 10.2 specifying the factual basis of that Breach or
claim in reasonable detail to the extent then known by Buyer.
10.5 LIMITATION ON AMOUNT - SELLER. Seller will have no
liability (for indemnification or otherwise) with respect to the matters
described in Section 10.2, other than Section 10.2(e), for any Damages
in excess of Five Hundred Thousand Dollars ($500,000).
10.6 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER. Buyer will
indemnify and hold harmless Seller, its stockholders and Affiliates
(collectively, the "Seller Indemnified Persons") and will pay to the
Seller Indemnified Persons the amount of any Expenses and Damages
arising, directly or indirectly, from or in connection with: (a) any
Breach of any representation or warranty made by Buyer in this Agreement
or in any certificate delivered by Buyer pursuant to this Agreement;
(b) any Breach of any representation or warranty made by Buyer in this
Agreement as if such representation or warranty were made on and as of
the Closing Date; (c) any Breach by Buyer of any covenant or obligation
of Buyer in this Agreement; (d) any claim against Seller by any person
that has been reduced to judgment that Seller is liable to any extent
for any liability of Buyer expressly assumed by Buyer from Seller
hereunder; or (e) relating to or based upon any Damage to the Premises
(including Environmental Liabilities) caused by Buyer's Removal of the
Equipment, to the extent and only to the extent that such Expenses and
Damages are not the result of a pre-existing condition on the Premises,
and not including such Expenses and Damages that are directly caused by
the negligent acts or willful misconduct of Seller or its affiliates,
agents, officers, directors or employees.
10.7 PROCEDURE FOR INDEMNIFICATION - THIRD PARTY CLAIMS.
(a) Promptly after receipt by an indemnified party under
Section 10.2 or 10.6 of notice of the commencement of any Proceeding
against it, such indemnified party will, if a claim is to be made
against an indemnifying party under such Section, give notice to the
indemnifying party of the commencement of such Proceeding, but the
failure to notify the indemnifying party will not relieve the
indemnifying party of any liability that it may have to any indemnified
party, except to the extent that the indemnifying party demonstrates
that the defense of such action is prejudiced by the indemnified party's
failure to give such notice.
(b) If any Proceeding referred to in Section 10.7(a) is brought
against an indemnified party and it gives notice to the indemnifying
party of the commencement of such Proceeding, the indemnifying party
will be entitled to participate in such Proceeding and, to the extent
that it wishes (unless (i) the indemnifying party is also a party to
such Proceeding and the indemnified party determines in good faith that
joint representation would be inappropriate, (ii) the indemnifying party
fails to provide reasonable assurance to the indemnified party of its
financial capacity to defend such Proceeding and provide indemnification
with respect to such Proceeding, or (iii) the outcome of the Proceeding
will have a continuing effect on the indemnified party), to
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assume the defense of such Proceeding with counsel satisfactory to the
indemnified party and, after notice from the indemnifying party to the
indemnified party of its election to assume the defense of such
Proceeding, the indemnifying party will not, as long as it diligently
conducts such defense, be liable to the indemnified party under this
Section 10.7(b) for any fees of other counsel or any other expenses with
respect to the defense of such Proceeding, in each case subsequently
incurred by the indemnified party in connection with the defense of such
Proceeding, other than reasonable costs of investigation. If the
indemnifying party assumes the defense of a Proceeding, (i) no
compromise or settlement of such claims may be effected by the
indemnifying party without the indemnified party's consent unless
(A) there is no finding or admission of any violation of Legal
Requirements or any violation of the rights of any Person and no effect
on any other claims that may be made against the indemnified party, and
(B) the sole relief provided is monetary Damages that are paid in full
by the indemnifying party; and (ii) the indemnified party will have no
liability with respect to any compromise or settlement of such claims
effected without its consent. If notice is given to an indemnifying
party of the commencement of any Proceeding and the indemnifying party
does not, within ten (10) days after the indemnified party's notice is
given, give notice to the indemnified party of its election to assume
the defense of such Proceeding, the indemnifying party will be bound by
any determination made in such Proceeding or any compromise or
settlement effected by the indemnified party.
(c) Notwithstanding the foregoing, if an indemnified party
determines in good faith that there is a reasonable probability that a
Proceeding may adversely affect it or its Affiliates other than as a
result of monetary Damages for which it would be entitled to
indemnification under this Agreement, the indemnified party may, by
notice to the indemnifying party, assume the exclusive right to defend,
compromise, or settle such Proceeding, but the indemnifying party will
not be bound by any determination of a Proceeding so defended or any
compromise or settlement effected without its consent (which may not be
unreasonably withheld).
(d) Seller hereby consents to the non-exclusive jurisdiction of
any court in Kansas or Missouri in which a Proceeding is brought against
any Indemnified Person for purposes of any claim that an Indemnified
Person may have under this Agreement with respect to such Proceeding or
the matters alleged therein, and agrees that process may be served on
Seller and its shareholders with respect to such a claim anywhere in the
world.
10.8 PROCEDURE FOR INDEMNIFICATION - OTHER CLAIMS. A claim for
indemnification for any matter not involving a third-party claim may be
asserted by notice to the party from whom indemnification is sought.
10.9 LEGAL FEES AND EXPENSES. Except as expressly set forth in
this SECTION 10, each party shall pay its own legal expenses with
respect to all matters arising under this SECTION 10.
SECTION 11.
ARBITRATION
11.1 ARBITRATION. Any dispute arising under this Agreement,
except for a dispute that is required by statute or applicable law to be
heard by a court having jurisdiction of such dispute, shall be settled
by arbitration in Kansas City, Missouri, before a single arbitrator
pursuant to the
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rules of the American Arbitration Association. Arbitration may be
commenced at any time by any party hereto by giving written notice to
each party to a dispute that such dispute has been referred to
arbitration. The arbitrator shall be selected by the joint agreement of
Buyer and Seller, but if they do not so agree within twenty (20) days
after the date of the notice referred to above, the selection shall be
made pursuant to the rules from the panels of arbitrators maintained by
such Association. Any award rendered by the arbitrator shall be
conclusive and binding upon the parties hereof; provided, however, that
any such award shall be accompanied by a written opinion of the
arbitrator giving the reasons for the award. This provision for the
arbitration of disputes shall be specifically enforceable by the parties
and the decision of the arbitrator in accordance herewith shall be final
and binding and there shall be no right of appeal therefrom, except for
claims of bias. The submission of any dispute to arbitration shall not
relieve the parties hereto from the respective obligations under this
Agreement that are not the specific subject matter of such dispute.
SECTION 12.
GENERAL PROVISIONS
12.1 EXPENSES. Except as otherwise expressly provided in this
Agreement, each party to this Agreement will bear its respective
expenses incurred in connection with the preparation, execution, and
performance of this Agreement and the Contemplated Transactions,
including all fees and expenses of agents, representatives, counsel, and
accountants. In the event of termination of this Agreement, the
obligation of each party to pay its own expenses will be subject to any
rights of such party arising from a Breach of this Agreement by another
party.
12.2 PUBLIC ANNOUNCEMENTS. Any public announcement or similar
publicity with respect to this Agreement or the Contemplated
Transactions will be issued, if at all, at such time and in such manner
as Buyer determines, upon prior consultation with Seller to the extent
practicable under the circumstances. Unless consented to by Buyer in
advance, or unless required by Legal Requirements, prior to the Closing,
Seller shall keep this Agreement strictly confidential and may not make
any disclosure of this Agreement to any Person other than Seller's
attorneys, accountants, banks, brokers or other professionals, who shall
be notified by Seller to maintain the confidentiality of information
relating to this Agreement.
12.3 CONFIDENTIALITY. Between the date of this Agreement and the
Closing Date, Buyer, Seller and Seller's shareholders will maintain in
confidence, and will cause the directors, officers, partners, employees,
agents, and advisors of Buyer and Seller to maintain in confidence, and
not use to the detriment of another party any written, oral, or other
information obtained in confidence from another party in connection with
this Agreement or the Contemplated Transactions, unless (a) such
information is already known to such party or to others not bound by a
duty of confidentiality or such information becomes publicly available
through no fault of such party, (b) the use of such information is
necessary or appropriate in making any filing or obtaining any consent
or approval required for the consummation of the Contemplated
Transactions, or (c) the furnishing or use of such information is
required by any Proceeding.
If the Contemplated Transactions are not consummated, each party
will return or destroy as much of such written information as the other
party may reasonably request.
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12.4 NOTICES. All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be
deemed to have been duly given when (a) delivered by hand (with written
confirmation of receipt), (b) sent by telecopier (with written
confirmation of receipt), provided that a copy is mailed by registered
mail, return receipt requested, or (c) when received by the addressee,
if sent by a nationally recognized overnight delivery service (receipt
requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier
numbers as a party may designate by notice to the other parties):
SELLER: EX-L-TUBE OF KANSAS, INC.
2765 Wayzata Blvd.
Long Lake, Minnesota 55356
Attn: Mr. Rob White
Facsimile No.: (612) 476-4340
with a copy to: MEAGHER & GEER, P.L.L.P.
4200 Multifoods Tower
33 South Sixth Street
Minneapolis, Minnesota 55402
Attn: Carter DeLaittre, Esq.
Facsimile No.: (612) 338-8384
BUYER: MAVERICK TUBE, L.P.
16401 Swingley Ridge Road
Suite 700
Chesterfield, Missouri 63017
Attn: Mr. Gregg Eisenberg
Facsimile No.: (314) 733-1670
with a copy to: GALLOP, JOHNSON & NEUMAN, L.C.
Interco Corporate Tower
101 South Hanley Road, Suite 1600
St. Louis, Missouri 63105
Attention: Robert H. Wexler, Esq.
Facsimile No.: (314) 862-1219
12.5 WAIVER. The rights and remedies of the parties to this
Agreement are cumulative and not alternative. Neither the failure nor
any delay by any party in exercising any right, power, or privilege
under this Agreement or the documents referred to in this Agreement will
operate as a waiver of such right, power, or privilege, and no single or
partial exercise of any such right, power, or privilege will preclude
any other or further exercise of such right, power, or privilege or the
exercise of any other right, power, or privilege. To the maximum extent
permitted by applicable law, (a) no claim or right arising out of this
Agreement or the documents referred to in this Agreement can be
discharged by one party, in whole or in part, by a waiver or
renunciation of the claim or right unless in writing signed by the other
party; (b) no waiver that may be given by a party will be applicable
except in the specific instance for which it is given; and (c) no notice
to or demand on one party will be deemed to be a waiver of any
obligation of such party
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or of the right of the party giving such notice or demand to take
further action without notice or demand as provided in this Agreement or
the documents referred to in this Agreement.
12.6 BULK SALES LAWS. The parties hereto waive compliance with
the requirements of any applicable Bulk Sales Law in connection with the
consummation of the Contemplated Transactions.
12.7 ENTIRE AGREEMENT AND MODIFICATION. This Agreement
supersedes all prior agreements between the parties with respect to its
subject matter (including the Option Agreement dated June 2, 1999, as
amended) and constitutes (along with the documents referred to in this
Agreement) a complete and exclusive statement of the terms of the
agreement between the parties with respect to its subject matter. This
Agreement may not be amended except by a written agreement executed by
the party to be charged with the amendment.
12.8 ASSIGNMENTS; SUCCESSORS; NO THIRD-PARTY RIGHTS. No party
may assign any of its rights under this Agreement without the prior
consent of the other party except that Buyer may assign any of its
rights under this Agreement to any Subsidiary or Affiliate of Buyer and
may collaterally assign its rights hereunder to any financial
institution or institutions providing financing to Buyer. Subject to
the preceding sentence, this Agreement will apply to, be binding in all
respects upon, and inure to the benefit of the successors and permitted
assigns of the parties. Nothing expressed or referred to in this
Agreement will be construed to give any Person other than the parties to
this Agreement any legal or equitable right, remedy, or claim under or
with respect to this Agreement or any provision of this Agreement. This
Agreement and all of its provisions and conditions are for the sole and
exclusive benefit of the parties to this Agreement and their permitted
successors and assigns.
12.9 SEVERABILITY. If any provision of this Agreement is held
invalid or unenforceable by an arbitrator or any court of competent
jurisdiction, the other provisions of this Agreement will remain in full
force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and
effect to the extent not held invalid or unenforceable.
12.10 SECTION HEADINGS; CONSTRUCTION. The headings of Sections in
this Agreement are provided for convenience only and will not affect its
construction or interpretation. All references to "Section" or
"Sections" refer to the corresponding Section or Sections of this
Agreement. All words used in this Agreement will be construed to be of
such gender or number as the circumstances require. Unless otherwise
expressly provided, the word "including" does not limit the preceding
words or terms.
12.11 TIME OF ESSENCE. With regard to all dates and time periods
set forth or referred to in this Agreement, time is of the essence.
12.12 GOVERNING LAW. This Agreement will be interpreted in
accordance with the internal, substantive laws of the State of Missouri
applicable to contracts executed and performed entirely within such
state.
12.13 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of
this Agreement and all of which, when taken together, will be deemed to
constitute one and the same agreement. Copies of executed
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counterparts transmitted by telecopy, telefax or other electronic
transmission service shall be considered original executed counterparts
for purposes of this Section 12.13 provided that receipt of such copies
is confirmed.
12.14 WAIVER OF JURY TRIAL. ALL PARTIES TO THIS AGREEMENT HEREBY
WAIVE ANY RIGHT TO A JURY TRIAL IN ANY LITIGATION ARISING OUT OF OR WITH
RESPECT TO THIS AGREEMENT.
* * * * *
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THIS AGREEMENT CONTAINS BINDING ARBITRATION PROVISIONS WHICH MAY
BE ENFORCED BY THE PARTIES.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
BUYER: SELLER:
MAVERICK TUBE, L.P. EX-L-TUBE OF KANSAS, INC.
By: Maverick Tube Corporation,
its General Partner
By: /s/ Gregg Eisenberg By: /s/ Bob White
-------------------------------- --------------------------------
Name: Gregg Eisenberg Name: Bob White
Title: President Title: President
