<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ___________________ to __________________
Commission file number: 0-19450
OAKHURST COMPANY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 25-1655321
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
3513 CONCORD PIKE, SUITE 3527
WILMINGTON, DELAWARE 19803
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (302) 478-9170
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to section 12(g) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
<S> <C>
COMMON STOCK, $0.01 PAR VALUE PER SHARE NONE
PREFERRED SHARES PURCHASE RIGHTS NONE
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value at May 1, 1999 of the voting stock held by non-affiliates
of the registrant: $4,298,385
At May 1, 1999, the registrant had 4,943,018 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
ITEM 1. BUSINESS
CAUTIONARY STATEMENT
This Report on Form 10-K contains certain forward-looking statements
that involve risks and uncertainties. The cautionary statements contained in
this Report should be read as being applicable to all related forward-looking
statements wherever they appear in this Report. The Company's actual results
could differ materially from those discussed here. Important factors that could
cause or contribute to such differences include those discussed in ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS and elsewhere in this Report.
GENERAL
Oakhurst Company, Inc. ("Oakhurst" or "the Company") was formed as part
of a merger transaction in 1991, in which Steel City Products, Inc. ("SCPI")
became a majority-owned subsidiary of Oakhurst. In accordance with the merger
agreement, Oakhurst owns 10% of the outstanding common stock of SCPI and all of
the SCPI Series A Preferred Stock, with the result that the aggregate fair
market value of SCPI's common stock and Series A Preferred Stock owned by
Oakhurst is equal to approximately 90% of the aggregate fair market value of all
the issued and outstanding capital stock of SCPI and represents 90% of the
voting stock of SCPI.
Pursuant to the 1991 merger, SCPI became a special, limited purpose
subsidiary that concentrates on its historical distribution business, while any
growth and expansion opportunities are to be pursued by Oakhurst or its
subsidiaries. Because Oakhurst's ownership of SCPI is primarily in the form of
preferred stock, Oakhurst retains the value of SCPI and Oakhurst's income from
SCPI is determined by the Series A Preferred stock dividend. This form of
ownership is designed to facilitate the preservation of SCPI's net operating
loss carry-forwards, which amount to approximately $154 million, and their
utilization by the entire group.
In August 1994, Oakhurst acquired all the outstanding capital stock of
Dowling's Fleet Service Co., Inc. ("Dowling's") a distributor of automotive
radiators based in Mt. Vernon, New York that now operates seven facilities in
New York, Connecticut, New Jersey and Pennsylvania.
Through SCPI and Dowling's, Oakhurst's principal business in recent
years has been the distribution of products to the automotive after-market. Its
largest business, which is conducted by SCPI under the trade name "Steel City
Products", is the distribution of automotive parts and accessories and non-food
pet supplies from a facility in McKeesport, Pennsylvania.
Representing a significant change from its historical operating
business, but reflecting the restructuring expertise of its senior management,
in December 1998, Oakhurst formed a wholly-owned subsidiary, Oakhurst
Technology, Inc. ("OTI") in order to take advantage of the restructuring
opportunity at New Heights, discussed further below. In connection with the
formation of OTI, Oakhurst and OTI completed certain agreements with KTI, Inc.
("KTI"). KTI is a publicly-held integrated waste management company that
operates 51 facilities in 21 states and Canada. KTI's management has specific
experience in the turnaround of co-generation facilities.
The December 1998 agreements with KTI included the purchase by KTI of
approximately 1.7 million shares of Oakhurst's common stock at a price of $0.50
per share. In conjunction with the purchase of stock, KTI, under a loan
agreement, committed to lend Oakhurst up to $11.5 million and, in certain
circumstances up to $17 million, if all provisions of the New Heights Business
Plan are met, as discussed further below. In December 1998, OTI acquired a 50%
equity interest in, and became the managing member of, New Heights
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Recovery & Power, LLC ("New Heights") which is to re-develop an existing waste
tire recycling facility in Ford Heights, Illinois into a fully-integrated
recycling and waste-to-energy facility.
In addition to the New Heights investment, in January 1999 OTI made a
minority investment in Sterling Construction Company, ("Sterling") a profitable,
privately-held Texas-based pipe laying and road building contractor that is
expected to participate in the significant increase in infrastructure spending
in Texas, and may offer synergies with New Heights by using crumb rubber from
recycled waste tires in "rubberized asphalt".
The New Heights and Sterling investments are expected to offer
opportunities in the future for Oakhurst to take advantage of its substantial
tax loss carryforwards. New Heights is structured as a limited liability company
("LLC") so that any distributions to OTI from New Heights' future operating
profits or any gain on the eventual sale of the facility should be largely
sheltered from federal taxation by Oakhurst's tax loss carry-forwards.
STEEL CITY PRODUCTS, INC. (SCPI)
BACKGROUND
SCPI was incorporated in West Virginia in 1959 and in 1963 became known
as Heck's, Inc. In 1969, the "Steel City Products" automotive distribution
business was acquired. SCPI was reincorporated in Delaware under the name
Hallwood Industries Incorporated in fiscal 1991. The name was changed to Steel
City Products, Inc. in fiscal 1993.
Prior to 1990, Heck's, Inc. operated a Retail Division consisting of a
chain of discount department stores. In September 1990, all of the assets of the
Retail Division were sold to Retail Acquisition Corp. ("RAC").
OPERATIONS
SCPI primarily distributes automotive accessories. These products
include functional and decorative car and truck accessories (such as floor mats,
seat covers, mirrors, running boards, lights and wheel covers) car care products
(including waxes and paints) chemicals (such as antifreeze, windshield washer
fluid and motor oil) and car repair and maintenance items (including spark
plugs, windshield wipers and air and oil filters). In fiscal 1997, SCPI
introduced non-food pet supplies to its merchandise selection. Although the pet
supplies are not typical of SCPI's historical merchandise mix, management
determined that the availability of existing customers which sell both pet
supplies and automotive accessories, combined with SCPI's distribution expertise
and infrastructure, offered an opportunity for increased sales. SCPI's
operations were conducted from a facility in Pittsburgh until December 1997,
when the building was sold and SCPI's operations were moved to a newer, leased
facility in McKeesport, Pennsylvania.
Certain of SCPI's business is performed on a service basis, which
involves visits by its sales personnel to customers' stores to count and
re-order merchandise; generally, these re-orders are transmitted electronically
to SCPI's offices in McKeesport. Certain customers electronically transmit their
orders to SCPI's headquarters. Because many orders are generated electronically
and are shipped within a few days of receipt, the size of SCPI's order backlog
is not relevant to an understanding of the business. Shipments are either made
directly to each of the customers' stores or pre-packed for onward shipment to
stores by the retailers' own distribution centers. SCPI also provides price
ticketing and associated services to those of its customers who request such
services.
SOURCES OF SUPPLY
SCPI acquires its merchandise from a large number of suppliers, none of
which accounts for more than 15% of its purchases. Many of the products sold by
SCPI carry nationally-advertised brand names, but
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because of the diversity and number of suppliers and products carried, the
business is not generally dependent on the continued availability of individual
products or continued dealings with existing supply sources. From time to time,
market or seasonal conditions may affect the availability of certain
merchandise, but not to the extent that the Company believes would materially
impact its business.
Steel City generally carries in inventory only those products that its
customers have identified as necessary for their own merchandising needs and
does not acquire significant quantities of other merchandise.
SEASONALITY
SCPI's automotive business is seasonal, being slower in the early
winter months than at other times of the year. In anticipation of higher sales
volume in the spring and summer, SCPI carries higher automotive inventories
beginning in February. As is customary in the automotive aftermarket, many
suppliers allow extended payment terms for such inventory build-ups and in turn,
SCPI grants extended payment terms to many of its customers to facilitate their
inventory build-ups.
SCPI's non-food pet supply business experiences different seasonal
trends from its automotive business, but the effect of this is not expected to
be material until this business more fully develops.
SCPI's needs for working capital are affected by these seasonal
fluctuations (see Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources").
CUSTOMER BASE
SCPI's customers include general merchandise retail chains, automotive
specialty stores, supermarket chains, hardware stores, variety stores and other
automotive accessory distributors. Most customers are based in the northeastern
United States, although stores operated by some customers are located outside of
that area. There are no foreign sales.
SCPI's customers are continually affected by changes in the retail
environment, including competitive pressures facing regional mass merchandisers
and the growing influence of national automotive specialty chains. These have
led to fluctuations in the level of business that SCPI enjoys with individual
customers. Some customers have changed their buying practices to acquire certain
merchandise direct from manufacturers rather than through distributors such as
Steel City Products.
In its efforts to offset these trends, SCPI has added new customers,
expanded its product offerings to certain customers, enlarged the territory that
it serves and introduced new categories of products. These efforts have helped
to stabilize SCPI's customer base and sales in fiscal 1999 increased slightly
from sales in fiscal 1998 and 1997. SCPI continues to pursue new customer
relationships that, if concluded, could increase sales in fiscal 2000; however,
there can be no assurance that new business can be secured.
Sales attributable to SCPI were approximately $18 million or 57% of
Oakhurst's consolidated sales, in fiscal 1999. No single customer accounted for
more than 10% of consolidated sales during the latest three fiscal years.
None of SCPI's business is based on government contracts and there are
no long-term sales contracts with any customers.
COMPETITION
Both the automotive parts and accessories distribution industry and the
non-food pet supply industry are highly competitive, with several similar
companies operating in SCPI's market place and many of SCPI's suppliers also
offer their products directly to retailers. Management is unable to quantify
SCPI's relative size
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in the distribution industry or in relation to its competitors. SCPI competes on
the basis of merchandise selection, price, service levels, order fill rates and
order turnaround times. Management believes that SCPI's long history, good
reputation, experienced management, product variety, pricing, service levels and
high order fill rates enable it to compete favorably with other distributors.
REGULATION
SCPI's management does not anticipate that existing or known pending
environmental legislation or other regulations will require major capital
expenditures or will affect its operations.
EMPLOYEES
SCPI employs approximately 55 persons, of whom about 45 are employed in
the headquarters office and distribution facility in McKeesport. Most of the
others are field personnel. Senior executives, including Bernard H. Frank (a
founder of Steel City Products in 1947) have many years of service with SCPI and
some are employed under long-term contracts.
Warehouse and certain office employees of SCPI are represented by Local
636 of the International Brotherhood of Teamsters. SCPI believes that it has
experienced generally good labor relations and no significant labor disputes
have affected its business in recent years. Renewal negotiations related to the
union agreement have continued beyond the expiration of the agreement in
November 1995.
DOWLING'S FLEET SERVICE CO., INC. (DOWLING'S)
BACKGROUND AND CUSTOMER BASE
Oakhurst acquired all the capital stock of Dowling's in August 1994
from James Dowling, who owned and managed the business for many years and is the
son of its founder. Two long-term employees now manage the business as President
and Vice President under long-term employment agreements.
Dowling's was established in 1933 and is one of the largest
distributors of automotive radiators and related products in the northeastern
United States. It operates two facilities in each of New York, Connecticut and
New Jersey and in fiscal 1997 expanded to a seventh facility by the acquisition
of all of the capital stock of G&O Sales Company, a radiator distributor serving
the greater Philadelphia market.
Most of Dowling's customers are radiator repair shops, which perform
repairs for car dealers, service stations and retail customers but automotive
parts stores have been added as customers in recent years. Dowling's has
historically avoided a multi-level distribution approach, so as to build strong
allegiance from its radiator repair shop customers and has achieved a high
market share in its markets. There are no foreign sales. Dowling's has a broad
customer base, with no one customer representing a material proportion of
consolidated sales.
The radiator replacement market has undergone important changes in
recent years. As manufacturers sought to reduce automobile weight,
aluminum/plastic radiators tended to replace the traditional copper/brass models
as original equipment. Initially, this product changeover extended radiator
lives, so that the replacement market experienced a decrease in replacement
demand. This trend is now reversing, as the aluminum/plastic products are
beginning to reach replacement age. Furthermore, these new radiators are more
difficult to repair than copper/brass, so that the proportion of replacement to
repair has increased. In addition, the number of radiator models has increased
in recent years. For these reasons, management believes that repair shops have
become more dependent on distributors for both selection and service.
Sales attributable to Dowling's were approximately $13.5 million or 43%
of Oakhurst's consolidated revenues in fiscal 1999.
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SOURCES OF SUPPLY
Dowling's acquires its products from several well-known manufacturers
and carries both name-brand and generic products. In recent years, Dowling's has
responded to the increased demand for generic product by developing its "Global"
private label brand. Because of its buying position and storage facilities,
Dowling's is able to obtain competitive pricing and terms from its suppliers.
Dowling's concentrates on offering high quality products and its largest
supplier is Modine Manufacturing Company ("Modine"); Dowling's is believed to be
one of Modine's largest U.S. after-market customers.
SEASONALITY
Dowling's business is seasonal, with higher revenues in the hot summer
months and very cold winter months when automobile radiators are most affected
by extreme temperatures. Changes in weather patterns in Dowling's market area
may therefore affect its sales levels significantly.
COMPETITION
Dowling's competes with many other radiator distributors. Dowling's
reputation is based on its competitive pricing, quality products and service
consisting of twice daily delivery to customers. Because of this, Oakhurst
believes that Dowling's is positioned to withstand the competition in its
markets and to build upon its historic sales and profits. However, there can be
no assurance that past levels of revenues and profitability can be maintained.
In fiscal 1998, Dowling's responded to the increased demand and competition for
lower priced, generic product by establishing the "Global" private label brand
of radiators, which carry a limited lifetime warranty that is supported by the
manufacturer. Management believes that its product mix of nationally-branded
radiators and the Global line enables it to compete favorably with other
distributors. After the end of fiscal 1999 a manufacturer of generic radiators
acquired a distributor that operates in states contiguous to Dowling's market.
Management believes that a consolidation of the radiator distribution industry
is underway.
In fiscal 1999, Dowling's experienced a 6% decrease in sales, resulting
from the lower average prices charged, as its Global line represented an
increasing percentage of total revenues, combined with aggressive competition
and mild weather.
REGULATION
Dowling's management does not anticipate that any major capital
expenditures will be required by existing or known pending environmental
legislation or other regulations.
EMPLOYEES
Dowling's employs approximately 55 persons, none of whom are
represented by a union. Dowling's believes that its employee relations are
generally good.
OAKHURST TECHNOLOGY, INC. (OTI)
BACKGROUND
As described above, in December 1998 Oakhurst formed OTI to take
advantage of the restructuring opportunity at New Heights. OTI acquired a 50%
equity interest in, and became the managing member of, New Heights which is to
re-develop an existing waste tire recycling facility in Ford Heights, Illinois,
into a fully integrated recycling and waste-to-energy facility. OTI also made a
minority investment in Sterling, a profitable privately-held Texas-based pipe
laying and road building contractor in January 1999, that is expected to
participate in the significant increase in infrastructure spending in Texas, and
may offer synergies with New Heights.
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The New Heights and Sterling investments are expected to offer
opportunities in the future for Oakhurst to take advantage of its substantial
tax loss carryforwards.
INVESTMENT IN NEW HEIGHTS
The New Heights facility (formerly known as "Ford Heights") is located
south of Chicago and was built in 1996 by CGE Ford Heights, LLC ("CGE") at a
cost of approximately $120 million. It was designed to shred and burn waste
tires to produce electricity. Except for preliminary testing, the facility never
operated, due to the retroactive repeal of the Illinois Retail Rate legislation,
which subsidized the Ford Heights and other co-generation facilities electricity
rates. As a result of the repeal of the legislation, Ford Heights was deemed
uneconomic and CGE sought Chapter 11 bankruptcy protection.
Through the efforts of the CGE bondholders, a business plan proposed by
KTI for the restructuring of the facility's operations (the "Business Plan") was
adopted as the basis of a plan of reorganization and CGE, renamed New Heights,
emerged from bankruptcy in December 1998. KTI's management has specific
experience in the turnaround of co-generation facilities.
Upon the confirmation of the New Heights Reorganization Plan in
December 1998, all of CGE's outstanding debt was converted to 100% of the equity
in New Heights, and KTI designated OTI as its affiliate to acquire 50% of such
equity, through the commitment to fund the capital expenditures, including
installation of a cryogenic tire processing system, the start-up losses and
working capital as identified in the Business Plan.
OTI was appointed the managing partner of New Heights and New Heights
engaged KTI Operations, a wholly-owned subsidiary of KTI, to manage the New
Heights facility, pursuant to an Operating and Maintenance Agreement.
SUBSIDIARY DISPOSALS - H&H DISTRIBUTORS, INC. AND PUMA PRODUCTS, INC.
Operations in fiscal 1997 included those of H&H and Puma, which were
acquired by Oakhurst in fiscal 1995 and 1996, respectively.
In fiscal 1997, H&H and Puma experienced operating losses of
approximately $500,000 in the aggregate on sales of approximately $9.4 million.
Effective as of May 31, 1997 and July 14, 1997, Oakhurst sold Puma and H&H
respectively.
ITEM 2. PROPERTIES
Since December 1997, SCPI has operated its business from a leased,
67,000 square-foot building located in an industrial park in McKeesport,
Pennsylvania.
Dowling's conducts it business from seven leased facilities aggregating
92,000 square feet, which are located in Mt. Vernon and Hempstead, New York, in
Bridgeport and East Hartford, Connecticut, in Hillside and Lodi, New Jersey and
in Philadelphia, Pennsylvania.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal 1999.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock was listed and traded on the Nasdaq
Small-Cap Market under the symbol OAKC until February 10, 1998, when the Common
Stock was delisted from trading. The delisting was a result of the Company's
stock price falling below the Nasdaq minimum closing bid price of $1.00 per
share and the Company's net tangible assets falling below Nasdaq's minimum
maintenance requirements. Commencing February 11, 1998, the Company's Common
Stock began trading on the OTC Bulletin Board under its existing symbol.
The following table sets forth the high and low bid prices by fiscal
quarter for Oakhurst's common stock for fiscal years 1999 and 1998.
<TABLE>
<CAPTION>
Fiscal 1999 Fiscal 1998
Quarterly High Quarterly Low Quarterly High Quarterly Low
<S> <C> <C> <C> <C>
Quarter 1 $1.13 $0.75 $1.44 $0.81
Quarter 2 $0.97 $0.44 $1.50 $0.50
Quarter 3 $0.50 $0.44 $1.25 $0.63
Quarter 4 $2.13 $0.45 $1.13 $0.69
</TABLE>
There were approximately 3,600 holders of record of Oakhurst's common
stock on May 1, 1999.
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial and other data of
Oakhurst Company, Inc. and subsidiaries and should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations, which follows and with the Consolidated Financial Statements and
related Notes.
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1999 1998 (a)(b) 1997 (a)(c) 1996 (a) 1995 (a)
------------ ------------ ------------ ------------ ------------
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Sales ....................................... $ 31,660 $ 32,307 $ 41,928 $ 47,339 $ 43,142
============ ============ ============ ============ ============
(Loss) income from continuing operations
before income taxes .................... $ (1,042) $ 601 $ (5,759) $ (2,207) $ 1,466
Current income tax (expense) benefit ........ (4) (16) (12) 115 (155)
Deferred income tax expense (d) ............. -- (1,000) (3,086) (2,000) (468)
------------ ------------ ------------ ------------ ------------
(Loss) income from continuing operations .... (1,046) (415) (8,857) (4,092) 843
Income from discontinued
retail operations (e) .................. -- -- -- 65 90
------------ ------------ ------------ ------------ ------------
Net (loss) income ........................... $ (1,046) $ (415) $ (8,857) $ (4,027) $ 933
============ ============ ============ ============ ============
BASIC AND DILUTED PER SHARE AMOUNTS:
(Loss) income from continuing operations .... $ (0.30) $ (0.13) $ (2.77) $ (1.27) $ 0.27
Income from discontinued
retail operations (e) .................. -- -- -- 0.02 0.03
------------ ------------ ------------ ------------ ------------
Net (loss) income ........................... $ (0.30) $ (0.13) $ (2.77) $ (1.25) $ 0.30
============ ============ ============ ============ ============
BALANCE SHEET STATISTICS:
Total assets ................................ $ 16,876 $ 14,316 $ 16,199 $ 26,505 $ 33,738
Long-term obligations ....................... $ 8,254 $ 4,318 $ 5,716 $ 7,569 $ 6,612
Book value per share of common stock ........ $ 0.34 $ 0.63 $ 0.76 $ 3.53 $ 4.79
</TABLE>
(a) In fiscal 1999, SCPI elected to change its method of inventory reporting
from LIFO to FIFO. The data above for fiscal 1998, 1997, 1996 and 1995 has
been restated to reflect this change as if it had occurred at the beginning
of fiscal 1995 (see Note 1 to the Consolidated Financial Statements).
(b) In fiscal 1998, SCPI sold its warehouse in Pittsburgh, Pennsylvania for a
gross sale price of approximately $2.8 million in cash. SCPI recognized a
pre-tax gain of approximately $1.8 million in connection with the sale (see
Note 3 to the Consolidated Financial Statements).
(c) Results for fiscal 1997 include an aggregate charge of approximately $3.5
million related to the sale of Puma and H&H, two of the Company's
subsidiaries. The charge primarily consisted of the write-off of the
goodwill associated with the acquisition of such subsidiaries (see Note 2
to the Consolidated Financial Statements).
(d) Results for fiscal 1998, 1997 and 1996 include net non-cash deferred tax
charges of approximately $1 million, $3.1 million and $2 million,
respectively, primarily relating to increases in the Company's valuation
allowance of its deferred tax asset (see Note 6 to the Consolidated
Financial Statements).
(e) In fiscal 1991, SCPI sold its Retail Division to RAC as discussed in Note 7
to the Consolidated Financial Statements. SCPI remained contingently liable
for most mortgage debt and for many lease obligations of the Retail
Division following the sale. RAC was forced into bankruptcy in March 1991.
RAC's Reorganization Plan (the "RAC Plan") contained provisions for
releases in favor of SCPI together with an injunction against further
actions by contingent creditors against SCPI. Accordingly, SCPI was
released from further liability except for the payment of the Creditor
Notes, as further described in Note 7 of the Consolidated Financial
Statements.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Management believes that the corporate structure resulting from the
1991 merger, whereby Steel City Products Inc. ("SCPI") became a special, limited
purpose, majority-owned subsidiary of Oakhurst Company, Inc. ("Oakhurst") will
facilitate capital formation by Oakhurst while permitting Oakhurst and SCPI to
file consolidated tax returns so that both may utilize existing tax benefits,
including approximately $154 million of net operating loss carry-forwards.
Through Oakhurst's ownership of SCPI, primarily in the form of preferred stock,
Oakhurst retains the value of SCPI and receives substantially all of the benefit
of SCPI's operations through dividends on such preferred stock.
Through SCPI and Dowling's Fleet Service Co., Inc. ("Dowling's"),
Oakhurst's principal business in recent years has been the distribution of
products to the automotive after-market. Its largest business, which is
conducted by SCPI under the trade name "Steel City Products", is the
distribution of automotive parts and accessories and non-food pet supplies from
a facility in McKeesport, Pennsylvania.
In August 1994, Oakhurst acquired all the outstanding capital stock of
Dowling's, a New York-headquartered distributor of automotive radiators and
related products, for an aggregate purchase price of approximately $4.7 million,
all of which has been paid except for two notes payable to certain executives of
Dowling's with a remaining balance of $198,000. In March 1996, Dowling's
acquired all of the outstanding capital stock of G&O, a radiator distributor
based in Philadelphia, Pennsylvania.
In connection with the acquisition of G&O, Dowling's entered into a
non-competition agreement with the seller that provided for aggregate payments
of $315,000 over a three year period beginning in March 1996 and for payments of
7.5% of the defined profits of G&O for the first four years of ownership. The
value of the non-competition agreement has been discounted using an imputed
interest rate of 9.75% and the related asset is being amortized over the ten
year life of the agreement.
Representing a significant change from its historical operating
business, but reflecting the restructuring expertise of its senior management,
in December 1998, Oakhurst formed a wholly-owned subsidiary, Oakhurst
Technology, Inc. ("OTI") in order to take advantage of the restructuring
opportunity at New Heights, as discussed below. Also in December 1998, Oakhurst
entered into an agreement with KTI, Inc. ("KTI") that provided for the purchase
by KTI of approximately 1.7 million shares of Oakhurst's common stock at a price
of $0.50 per share. In conjunction with the private placement of stock, KTI
committed to lend Oakhurst up to $11.5 million and in certain circumstances, up
to $17 million, under a loan agreement, as discussed further below. KTI is an
integrated waste management company with specific experience in the turnaround
of co-generation facilities. In December 1998 OTI acquired a 50% equity interest
in, and became the managing member of, New Heights Recovery & Power, LLC ("New
Heights") which is to re-develop an existing waste tire recycling facility in
Ford Heights, Illinois into a fully integrated recycling and waste-to-energy
facility.
In addition to the recycling business, in January 1999 OTI made a
minority investment in Sterling Construction Company, ("Sterling") a profitable,
privately-held Texas-based pipe laying and road building contractor that is
expected to participate in the significant increase in infrastructure spending
in Texas, and may offer synergies with New Heights by using crumb rubber from
recycled tires in "rubberized asphalt".
Activities of New Heights are reported on the equity method of
accounting. The investment in Sterling, which consists of an equity interest of
approximately 7% and subordinated debt of $1.35 million, is reported on the cost
method of accounting.
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The Sterling subordinated debt is convertible into shares of the common
stock of Sterling, at any time at the option of OTI, or upon the closing of a
defined public offering of Sterling. Assuming acquisition by OTI of the further
approximately 7% of Sterling stock, as discussed below, OTI would own between
16% and 17% of Sterling following conversion of the debt.
SALE OF SUBSIDIARIES
In January 1994, Oakhurst acquired all the outstanding capital stock of
H&H Distributors, d/b/a Harry Survis ("H&H") a Pittsburgh-based company that
distributes and installs automotive accessories and cellular phones, and in
October 1994, Oakhurst acquired all of the outstanding capital stock of Puma
Products, Inc. ("Puma") a distributor of after-market products to the light
truck and van conversion industry. In fiscal 1997, these two subsidiaries
experienced aggregate losses of approximately $500,000 and as a result, Oakhurst
sold Puma and H&H in May 1997 and July 1997, respectively.
As a result of the disposition of these two businesses, Oakhurst's
results for fiscal 1997 include a charge of approximately $3.5 million, of which
about $3.1 million represented the write-off of the excess of costs over net
assets acquired (goodwill) relating to their original acquisition. Results for
fiscal 1998 include other income from these two businesses of $72,000, including
the recovery of the insurance claims related to H&H.
LIQUIDITY AND CAPITAL RESOURCES
FINANCING
In addition to cash derived from the operation of its subsidiaries,
Oakhurst's liquidity and financing requirements have in the past been determined
principally by the working capital needed to support the automotive distribution
subsidiaries' levels of business, together with the need for capital
expenditures and the cash required to repay debt. Each such subsidiary's level
of working capital needs varies primarily with the amounts of inventory carried,
which can change seasonally, the size and timeliness of payment of receivables
from customers, especially at SCPI which from time to time grants extended
payment terms for seasonal inventory build-ups; and the amount of credit
extended by suppliers.
In March 1996, Oakhurst obtained financing for its automotive
distribution business from an institutional lender, replacing its then existing
credit arrangement, that provided a two-year total facility of $9.5 million,
comprising a SCPI term loan of $1.5 million (the "Fixed Asset Loan") and a
maximum revolving credit facility of $8 million (the "Revolver") (collectively,
the "Credit Facility").
Borrowings under the Credit Facility carried interest at the higher of
the Citibank N.A. base rate plus 1.5%, or $5,000 per month and borrowings under
the Revolver are subject to a borrowing base that is calculated according to
defined levels of Oakhurst's subsidiaries' accounts receivable and inventories
except OTI. The Credit Facility contains certain customary restrictive financial
and non-financial covenants, including the maintenance of defined subsidiary and
consolidated tangible net worth levels and consolidated current ratio, and
limitations on cash dividends. The Credit Facility is secured by the accounts
receivable, inventories and fixed assets of Oakhurst's subsidiaries, except OTI.
In June 1997, Oakhurst entered into an agreement with the lender to
amend the Credit Facility to reflect the disposals of H&H and Puma. The
agreement principally reduced the maximum amount available under the Revolver to
$7 million, subject to a borrowing base and amended certain financial covenants,
including the elimination of a covenant related to the Company's consolidated
tangible net worth. In September 1997, Oakhurst reached an agreement to extend
the Revolver beyond its initial two year term to April 1999 and paid a fee of
$35,000 in connection with the renewal. The Credit Facility provides for
subsequent automatic renewal terms of one year each upon payment of a renewal
fee of 0.5% of the entire line, unless earlier terminated as provided for in the
Agreement.
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In part to reduce its overall debt level, in December 1997 SCPI sold
its warehouse in Pittsburgh, Pennsylvania for a sales price of approximately
$2.8 million in cash. Accordingly, the results for the fourth quarter of fiscal
1998 include a pre-tax gain of approximately $1.8 million in connection with the
sale. After repayment of the Fixed Asset Loan secured by the property, the net
proceeds of approximately $1.6 million were used to cover the expenses of moving
to newer, leased premises, to make certain improvements to such premises, to
increase levels of working capital and to reduce the Revolver, which had
increased during fiscal 1998 as a result of shortfalls in cash from operations.
In March 1999, the Credit Agreement was extended to April 2000 and was
amended to increase certain borrowing base percentages, increase the interest
rate to Citibank N.A. base rate plus 2% and amend the financial covenants to
include a minimum level of Earnings Before Interest, Taxes, Depreciation and
Amortization ("EBITDA").
In December 1998, Oakhurst entered into a loan agreement with KTI, Inc.
(the "KTI Loan") pursuant to which KTI committed to fund up to $11.5 million.
Such amount may be increased to a maximum of $17 million to the extent that the
funding for the New Heights Business Plan, described below, exceeds the minimum
specified therein. The KTI Loan bears interest at a fixed rate of 14%, payable
quarterly and is due in its entirety in April 2001. The KTI Loan is subject to
an Intercreditor Agreement between KTI and the Credit Facility lender, and is
secured by a pledge of all the capital stock of OTI and all of OTI's equity
interest in New Heights. The Intercreditor Agreement provides, inter alia, that
(i) the KTI Loan is subordinated to the Credit Facility, except as to the
revenues, dividends or assets of OTI, the proceeds of which may be used to repay
the KTI Loan; (ii) the Credit Facility is subordinated to the revenues,
dividends or assets of OTI; (iii) KTI has no security interest in the Credit
Facility collateral; (iv) the Credit Facility lender has no security interest in
the KTI collateral and (v) cash flow from Oakhurst's operations other than OTI
may be used to repay the KTI Loan, subject to the approval of the Credit
Facility lender, so long as the Credit Facility is not in default.
In October 1998, SCPI obtained from the Redevelopment Authority of the
City of McKeesport a low-interest loan (the "Subordinated Loan"), subordinated
to the Credit Facility, in the amount of $98,000 and carrying interest at 5% per
annum. The loan, which funded leasehold improvements at SCPI, is to be repaid in
monthly installments through October 2003.
At February 28, 1999, Oakhurst's debt primarily consisted of (i)
revolving debt under the Credit Facility with a balance of approximately $4.6
million; (ii) notes payable of $198,000 that were issued in connection with the
fiscal 1995 acquisition of Dowling's (the "DFS Notes"); (iii) the SCPI Creditor
Notes of $147,000; (iv) the Subordinated Loan of $92,000 and (v) a balance of
$3.3 million outstanding under the KTI Loan.
The DFS notes bear interest at 6% and provide for repayment in
quarterly installments of $22,000 each, together with accrued interest thereon.
The Creditor Notes were issued by SCPI in connection with the
bankruptcy of Retail Acquisition Corp., (the "Creditor Notes") (see Note 7 to
the consolidated financial statements). The Creditor Notes have been discounted
using an imputed interest rate of 7.5%.
Management believes that the availability of financing pursuant to the
Credit Facility, together with the steps taken in response to recent operating
losses, will provide adequate funding for the working capital, debt service and
capital expenditure requirements, including seasonal fluctuations, of the
Company's automotive distribution subsidiaries for at least the next twelve
months.
In December 1998 the Company's subsidiary, OTI, entered into an
Investment Agreement with New Heights pursuant to which OTI agreed to fund
defined capital expenditures, costs of obtaining permits, start-up losses and
working capital of the New Heights waste-to-energy facility in Ford Heights,
Illinois, and to receive in return 50% of the equity of New Heights. The funding
requirements are specified in a Business Plan that
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provides for three phases. Phase One of the Business Plan provides for the
removal of approximately 70,000 tons of scrap tires from the New Heights site
and the establishment of a crumb rubber processing facility and also includes
the obligation to establish a waste paper recycling facility. The funding
requirement for Phase One is at least $4.5 million and not more than $8.5
million. OTI is required to use its best efforts to implement Phase Two of the
Business Plan, subject to approval of the New Heights Board; Phase Two provides
for the permitting and start-up of waste-to-energy operations and requires an
investment (including the Phase One investment) of at least $8.5 million and not
more than $13.5 million. Phase Three of the Business Plan provides for the
building of an environmental campus at New Heights, requiring funding of at
least $12 million and not more than $17 million, including the Phase One and Two
investments. Subject to the satisfaction of certain conditions precedent,
including the obtaining of permits, if the specified investments are not made by
OTI within the time periods required by the Business Plan, amounts available to
Oakhurst under the KTI Loan may be reduced and OTI's 50% equity interest in New
Heights may be reduced.
Pursuant to the Investment Agreement, KTI agreed to provide, directly
or through OTI as its affiliate, the funding required to satisfy the New Heights
Business Plan. As such, KTI and Oakhurst entered into the KTI Loan. As funds are
drawn by Oakhurst under the KTI Loan they will be invested in OTI, principally
to facilitate the financing of the New Heights Business Plan.
In January 1999, OTI acquired an equity interest of approximately 7% in
Sterling at a cost of $1.35 million and acquired $1.35 million of Sterling's
convertible subordinated notes. Sterling is a Texas-based pipe laying and road
building contractor. Pursuant to the terms of such acquisition, the original
shareholders of Sterling may require OTI to acquire a further approximately 7%
equity interest at a cost of $1.35 million, upon the achievement of defined
growth objectives. If such objectives are not achieved, OTI may nevertheless
acquire such additional equity shares, at its discretion. The subordinated debt
is convertible into shares of the common stock of Sterling, at any time at the
option of OTI, or upon the closing of a defined public offering of Sterling.
Assuming acquisition by OTI of the further approximately 7% of Sterling stock,
OTI would own between 16% and 17% of Sterling following conversion of the debt.
Management believes that the KTI Loan will provide adequate financing
for the capital expenditures and start-up costs committed pursuant to the New
Heights Business Plan and the equity commitment to Sterling.
CAPITAL EXPENDITURES AND YEAR 2000
There were no significant capital expenditures made by Oakhurst or its
subsidiaries during fiscal 1999, except for the purchase of a new computer
system at SCPI related to Year 2000 compliance.
In fiscal 1998, management undertook an extensive review and evaluation
of the Company's critical information technology and noninformation technology
systems to determine compliance with the Year 2000 issue. It was determined that
certain of SCPI's and Dowling's information technology systems were not Year
2000 compliant, and accordingly, management developed a Year 2000 plan to
address these issues. The Year 2000 plan includes the complete replacement of
SCPI's information technology system with an integrated system that is Year 2000
compliant and for Dowling's provides for the re-writing of the computer code of
its customized information technology system. To date, SCPI has acquired the new
integrated system and is in the process of implementing the system which is
expected to be completed in June 1999. Dowling's engaged the consultant who
developed its existing software to upgrade the computer code to be Year 2000
compliant; this was completed in December 1998. There were no critical
noninformation technology systems identified which are not Year 2000 compliant.
The Company's Year 2000 plan also includes contacting its major suppliers and
other significant third parties with which it does business to obtain their
assurance of Year 2000 compliance. This phase of the Company's Year 2000 plan is
expected to be completed by June 1999.
To date, the Company has spent approximately $210,000 on the Year 2000
issue and believes that the remaining potential cost related to the issue will
be less than $25,000. The amount spent to date includes approximately $10,000
for the software upgrade at Dowling's and approximately $200,000 for the
purchase
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<PAGE> 14
of the new system at Steel City. In addition to achieving Year 2000 compliance,
Steel City's new system is expected to provide other important operating
benefits as compared with its former system.
The Company believes that only minor and temporary interruptions in
service may be experienced by the Company and its subsidiaries, suppliers and
customers regarding the Year 2000 issues. In the worst case, the Company would
be able to continue to conduct its business through the use of manual systems.
TAX LOSS CARRY-FORWARDS
At February 28, 1999, SCPI and Oakhurst had net operating tax loss
carry-forwards (the "Tax Benefits") of approximately $154 million, which expire
in the years 2001 through 2012 and which shelter most of SCPI's and Oakhurst's
income from federal income taxes. A change in control of SCPI or Oakhurst in any
three-year period exceeding 50% may lead to the loss of the majority of the Tax
Benefits. In order to reduce the likelihood of such a change of control
occurring, SCPI's and Oakhurst's Certificates of Incorporation include
restrictions on the registration of transfers of stock resulting in, or
increasing, individual holdings exceeding 4.5% of each company's common stock
and the New Rights Plan, described below, was adopted in December 1998.
Since the regulations governing the Tax Benefits are highly complex and
may be changed from time to time and since SCPI's and Oakhurst's attempts to
reduce the likelihood of a change of control occurring may not be successful,
management is unable to determine the likelihood of the continued availability
of the Tax Benefits. However, management believes that the Tax Benefits are
currently available in full and intends to take all appropriate steps to help
ensure that they remain available. Should the Tax Benefits become unavailable to
SCPI or Oakhurst, most future income of any consolidated affiliate would not be
shielded from federal taxation, thus reducing funds otherwise available for
corporate purposes (see Note 6 to the consolidated financial statements).
NEW ACCOUNTING PRONOUNCEMENTS
In fiscal 1999 and 2000 the Company has adopted or plans to adopt new
accounting pronouncements issued by the Financial Accounting Standards Boards
and the American Institute of Certified Public Accountants. None of these
pronouncements are expected to have a significant impact on the Company's
financial position or results of operations. See Note 1 of the accompanying
Notes to the Consolidated Financial Statements for further information.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The New Heights facility was originally constructed solely to burn
scrap tires, but the retroactive repeal of the Illinois Retail Rate legislation
which would have provided subsidized rates for the electricity produced by the
facility, made it economically infeasible. The Business Plan proposed by KTI
provides for a number of substantial changes to the structure and operations of
the facility, including inter alia, (i) collection of waste tires for crumb
rubber production and to fuel the facility; (ii) installation of a cryogenic
crumb rubber system; (iii) development of end uses for crumb rubber; (iv)
obtaining permits to test and operate the waste-to-energy facility, and (iv)
introducing other waste streams for burning or recycling. KTI has been engaged
by OTI pursuant to an Operating and Maintenance Agreement, to develop these
functions and operate the facility. KTI has extensive experience in the
turnaround and management of waste-to-energy facilities and in 1998 acquired RTI
(now known as KTI Recycling), a company that produces and operates systems for
the recycling of scrap tires into crumb rubber. Management believes that the
capital expenditures, start-up losses and working capital requirements needed at
New Heights will be adequately funded by the KTI Loan; that future operations of
New Heights will provide sufficient funds to repay the KTI Loan and that, if
such operations are successful, the value of OTI's equity interest in New
Heights will be significant. However, the start-up and operation of the facility
and related functions involves many risks and such success cannot be assured.
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Effective December 1998, Oakhurst's Board of Directors voted to redeem
all outstanding Rights issued pursuant to the February 1998 shareholder rights
plan (the "Prior Rights Plan") to facilitate the acquisition by KTI of
approximately 1,730,000 shares of Oakhurst's common stock. The Board then
adopted a new shareholder rights plan in substantially the same form as the
former one (the "New Rights Plan") by declaring a dividend of one right for each
outstanding share of Oakhurst's common stock to stockholders of record on
December 29, 1998.
The New Rights Plan was not adopted in response to any specific
proposals or communications regarding plans to acquire control of Oakhurst.
Rather, it was intended to deter takeover tactics that are abusive, to preserve
the assets of Oakhurst and to ensure that any acquisition of Oakhurst would
result in full and fair value for all shareholders. Since the rights can be
redeemed by the Board prior to a triggering event, the plan should not interfere
with a transaction that is in the best interests of Oakhurst and its
shareholders. The issuance of the rights has no accounting or financial impact
and there is no dilutive or tax effect to Oakhurst or its shareholders.
Under the New Rights Plan, the rights are not exercisable and not
transferable apart from Oakhurst's common stock until after such time as a
person or group has acquired 4.5% of Oakhurst's common stock or begins a tender
or exchange offer that would reach the 4.5% level (a "triggering event"). The
December 1998 stock acquisition by KTI was exempted from the New Rights Plan,
but subsequent acquisitions exceeding the threshold are not. If the rights
become exercisable, separate rights certificates will be issued and will entitle
the holder to purchase one-one hundredth of a share of Series A junior preferred
stock of Oakhurst at an exercise price of $10.00.
The New Rights Plan also provides for appropriate action for possible
mergers and steps for the Board to take in the time period between the
acquisition by a person or group of 4.5% of Oakhurst's common stock and the
acquisition of 50% or more of the common stock. The rights may be redeemed by
the Board of Directors at a price of $.001 per right at any time prior to the
acquisition of 4.5% or more of Oakhurst's common stock.
RESULTS OF OPERATIONS
Operations for the year ended February 28, 1999 include the
consolidated results for Steel City Products and Dowling's, together with OTI
since its formation in December 1998 and the administrative costs of SCPI and
Oakhurst. As previously discussed, Puma was sold effective May 31, 1997 and H&H
was sold effective July 14, 1997. Accordingly, only the net proceeds from these
two subsidiaries, together with recoveries on certain insurance claims related
to H&H, have been included in results of operations for the period ended
February 28, 1998, together with the operations of Steel City Products and
Dowling's.
FISCAL YEAR ENDED FEBRUARY 28, 1999 COMPARED WITH FISCAL YEAR ENDED FEBRUARY 28,
1998
Consolidated sales for fiscal 1999 decreased by approximately $650,000,
or by 2% compared with fiscal 1998, principally due to a sales decrease at
Dowling's of approximately $850,000. The decrease in Dowling's resulted from the
expansion of its "Global" private label brand of generic radiators, which carry
a lower average price per unit than national brands, aggressive competition in
Dowling's markets and unusually mild weather throughout fiscal 1999 which led to
a general decrease in demand for radiator products.
Sales at SCPI increased by $200,000. Sales to existing SCPI automotive
customers decreased by $700,000, primarily as a result of downsizing and
competitive pressures faced by certain of SCPI's customers. Partially offsetting
this decline were sales by SCPI to new automotive customers of approximately
$450,000. Sales of non-food pet supplies by SCPI were approximately $2.0 million
in the current year, compared with $1.4 million in the prior year. Sales by SCPI
of pet supplies first began in the second quarter of fiscal 1997.
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<PAGE> 16
Gross profits were approximately $5.8 million or 18.4% of sales, in the
current year compared with approximately $6.2 million or 19.2% of sales, in the
prior year. A reduction in gross profits was incurred at both SCPI and
Dowling's. At SCPI, gross profits decreased by $181,000 in fiscal 1999 compared
with the prior year due principally to a decrease in gross margin which resulted
from several sales promotions during the second quarter of the current year.
Buying and occupancy expenses at SCPI also increased by $30,000 resulting from
costs related to operating from rented facilities in the current year, while in
the prior year operations were conducted from an owned warehouse that was sold
in December 1997. At Dowling's, gross profits were below prior year levels by
$168,000, due mostly to the sales decreases in the current year, although
Dowling's was able to stem some of the decline with higher margins. Dowling's
buying and occupancy expenses increased in fiscal 1999 by $63,000 due to higher
facility repairs, percentage rent, salaries and insurance.
Operating, selling and administrative expenses decreased by
approximately $140,000 when compared with fiscal 1998. Expenses at SCPI were
lower by $138,000, due principally to lower officers and administrative
salaries. Expenses at Dowling's were lower than last year by $61,000, due to
lower insurance rates and reduced computer expenses. Overhead reductions at the
corporate levels led to savings of $150,000. Offsetting these expense decreases
that aggregated $349,000, OTI recorded net operating expenses of $59,000 in the
fourth quarter of fiscal 1999, principally due to salary expense.
There was a decrease in the provision for doubtful accounts of $59,000
due to certain recoveries obtained by SCPI from bankrupt former customers.
Interest expense decreased by $73,000 compared to the prior year. The
decrease was due principally to the repayment of the Fixed Asset Loan by SCPI in
December 1997 and to lower interest on the Credit Facility due to lower interest
rates and loan balances through most of the year. Offsetting these savings was
interest incurred on the KTI Loan of $53,000.
There was a loss from affiliates of approximately $150,000 related to
OTI's equity investment in New Heights, which represents OTI's share of New
Heights' net loss for the period from December 1998 to February 1999 resulting
from start-up activities at the facility.
Prior year results of operations included a gain of approximately $1.8
million resulting from the sale of the SCPI warehouse in December 1997.
Income tax expense decreased by approximately $1.0 million in fiscal
1999, due primarily to a charge to deferred tax expense in the prior year
attributable to additional reserves against the deferred tax asset.
FISCAL YEAR ENDED FEBRUARY 28, 1998 COMPARED WITH FISCAL YEAR ENDED FEBRUARY 28,
1997
Consolidated sales for fiscal 1998 decreased by approximately $9.6
million, or by 22.9% compared with fiscal 1997, caused primarily by the sale of
Puma and H&H, which together produced sales in the prior year of $9.4 million.
Sales at Dowling's reflected a decrease of approximately $165,000 when compared
to the prior year, due to a comparatively mild winter experienced in Dowling's
markets in fiscal 1998. Sales at SCPI decreased by $98,000. Sales to existing
automotive customers decreased by $2.8 million, primarily as a result of
bankruptcies, downsizing and competitive pressures faced by certain of SCPI's
customers. Partially offsetting this decline were sales by SCPI to new
automotive customers of approximately $1.5 million. Sales of non-food pet
supplies by SCPI were $1.4 million in fiscal 1998, compared with $157,000 in
fiscal 1997. Sales of pet supplies first began in the second quarter of fiscal
1997, and new customers have been added in fiscal 1998.
Gross profits were approximately $6.2 million, or 19.2% of sales,
compared with approximately $9.5 million, or 22.6% of sales, in the prior year.
The lower gross profits were caused by the sale of Puma and H&H, which
contributed gross profits in the prior year of $3.4 million. The decrease in
gross margin was also attributable to Puma and H&H; gross margins for the
continuing businesses were consistent with the prior
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year. Despite slightly lower levels of sales at SCPI, gross profits increased by
approximately $158,000, due primarily to a slight improvement in gross margin,
together with reductions in buying and occupancy expenses. Gross profits at
Dowling's decreased by approximately $15,000, due to lower levels of sales in
the fourth quarter of fiscal 1998.
Operating, selling and administrative expenses decreased by
approximately $3.9 million when compared with fiscal 1997, of which $3.8 million
reflected the sale of Puma and H&H. The remaining reductions were principally
attributable to savings in corporate overhead expenses.
There was an increase in the provision for doubtful accounts of $63,000
related to the bankruptcies and liquidations of certain of SCPI's and Dowling's
customers.
The amortization of the excess of cost over net assets acquired
decreased by $254,000 in fiscal 1998, due to the write-off of goodwill in fiscal
1997 as a result of the sale of Puma and H&H.
Interest expense decreased by $209,000 compared to the prior year due
to the sale of Puma and H&H and repayment of the Fixed Asset Loan in December
1997, as well as lower average borrowing levels by Dowling's and SCPI.
In fiscal 1998, SCPI sold its warehouse for a cash sale price of
approximately $2.8 million. The net gain resulting from the sale was
approximately $1.8 million.
Income tax expense decreased by approximately $2.1 million in fiscal
1998, due primarily to a lower charge to deferred tax expense attributable to
adjustments in the valuation allowance of the deferred tax asset.
ITEM 7(A). QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
Oakhurst is exposed to certain market risks from transactions that are
entered into during the normal course of business. The Company's policies do not
permit active trading or speculation in, derivative financial instruments.
Oakhurst's primary market risk exposure is related to interest rate risk. The
Company manages its interest rate risk by attempting to balance its exposure
between fixed and variable rates while attempting to minimize its interest
costs.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<S> <C>
Independent Auditors' Report....................................................... F-1
Consolidated Balance Sheets: February 28, 1999 and February 28, 1998............... F-2
Consolidated Statements of Operations for the fiscal years ended
February 28, 1999, February 28, 1998 and February 28, 1997....................... F-3
Consolidated Statements of Stockholders' Equity for the fiscal years ended
February 28, 1999, February 28, 1998 and February 28, 1997....................... F-4
Consolidated Statements of Cash Flows for the fiscal years ended
February 28, 1999, February 28, 1998 and February 28, 1997........................ F-5
Notes to Consolidated Financial Statements......................................... F-6
Financial Statement Schedules for the fiscal years ended February 28,
1999, February 28, 1998 and February 28, 1997:
Schedule II - Valuation and Qualifying Accounts................................ F-21
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS.
The by-laws of Oakhurst Company, Inc. ("Oakhurst" or 'the Company")
provide for such number of directors as is determined from time to time by the
Board of Directors. In December 1998, the Board voted to increase the number of
directors from six to seven and elected Maarten D. Hemsley to fill the vacancy.
In January 1999 the number of directors was increased to nine by a vote of the
Board of Directors. Anthony Puma resigned as a director in January 1999 and
Martin Sergi and Ross Pirasteh were elected as directors. There are currently
eight directors divided into three classes, each class having a term of three
years or until his successor is elected.
<TABLE>
<CAPTION>
AGE AT MAY CURRENT TERM DIRECTOR
NAME 1, 1999 EXPIRES* SINCE CLASS
- ------------------------- ------- -------- ----- -----
<S> <C> <C> <C> <C>
John D. Abernathy 62 1999 1994 I
Robert M. Davies 48 1999 1991 I
Martin J. Sergi 41 1999 1999 I
Mark Auerbach 61 2000 1991 II
Bernard H. Frank 78 2000 1995 II
Ross Pirasteh 61 2000 1999 II
Joel S. Lever 47 1998 1994 III
Maarten D. Hemsley 49 1998 1998 III
</TABLE>
*or the director serves until a successor is elected
John D. Abernathy. Mr. Abernathy has been Executive Director of Patton Boggs,
L.L.P., a Washington DC law firm, since January 1995. From March 1991 to
February 1994 he was the Managing Director of Summit, Solomon & Feldesman, a New
York City law firm and from July 1983 until June 1990, Mr. Abernathy was
Chairman and Chief Executive Partner of BDO Seidman, a public accounting firm.
Mr. Abernathy is a director of Barringer Technologies, Inc., a manufacturer of
high sensitivity analytical instruments for chemical sensing and is also a
director of the Company's majority-owned subsidiary, Steel City Products, Inc.
("SCPI"). Mr. Abernathy is a certified public accountant.
Robert M. Davies. Chairman and Chief Executive Officer. Mr. Davies has been the
Company's Chairman and Chief Executive Officer of the Company since May 1997 and
was its President from May 1997 to January 1999. Mr. Davies was a Vice President
of Wexford Capital Corporation, which acts as the investment manager to several
private investment funds from 1994 to March 1997. From November 1995 to March
1997 Mr. Davies also served as Executive Vice President of Wexford Management
LLC, a private investment management company. From September 1993 to May 1994 he
was a Managing Director of Steinhardt Enterprises, Inc., an investment banking
company and from 1987 to August 1993, he was Executive Vice President of The
Hallwood Group Incorporated, a merchant banking firm. Mr. Davies is a director
of the Company's wholly-owned subsidiary, Oakhurst Technology, Inc. ("OTI") and
of SCPI. Mr. Davies also serves as a director of Maxicare Health Plans, Inc., a
health maintenance organization based in California. Mr. Davies is a managing
director of Menai Capital, L.L.C., a private equity advisory company.
Martin J. Sergi. Mr. Sergi has been a senior executive officer and director of
KTI, Inc. ("KTI") since 1985 and currently serves as its President. He is also
President of most of KTI's subsidiaries. He was elected to
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Oakhurst's and OTI's Boards of Directors in January 1999. Mr. Sergi is licensed
as a certified public accountant in New York.
Mark Auerbach. Mr. Auerbach was Chairman, President and Chief Executive Officer
of the Company from December 1995 to May 1997 and was Chief Financial Officer of
the Company and of SCPI from December 1995 to January 1999. He has also been
Senior Vice President and Chief Financial Officer since April 1993 of Central
Lewmar, L.P., a fine paper merchant. From September 1992 until April 1993, he
was a partner of Marron Capital, L.P., an investment banking company. Prior to
that, he was President, Chief Executive Officer and Chairman of the Board of
Implant Technology, Inc., a manufacturer of artificial hip systems, from 1990 to
1992. He is a director of Pharmaceutical Resources, Inc., a generic drug
manufacturer and of the Company's majority owned subsidiary, Steel City
Products, Inc. Mr. Auerbach is a certified public accountant.
Bernard H. Frank. Mr. Frank has been Executive Vice President of the Company
since May 1994 and was its Chief Operating Officer from May 1994 to January
1999. He is a founder of SCPI, of which he has been Chief Executive Officer and
a director since 1993, Chairman since 1994 and an executive officer for more
than the last five years.
Ross Pirasteh. Mr. Pirasteh has served as Chairman of the Board of Directors of
KTI since May 1996 and was a management consultant to KTI from 1995 to 1996,
providing consulting with respect to bank financing and structural organization.
In 1994, he also acted as a consultant to various other companies with respect
to bank financing and capital funding. Mr. Pirasteh has been an entrepreneurial
investor for the past five years, investing his personal funds in real estate
and privately held companies. In January 1999, Mr. Pirasteh was elected to
Oakhurst's and OTI's Boards of Directors.
Joel S. Lever. Mr. Lever is a senior member of the law firm of Kurzman &
Eisenberg, LLP and has been a partner since 1984. Mr. Lever serves as Chairman
of the firm's Corporate Department, where he specializes in transactional
business matters, mergers and acquisitions, art and entertainment law and the
sale and acquisition of commercial assets. Mr. Lever is a director of SCPI, as
well as a director of several private companies.
Maarten D. Hemsley. Mr. Hemsley was re-elected to the Board of Directors of the
Company and of SCPI in December 1998. He had been an employee of Oakhurst or
SCPI for many years prior to 1995. In December 1995, he resigned his positions
with the Company and SCPI but continued to provide consulting services to both
companies through his wholly-owned business, Bryanston Management, Ltd. Mr.
Hemsley currently serves as President, Chief Operating Officer and Chief
Financial Officer of Oakhurst and is Chief Financial Officer of SCPI. He was
elected to the Board of Directors of OTI in January 1999. Mr. Hemsley has been
President of Bryanston Management, Ltd., a financial consultancy firm, since
1993. Mr. Hemsley also serves as a managing director of Menai Capital, L.L.C., a
private equity advisory company.
EXECUTIVE OFFICERS.
The following are the names, ages, positions and a brief description of
the business experience during the last five years of the executive officers of
the Company and its subsidiaries who are not also directors of the Company, all
of whom serve until they resign or are removed by the Board of Directors. The
business histories of executive officers who are also directors (Messrs. Davies
and Hemsley) are set forth above under the heading "Directors."
Roger M. Barzun (57): Senior Vice President, Secretary and General Counsel. Mr.
Barzun has been Secretary and General Counsel of the Company since August 1991
and a Senior Vice President since May 1994. He is also Secretary and General
Counsel of SCPI. Mr. Barzun has been a lawyer since 1968 and is a member of the
New York and Massachusetts bars.
Terrance W. Allan (45) : Executive Vice President, Steel City Products, Inc. Mr.
Allan has been an officer of SCPI for more than the last five years. He was
elected Executive Vice President in January 1993.
-19-
<PAGE> 21
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than 10% of a
registered class of the Company's equity securities ("Insiders") to file reports
of ownership and certain changes in ownership with the Securities and Exchange
Commission and to furnish the Company with copies of those reports. During
fiscal 1999, each of Messrs. Pirasteh and Sergi inadvertently failed to file a
Form 5 with respect to option grants made in December 1998. Mr. Sergi
inadvertently failed to file a Form 4 with respect to the purchase of the
Company's stock in December 1998.
ITEM 11. EXECUTIVE COMPENSATION.
This item contains information about compensation, stock options and
awards, employment arrangements and other information concerning the executive
officers of the Company and of its largest subsidiary, SCPI.
SUMMARY COMPENSATION TABLE.
The following table sets forth all compensation for the 1999, 1998 and
1997 fiscal years allocated or paid on or before February 28,1999 to those who
served as the Company's Chief Executive Officer during fiscal 1999 and to the
other executive officers of the Company who were serving at the end of the 1999
fiscal year for services rendered in all capacities to the Company and its
subsidiaries. Also included is the compensation paid to an executive officer of
SCPI who is not, however, an executive officer of the Company.
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------------------- -----------------------------
OTHER SECURITIES ALL OTHER
ANNUAL UNDERLYING COMPENSA-
FISCAL SALARY BONUS COMPENSATION OPTIONS/SARS TION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)* (#) ($)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert M. Davies (1) 1999 70,300 -- -- 288,000 --
Chairman & 1998 50,000 -- -- 203,000 --
Chief Executive Officer
Maarten D. Hemsley (2) 1999 19,823 -- -- 192,000 --
President, Chief Operating
Officer and Chief
Financial Officer
Bernard H. Frank (3) 1999 110,000 6,250 -- -- 13,908(4)
Executive Vice President 1998 50,050 7,364 -- -- 13,908
1997 50,243 16,000 -- 68,327 13,908
Roger M. Barzun (5) 1999 42,700 17,500 -- -- --
Senior Vice President and 1998 53,750 -- 6,312 20,000 --
General Counsel, Secretary 1997 53,750 -- 6,312 -- --
Terrance W. Allan (6) 1999 115,001 15,000 -- -- --
Executive Vice President 1998 126,490 14,000 -- 24,333 --
SCPI 1997 106,160 -- -- 5,000 4,797
</TABLE>
- -----------------
-20-
<PAGE> 22
* Excludes perquisites and other personal benefits if the aggregate amount of
such items of compensation was less than the lesser of either $50,000 or
10% of the total annual salary and bonus of the named executive officer. In
the case of Mr. Barzun, the amount listed represents the cost to the
Company of providing for his use a company-leased vehicle.
1. Mr. Davies was elected Chairman, Chief Executive Officer and President in
May 1997.
2. In December 1998, Mr. Hemsley was elected President, Chief Operating
Officer and Chief Financial Officer.
3. Mr. Frank, who is also Chairman and Chief Executive Officer of SCPI, is
compensated only by SCPI, except with respect to stock options and stock
awards.
4. This amount consists of $6,504, $5,508 and $1,896 that Mr. Frank received
under three substantially identical agreements amended in 1987 in
consideration of the waiver by Mr. Frank of his bankruptcy claims for
annuity rights in SCPI's predecessor's bankruptcy.
5. Mr. Barzun received a bonus in the amount of $17,500 in fiscal 1999 for
work done regarding the organization of OTI.
6. Mr. Allan is compensated only by SCPI, except with respect to stock options
and stock awards.
----------------------
-21-
<PAGE> 23
OPTION GRANTS IN THE LAST FISCAL YEAR.
The following table sets forth certain information with respect to stock
options granted to the individuals named in the Summary Compensation Table,
above, during the fiscal year ended February 28, 1999.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM (3)
----------------------------------------------------- -----------------------------
PERCENT OF
TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO EXERCISE EXPI-
UNDERLYING EMPLOYEES IN PRICE RATION 5% 10%
NAME OPTIONS FISCAL YEAR ($)(2) DATE ($) ($)
(%)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MAARTEN HEMSLEY 192,000(1) 32.0 0.50 12/18/08 40,984 122,123
ROBERT M. DAVIES 288,000(1) 48.0 0.50 12/18/08 61,475 183,185
BERNARD H. FRANK -- -- -- -- -- --
ROGER M. BARZUN -- -- -- -- -- --
TERRANCE W. ALLAN -- -- -- -- -- --
</TABLE>
- --------------
1. One third of this option became exercisable at the date of grant; the
balance vests over two years.
2. The original exercise price per share of each option was equal to the
market value on the date of grant.
3. The "potential realizable value" is calculated based on the term of the
option (ten years) at its date of grant. It is calculated by assuming that
the stock price on the date of grant appreciates at the indicated annual
rate compounded annually for the entire term of the option. However, the
optionee will not actually be able to realize any benefit from the option
unless the market value of the Common Stock in fact increases over the
option price.
-22-
<PAGE> 24
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES.
The following table sets forth certain information based upon the fair
market value per share of the Common Stock at February 28, 1999 ($1.56) or the
day closest to the Company's February 28, 1999 fiscal year end on which trades
were made, with respect to stock options held at that date by each of the
individuals named in the Summary Compensation Table, above. The "value" of
unexercised in-the-money options is the difference between the market value of
the Common Stock subject to the options at February 28, 1999 and the exercise
price of the option shares. During fiscal 1999, there were no option exercises
by any of these individuals.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED IN-THE-
NUMBER OF SECURITIES UNDERLYING MONEY OPTIONS AT FISCAL YEAR
UNEXERCISED OPTIONS AT FISCAL YEAR END END
(#) ($)
------------------------------------------- ----------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert M. Davies 340,992 192,000 233,440 203,520
Maarten D. Hemsley 308,424 128,000 118,840 135,680
Bernard H. Frank 68,327 -- 6,260 --
Roger M. Barzun 26,000 10,000 6,880 6,880
Terrance W. Allan 29,331 -- 4,695 --
</TABLE>
COMPENSATION OF DIRECTORS.
All non-employee directors receive annual stock option grants on May 1 each
year under the Non-Employee Director Stock Option Plan covering 3,000 shares of
Common Stock, which are immediately exercisable at an option price equal to the
market value on the date of grant. Messrs. Pirasteh and Sergi waived their
initial option grant under this plan. During fiscal 1999, each non-employee who
did not otherwise receive compensation from the Company received an annual
director's fee of $12,500 and if he serves as chairman of at least one committee
of the Board of Directors, an additional annual director's fee of $2,500. All
fees are paid quarterly in arrears. All directors are entitled to reimbursement
for out-of-pocket expenses incurred in attending meetings.
In December 1998 Messrs. Pirasteh and Sergi were each granted options to
purchase 50,000 shares of Common Stock at market value, such options vest over
three years, commencing with the date of grant.
On January 13, 1998 the Board of Directors granted ten-year stock options to
Messrs. Abernathy (65,000 shares), Davies (100,000 shares) Hemsley (75,000) and
Lever (65,000 shares). The options vested upon the later of the Company's
achievement of certain financial objectives or on the ninth anniversary of the
grant date. With the completion of the transaction with KTI, the options vested
in full. See also "Employment Contracts and Termination of Employment and
Change-in-Control Arrangements," following, for a description of compensation
arrangements during fiscal 1999 between the Company and Messrs.
Davies and Hemsley.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS.
Mr. Davies. Mr. Davies was elected Chairman, President and Chief Executive
Officer of the Company in May 1997. He was compensated at the rate of $5,000 per
month under a one-year consulting agreement until June 1998, when he entered
into an employment agreement at the same rate of pay. Mr. Davies also receives
reimbursement of expenses incurred by him in carrying out his duties and
responsibilities. In October 1998, Mr. Davies voluntarily took a 10% salary
reduction, which may be repaid in the future at the discretion of Oakhurst's
Board. In December 1998, Mr. Davies entered into an employment agreement with
OTI which provides for a base salary of $60,000, plus a car allowance of $250
per month. Both the Oakhurst and OTI employment agreements expire on February
28, 2001.
-23-
<PAGE> 25
Mr. Hemsley. Mr. Hemsley had been employed by Oakhurst or SCPI for several years
prior to 1995. In 1995, he resigned his positions with the Company and entered
into a consulting agreement with Oakhurst through his wholly-owned company,
Bryanston Management, Ltd. In December 1998, Mr. Hemsley was elected to the
Board of Directors and currently serves as President, Chief Operating Officer
and Chief Financial Officer of Oakhurst. The Oakhurst employment agreement
provides for a base salary of $85,000 (of which 10% is deferred under a
voluntary salary reduction, which may be repaid in the future at the discretion
of the Board of Directors). In December 1998, Mr. Hemsley entered into an
employment agreement with OTI which provides for a base salary of $40,000
annually, plus a car allowance of $250 per month. Both the Oakhurst and OTI
employment agreements expire on February 28, 2001.
Mr. Frank . In fiscal 1997, in light of SCPI's financial performance, Mr. Frank
voluntarily reduced his annual salary by 50%. In February 1998, Mr. Frank's
annual base salary was set by agreement at $50,000; he was granted participation
in a deferred compensation program commencing March 1, 1998 providing for the
payment to him of $5,000 per month for twenty-four months to compensate him for
the portion of his salary voluntarily foregone by him; and commencing March 1,
1998, Mr. Frank was made eligible to participate in a bonus program pursuant to
which the Compensation Committee of the Board of Directors in its discretion and
after reviewing the Company's performance and cash position may grant to him on
a quarterly basis a bonus not to exceed $25,000 in the aggregate in any one
fiscal year. In fiscal 1999, Mr.
Frank was paid $6,250 in respect of this bonus plan.
Mr. Frank also receives compensation of $13,908 per year, in the aggregate,
under three substantially identical agreements amended in 1987 in consideration
of the waiver by Mr. Frank of his bankruptcy claims for annuity rights in SCPI's
predecessor's bankruptcy. The amended agreements provide for payments to be made
for a period of fifteen years subsequent to January 1988 of $6,504, $5,508 and
$1,896 per year for the three agreements, respectively.
Mr. Allan. SCPI has a three-year employment agreement with Mr. Allan (sometimes
hereinafter referred to as the "executive") commencing September 1, 1993 that
provides for a base salary of $115,050. The agreement provides for the payment
of an annual management bonus based upon the defined profits of SCPI's operating
division. The aggregate amount of such management bonus payable each year to the
executive and to all other executives is not to exceed 8% of such defined
profits and the allocation thereof is made by the Compensation Committee of the
Company based on recommendations of Mr. Frank as Chief Executive Officer. Mr.
Allan is also entitled to an executive bonus calculated as a percentage of
defined annual profits of the SCPI that exceed $2,000,000. The agreement was
extended in September 1996 and has been renewed on a year-to-year basis.
In the event of non-renewal of the agreement, the executive is entitled to an
aliquot portion of the bonus he would have earned during the year of
non-renewal, since the contract year does not coincide with the fiscal year of
the Company. The agreement also provides that if the executive's employment
terminates by reason of his death or disability, he is entitled to the greater
of one years' salary or the salary for the balance of the term of the agreement
and the management bonus that would otherwise have been paid to him. If the
executive's employment is otherwise terminated without cause, he is entitled to
his salary and bonuses for the greater of one year or the balance of the term of
the agreement.
The agreement provides for a car allowance and the executive is eligible to
participate in all defined contribution plans, survivor and supplemental
benefits, short and long-term disability benefits and all other benefit plans
and perquisites available now or in the future to the senior executives of the
Company.
The agreement also provides for certain termination rights in the event of a
change in control of the Company. Change in control is defined to include
certain changes in the make-up of the Company's board of directors or a sale of
the Company's assets or business. The executive has the right to terminate his
employment within a defined period, ranging up to one year, following a change
in control and (i) to be paid his base salary for a period of up to 24 months
following such termination; (ii) to continue to receive for a like period the
benefits that he is entitled to receive under his agreement and (iii) to be paid
25% of base salary in lieu of all bonus entitlement. The agreement also provides
for substantially the same payments and benefits in the event the executive's
employment is terminated by the Company without cause as a result of a change in
control. In the event of any termination other than for cause, or voluntary
resignation in the absence of a change in control, the executive's options
become fully
-24-
<PAGE> 26
exercisable for a period of seven months following termination. If a change in
control had occurred on May 1, 1999 and if Mr. Allan had exercised his rights of
termination, payments by the Company would have been approximately $302,500 in
the aggregate.
Mr. Barzun. Mr. Barzun is compensated pursuant to a December 1992 employment
agreement, as amended, under which he provides general counsel services to the
Company on a part-time basis. Under the agreement, Mr. Barzun is entitled to a
minimum salary of $56,250; participation in benefit plans made available to
other executives; reimbursement of Company-related business expenses; and
payment in a lump sum of six months' salary in the event his employment is
terminated without cause. In October 1998, in light of the time requirements of
the Company, Mr. Barzun reduced his pay to $25,000 annually. In January 1999,
Mr. Barzun received a $17,500 bonus for his efforts in respect of the
organization of OTI.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.
During fiscal 1999, Mr. Davies was a member of the Compensation Committee of
the Company and of SCPI. Mr. Frank serves on the Compensation Committee of SCPI
and is a director of SCPI and of the Company.
The Board of Directors intends that any transactions with officers, directors
and affiliates will be entered into on terms no less favorable to the Company
than could be obtained from unrelated third parties and that they will be
approved by a majority of the directors of the Company who are independent and
disinterested with respect to the proposed transaction.
In December 1998, KTI purchased approximately 1.7 million of Oakhurst's
common stock, representing 35% of the common stock outstanding after the
purchase, at the market price of $0.50 per share. In conjunction with the
private placement of stock, KTI committed under a loan agreement to lend
Oakhurst up to $11.5 million, and in certain circumstances, up to $17 million
(see Notes 1 and 4 to the Consolidated Financial Statements). Funding under the
KTI Loan is to be used principally to enable OTI to finance the Business Plan
for New Heights, pursuant to an Investment Agreement between New Heights, OTI
and KTI (see Note 12 to the Consolidated Financial Statements). In addition, KTI
agreed to provide, directly or through OTI, the funding requirements of the New
Heights Business Plan. In December 1998, New Heights appointed KTI to manage its
facility, pursuant to an Operating and Maintenance Agreement and OTI entered
into a non-exclusive License Agreement for the use of waste rubber recycling
technology owned by KTI's subsidiary, KTI Recycling.
Pursuant to these transactions, in January 1999, KTI nominated two directors,
Messrs. Pirasteh and Sergi, to each of the Boards of Directors of Oakhurst and
OTI.
See also "Compensation of Directors" and "Employment Contracts and
Termination of Employment and Change-in-Control Arrangements".
REPORT ON EXECUTIVE COMPENSATION IN THE 1999 FISCAL YEAR.
This report has been prepared by the Compensation Committee of the Board of
Directors and addresses the Company's compensation policies with respect to the
Chief Executive Officer and executive officers of the Company in general for the
fiscal year ended February 28, 1999. All members of the Committees are
non-employee directors. The Company has no operating business of its own, but is
a holding company of operating businesses. The Company has elected to include in
the Summary Compensation Table certain information concerning an executive
officer of SCPI who is not, however, an executive officer of the Company and
accordingly, a discussion of his compensation is included here. Reference is
made generally to the information under the heading "Employment Contracts and
Termination of Employment and Change-in-Control Arrangements".
Compensation Policy. The overall intent in respect of executive officers is
to establish levels of compensation that provide appropriate incentives in order
to command high levels of individual performance and thereby increase the value
of the Company to its stockholders and that are sufficiently competitive to
attract and retain the skills required for the success and profitability of the
Company. The principal components of executive compensation are salary, bonus
and stock options.
-25-
<PAGE> 27
Chief Executive Officer's Compensation. The consulting fees paid and the
stock options granted to the Company's Chief Executive Officers in 1999 are the
result of written agreements that were negotiated between Messrs. Davies and
Hemsley and the Company and that are described above under the heading,
"Employment Contracts and Termination of Employment and Change-in-Control
Arrangements." Compensation was determined to be appropriate by the members of
the Committees serving at the time based on the nature of the position; the
expertise and responsibility that the position requires; the Chief Executive
Officers' prior financial and accounting experience in former employments; and
the subjective judgement of the members of a reasonable level of compensation.
Other Executive Officers. Mr. Frank is an Executive Officer of the Company,
but receives all of his compensation in his capacity of Chairman and Chief
Executive Officer of SCPI. Mr. Barzun is compensated under his employment
agreement with the Company described above. Mr. Allan is included in the
Company's disclosures relating to compensation because of his importance to the
success of the Company on a consolidated basis. Each of their written employment
agreements was reviewed and approved by the Company's Compensation Committee and
in the case of Mr. Allan, by the SCPI Compensation Committee.
Salary. Since all of the executive officers named in the Summary Compensation
Table are long-term employees of the Company and/or SCPI and one of them is a
founder of the original business, their salaries in 1998 were based on the level
of their prior salaries and the subjective judgement of the members of the
Company's and SCPI's Compensation Committees as to the value of the executive's
past contribution and potential future contribution to the business.
Bonuses. Bonuses payable to Messrs. Frank and Allan under their employment
agreements consist of an Annual Management Bonus and in the case of Mr. Allan,
an additional Annual Executive Bonus. The Annual Management Bonus is paid from a
pool of funds equal to 8% of SCPI's consolidated net income before interest,
taxes, depreciation, LIFO adjustments and amortization, prepared in accordance
with generally accepted accounting principles consistently applied. The amount
of the bonus pool allocation is based on Mr. Frank's recommendations to SCPI's
Compensation Committee. Mr. Frank's recommendations, in turn, are based on his
subjective judgement, formed by over fifty years experience with the business,
of the performance of each officer during the preceding year. Mr. Frank is
entitled to a minimum Annual Management Bonus of 15% of salary provided that
SCPI has earnings for the year in question. Bonuses paid in fiscal 1998 related
to earnings in the prior year.
The Annual Executive Bonus for Mr. Allan is equal to 1% of the amount by
which SCPI's consolidated net income (defined in the same manner as for the
Annual Management Bonus) exceeds $2,000,000. SCPI's defined net income did not
exceed the $2,000,000 threshold in fiscal 1998 and 1999 and accordingly no
Annual Executive Bonuses were paid.
The bonus percentages and amounts contained in the executive's employment
agreements are based on the executive's years of service, his perceived
importance to the profitability of SCPI and the subjective judgement of members
of the SCPI Compensation Committee as to the best balance between salary and
bonus and what is fair and reasonable. No bonuses were paid to any other
executive officers of the Company during fiscal 1999.
Stock Options. The Committees believe that stock ownership by executive
officers is important in aligning management's and stockholders' interests in
the enhancement of stockholder value over the long term. The 1998 grant to an
executive officer, other than the Chief Executive Officer, was based on the
subjective judgement of the Stock Plans Committee as to what constituted an
appropriate option grant in light of the executive's performance since the last
option granted to him. The exercise price of stock option grants to date is
equal to the market price of the Common Stock on the date of grant.
Compliance with Internal Revenue Code Section 162(m). Section 162(m) of the
Internal Revenue Code, enacted in 1993, generally disallows a tax deduction to
public companies for compensation over $1 million paid to its chief executive
officer and its four other most highly compensated executives. The Company's
compensation payable to any one executive officer (including potential income
from outstanding stock options) is currently and for the foreseeable future
unlikely to reach that threshold. In addition, because of the significant net
operating loss carryforwards of SCPI, the deductibility of compensation payments
is not
-26-
<PAGE> 28
currently an issue. However, should circumstances change, the Compensation
Committee will study the matter and make recommendations to the Board.
The Compensation Committee The Stock Plans Committee
Joel S. Lever John D. Abernathy
John D. Abernathy Joel S. Lever
Ross Pirasteh
Robert M. Davies
----------------------
The following Performance Graph and the foregoing Report of the Compensation
Committee on Executive Compensation in this Item 11 are not and shall not be
deemed incorporated by reference into any filings of the Company with the
Securities and Exchange Commission by implication or by any reference in any
such filings to this Annual Report on Form 10-K.
PERFORMANCE GRAPH.
The following graph compares the percentage change in the Company's
cumulative total stockholder return on Common Stock for the last five years with
(i) the Dow Jones Global US Market Index (a broad market index) and (ii) the Dow
Jones Retailers - Other Specialty Index, a group of companies whose marketing
strategy is focused on a limited product line, such as automotive parts, over
the same period.
Both indices are published in the Wall Street Journal.
The returns are calculated assuming the value of an investment in the
Company's stock and each index of $100 on the Company's February 28, 1994 fiscal
year end and that all dividends were reinvested; however, the Company paid no
dividends during the periods shown. The graph lines merely connect the beginning
and end of the measuring periods and do not reflect fluctuations between those
dates. The historical stock performance shown on the graph is not intended to,
and may not be indicative of, future stock performance.
[CHART]
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C>
Oakhurst Company, Inc. 100.00 135.00 47.48 45.00 45.00 62.50
DJ Global US 100.00 84.51 120.29 164.95 246.73 252.93
Dow Jones Retailers-Other 100.00 89.97 94.52 126.68 120.68 96.65
</TABLE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS AND MANAGEMENT.
This item sets forth certain information regarding ownership of the
Company's common stock at May 1, 1999. Except as otherwise indicated in the
footnotes, the Company believes that the beneficial owners of the Common Stock
listed in the tables, based on information furnished by such owners, have sole
investment
-27-
<PAGE> 29
and voting power with respect to the shares of common stock shown as
beneficially owned by them. The numbers and percentages assume for each person
or group listed the exercise of all stock options held by such person or group
that are exercisable within 60 days of May 1, 1999, in accordance with Rule 13d-
3(d)(1) of the Securities Exchange Act of 1934, but not the exercise of such
stock options owned by any other person.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.
This table sets forth each person, other than management, known by the
Company to own beneficially more than 5% of the outstanding common stock of the
Company.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES OF
OF BENEFICIAL OWNER COMMON STOCK PERCENTAGE OF CLASS
- ------------------- ------------------- --------------------
<S> <C> <C>
KTI, Inc. (1)
700 Boulevard East
Guttenberg, NJ 07093 1,730,056 35.0%
Anthony N. Puma (2)
6014 Castle Creek Road
Arlington, TX 76017 266,667 5.4%
</TABLE>
- --------------
(1) These shares were purchased at the market value in December 1998 as part of
a financing transaction between Oakhurst and KTI.
(2) These shares were issued as part of the purchase by the Company of Puma
Products, Inc. from Mr. Puma in fiscal 1995. In fiscal 1997, the Company
sold Puma Products, Inc. back to Mr. Puma.
SECURITY OWNERSHIP OF MANAGEMENT.
The following table sets forth information regarding beneficial ownership
of the Common Stock by each director, each individual named in the Summary
Compensation Table in Item 11 and by all directors, all such named individuals
and all executive officers of the Company as a group.
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER SHARES OF COMMON STOCK PERCENTAGE OF CLASS
- ------------------------ ---------------------- -------------------
<S> <C> <C>
John D. Abernathy 112,996 (1) 2.24%
Mark Auerbach 132,996 (2) 2.62%
Robert M. Davies 538,492 (3) 10.19%
Bernard H. Frank 70,034 (4) 1.40%
Maarten D. Hemsley 399,812 (5) 7.61%
Joel S. Lever 143,815 (6) 2.85%
Ross Pirasteh 16,666 (7)(11) *
Martin J. Sergi 136,666 (7)(11) 2.76%
Roger M. Barzun 32,160 (8) *
Terrance W. Allan 29,831 (9) *
All directors and executive
officers as a group (10 1,613,468 (10) 26.54%
persons):
</TABLE>
- --------------
* Rounds to less than 1%
-28-
<PAGE> 30
1. This number includes shares issuable under outstanding stock options
that are presently exercisable at prices ranging from $0.88 to $3.375
per share.
2. These shares are issuable under outstanding stock options that are
presently exercisable at prices ranging from $0.88 to $3.375 per share.
3. This number includes 340,992 shares issuable under outstanding stock
options that are exercisable at prices ranging from $0.50 to $3.37 per
share.
4. This number includes 68,327 shares issuable under outstanding stock
options that are presently exercisable at prices ranging from $1.25 to
$2.00 per share.
5. This number includes 308,424 shares issuable under outstanding stock
options that are presently exercisable at prices ranging from $0.50 to
$2.75 per share.
6. This number includes 94,996 shares issuable under outstanding stock
options that are presently exercisable at prices ranging from $0.88 to
$3.375 per share.
7. 50,000 shares each were issued to Mr. Pirasteh and Mr. Sergi upon their
election to the Oakhurst Board of Directors, one-third of which were
immediately exercisable. The options were issued at $0.50 per share.
8. This number includes 26,000 shares issuable under outstanding stock
options that are exercisable at prices ranging from $0.88 to $2.00 per
share.
9. This number includes 29,331 shares issuable under outstanding stock
options that are exercisable at prices ranging from $1.25 to $2.00 per
share. Mr. Allan is an executive officer of the Company's subsidiary,
Steel City Products, Inc.
10. This number includes 1,135,394 shares issuable under outstanding stock
options that are exercisable within 60 days of May 1, 1999 at prices
ranging from $0.50 to $3.375 per share.
11. Messrs. Pirasteh and Sergi are directors, officers and stockholders of
KTI and therefore under rules of the Securities and Exchange Commission
may be deemed to be beneficial owners of the 1.7 million shares of
Oakhurst held by KTI, although each of them disclaims beneficial
ownership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Reference is made to information contained under the headings "Compensation of
Directors," "Employment Contracts and Termination of Employment and
Change-in-Control Arrangements," and "Compensation Committee Interlocks and
Insider Participation," in Item 11.
----------------------
-29-
<PAGE> 31
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as a part of this report.
1. Financial Statements:
Independent Auditors' Report
Consolidated Balance Sheets: February 28, 1999 and February
28, 1998
Consolidated Statements of Operations for the fiscal years
ended February 28, 1999, February 28, 1998 and
February 28, 1997
Consolidated Statements of Stockholders' Equity for the fiscal
years ended February 28, 1999, February 28, 1998 and
February 28, 1997
Consolidated Statements of Cash Flows for the fiscal years
ended February 28, 1999, February 28, 1998 and
February 28, 1997
Notes to Consolidated Financial Statements
2. The following Financial Statement Schedules for the fiscal
years ended February 28, 1999, February 28, 1998 and
February 28, 1997 are submitted herewith:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not
applicable or the required information is shown in the
consolidated financial statements or the notes thereto.
3. Exhibits
Exhibit No. Description
2.1 Agreement and Plan of Merger dated as of May 20, 1991 (filed
as Appendix A to the Proxy Statement/Prospectus dated April
16, 1991 of the Company and Steel City Products, Inc.).
3.1 Restated and Amended Certificate of Incorporation (filed as
Exhibit 3 to the Company's Quarterly Report on Form 10-K for
the fiscal quarter ended August 31, 1996).
3.2 By-laws - as amended through January 13, 1998.
4.1 Agreement and Plan of Merger dated as of May 20, 1991 (see
Exhibit 2, above).
*4.2 Certificate of Designations of Series A Junior Participating
Preferred Stock dated as of February 10, 1998 - filed
herewith.
-30-
<PAGE> 32
/10.1 Form of Option Agreement dated August 29, 1991 with directors
and executive officers (filed as Exhibit 10(b) to the
Company's Annual report on Form 10-K for the fiscal year ended
February 29, 1992).
10.3 Purchase and Sale Agreement relating to the acquisition of
Dowling's Fleet Service Company, Inc. by Oakhurst Capital,
Inc., also containing employment agreements with Robert Keane
and Joseph Quattrochi (filed as Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the period ended August 27,
1994).
10.4 Lease agreements by and between James Dowling and Dowling's
Fleet Service Company, Inc. (filed as Exhibit 10.13 to the
Company's Annual Report on Form 10-K for the fiscal year ended
February 28, 1995).
/10.5 The 1994 Omnibus Stock Plan with form of option agreement
(filed as Exhibit 10.13 to the Company's Annual Report on Form
10-K for the fiscal year ended February 28, 1995).
/10.6 The 1994 Non-Employee director Stock Option Plan with form of
option agreement (filed as Exhibit 10.13 to the Company's
Annual Report on Form 10-K for the fiscal year ended February
28, 1995).
10.7 Loan and Security Agreement; Schedule to Loan and Security
Agreement; Secured Promissory Note with FINOVA Capital
Corporation all dated March 28, 1996 (filed as Exhibit 10.17
to the Company's Annual Report on Form 10-K for the fiscal
year ended February 29, 1996).
10.8 Open-End Mortgage between Steel City Products, Inc. and FINOVA
Capital Corporation dated March 28, 1996 (filed as Exhibit
10.18 to the Company's Annual Report on Form 10-K for the
fiscal year ended February 29, 1996).
10.9 Consulting Agreement with Bryanston Management, Ltd, dated as
of December 19, 1995 (filed as Exhibit 10.19 to the Company's
Annual Report on Form 10-K for the fiscal year ended February
29, 1996).
/10.10 Employment Agreement and Form of Promissory Note between
Dowling's Fleet Service, Co., Inc. and Joseph B. Quattrochi
dated as of March 1, 1996 (filed as Exhibit 10.22 to the
Company's Annual Report on Form 10-K for the fiscal year ended
February 28, 1997).
/10.11 Employment Agreement and Form of Promissory Note between
Dowling's Fleet Service, Co., Inc. and Robert M. Keane dated
as of March 1, 1996 (filed as Exhibit 10.23 to the Company's
Annual Report on Form 10-K for the fiscal year ended February
28, 1997).
10.13 Non-Competition Agreement between G&O Sales Company and Arthur
Gruber dated as of March 12, 1996 (filed as Exhibit 10.25 to
the Company's Annual Report on Form 10-K for the fiscal year
ended February 28, 1997).
x/10.14 Amendment to Consulting Agreement and Amended Non-Qualified
Stock Option Agreement between Mark Auerbach and Oakhurst
Company, Inc. dated as of October 1, 1996 (filed as Exhibit
10.26 to the
-31-
<PAGE> 33
Company's Annual Report on Form 10-K for the fiscal year ended
February 28, 1997).
10.15 Stock Purchase and Sale Agreement between Anthony N. Puma,
Puma Products, Inc. and Oakhurst Company, Inc., dated as of
June 10, 1997 (filed as Exhibit 10.27 to the Company's Annual
Report on Form 10-K for the fiscal year ended February 28,
1997).
10.16 Stock Purchase and Sale Agreement between James Stein, H&H
Distributors, Inc. and Oakhurst Company, Inc., dated as of
July 14, 1997 (filed as Exhibit 10 to the Company's Quarterly
Report on Form 10-Q for the first quarter ended May 31, 1997).
10.17 Agreement of Sale and Purchase by and between Steel City
Products, Inc. and Bearing Service Company of Pennsylvania
dated as of August 18, 1997 (filed as Exhibit 10 to the
Company's Quarterly Report on Form 10-Q for the second quarter
ended August 31, 1997).
10.18 Second, and Third Amendments to the Loan and Security
Agreement between Oakhurst and its subsidiaries and FINOVA
Capital Corporation, dated effective June 1, 1997 and October
31, 1997, respectively.
10.19 Lease agreement between Regional Industrial Development
Corporation and Steel City Products, Inc. dated as of.
10.20 Rights Agreement, dated as of December 29, 1998 between
Oakhurst Company, Inc. and American Stock Transfer and Trust
Company, including the form of Certificate of Designation, the
form of Rights Certificate and the Summary of Rights attached
thereto as Exhibits A, B and C, respectively. Filed as Exhibit
99.1 to the Company's Registration Statement on Form 8-A filed
on January 5, 1999.
*x/10.21 Amendment to the 1994 Omnibus Stock Plan, amended as of
December 18, 1998.
*10.22 Fourth Amendment to the Loan and Security Agreement between
Oakhurst and its subsidiaries and FINOVA Capital Corporation,
dated as of December 29, 1998.
*10.23 Investment Agreement among Oakhurst Company, Inc., Oakhurst
Technology, Inc. and KTI, Inc. dated as of December 29, 1998.
*10.24 Intercreditor Agreement among Oakhurst Company, Inc., KTI,
Inc. and FINOVA Capital Corporation dated December 29, 1998.
*10.25 Stock Purchase and Investment Agreement between Oakhurst
Technology, Inc. and Sterling Construction Company dated as of
January 19, 1999.
*10.26 Note Purchase Agreement between Sterling Construction Company
and Oakhurst Technology, Inc. dated as of January 19, 1999.
*x/10.27 Employment agreement between Oakhurst Company, Inc. and Robert
M. Davies dated as of December 29, 1998.
*x/10.28 Employment agreement between Oakhurst Technology, Inc. and
Robert M. Davies dated as of December 29, 1998.
-32-
<PAGE> 34
*x/10.29 Employment agreement between Oakhurst Company, Inc. and
Maarten D. Hemsley dated as of December 18, 1998.
*x/10.30 Employment agreement between Oakhurst Technology, Inc. and
Maarten D. Hemsley dated as of December 1, 1998.
*18.1 Letter regarding change in accounting principle.
21 Subsidiaries at February 28, 1999:
Steel City Products, Inc. - Delaware
Dowling's Fleet Service Co., Inc. - New York
Oakhurst Management Corporation - Texas
Oakhurst Technology, Inc - Delaware
*23 Consent of Deloitte & Touche LLP.
*27 Financial Data Schedule (EDGAR transmission only).
*27.1 Restated Financial Data Schedule for the quarter ended
November 30, 1998 (filed as exhibit #27 to the Company's Form
10-Q for the quarter ended November 30, 1998) (EDGAR
transmission only).
*27.2 Restated Financial Data Schedule for the quarter ended August
31, 1998 (filed as exhibit #27 to the Company's Form 10-Q for
the quarter ended August 31, 1998) (EDGAR transmission only).
*27.3 Restated Financial Data Schedule for the quarter ended May 31,
1998 (filed as exhibit #27 to the Company's Form 10-Q for the
quarter ended May 31, 1998) (EDGAR transmission only).
*27.4 Restated Financial Data Schedule for the year ended February
28, 1998 (filed as exhibit #27 to the Company's Form 10-K for
the year ended February 28, 1998) (EDGAR transmission only).
*27.5 Restated Financial Data Schedule for the quarter ended
November 30, 1997 (filed as exhibit #27 to the Company's Form
10-Q for the quarter ended November 30, 1997) (EDGAR
transmission only).
*27.6 Restated Financial Data Schedule for the quarter ended August
31, 1997 (filed as exhibit #27 to the Company's Form 10-Q for
the quarter ended August 31, 1997) (EDGAR transmission only).
*27.7 Restated Financial Data Schedule for the quarter ended May 31,
1997 (filed as exhibit #27 to the Company's Form 10-Q for the
quarter ended May 31, 1997) (EDGAR transmission only).
*27.8 Restated Financial Data Schedule for the year ended February
28, 1997 (filed as exhibit #27 to the Company's Form 10-K for
the year ended February 28, 1997) (EDGAR transmission only).
- -----------------
-33-
<PAGE> 35
/ Management contract or compensatory plan or arrangement.
*filed herewith
(b) Reports on Form 8-K:
The following reports on Form 8-K were filed during the last quarter covered
by this report:
<TABLE>
<CAPTION>
Item Date of Report
---- --------------
<S> <C> <C> <C>
2 Acquisition or Disposition of Assets December 29, 1998
5 Other Events
2 Acquisition or Disposition of Assets January 19, 1999
</TABLE>
No financial statements were filed with these reports.
-34-
<PAGE> 36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
OAKHURST COMPANY, INC.
Date: May 26, 1999 By: /s/ Robert M. Davies
-----------------------------------
Robert M. Davies
Chief Executive Officer
(duly authorized officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLES DATE
---------- ------ ----
<S> <C> <C>
/s/ Robert M. Davies Chairman of the Board of Directors May 26, 1999
- ----------------------------------------- and Chief Executive Officer
Robert M. Davies (principal executive officer)
/s/ Maarten D. Hemsley President, Chief Financial May 26, 1999
- --------------------------------------- Officer and Director (principal
Maarten D. Hemsley financial and accounting officer)
Director
/s/ John D. Abernathy Director May 26, 1999
- ---------------------------------------
John D. Abernathy
/s/ Mark Auerbach Director May 26, 1999
- ---------------------------------------
Mark Auerbach
/s/ Bernard H. Frank Director May 26, 1999
- ---------------------------------------
Bernard H. Frank
/s/ Joel S. Lever Director May 26, 1999
- ---------------------------------------
Joel S. Lever
/s/ Ross Pirasteh Director May 26, 1999
- ---------------------------------------
Ross Pirasteh
/s/ Martin J. Sergi Director May 26, 1999
- ---------------------------------------
Martin J. Sergi
</TABLE>
-35-
<PAGE> 37
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Oakhurst Company, Inc.:
We have audited the accompanying consolidated balance sheets of Oakhurst
Company, Inc. and subsidiaries as of February 28, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years ended February 28, 1999, 1998 and 1997. Our audits also included the
consolidated financial statement schedule listed in the Index at Item 14(a)(2).
These consolidated financial statements and consolidated financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on the consolidated financial statements and the
consolidated financial statement schedule 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Oakhurst Company, Inc. and
subsidiaries as of February 28, 1999 and 1998, and the results of their
operations and their cash flows for the years ended February 28, 1999,1998, and
1997 in conformity with generally accepted accounting principles. Also, in our
opinion, the consolidated financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, during the year
ended February 28, 1999 Oakhurst Company, Inc.'s majority-owned subsidiary,
Steel City Products, Inc. changed its method of accounting for inventory.
/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
May 21, 1999
-F1-
<PAGE> 38
OAKHURST COMPANY, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS FEBRUARY 28, FEBRUARY 28,
1999 1998
(as restated)
------------ ------------
<S> <C> <C>
Current assets:
Cash ......................................................................... $ 241 $ 47
Trade accounts receivable, less allowance of $388 and $461, respectively ..... 3,330 4,026
Other receivables ............................................................ 158 223
Inventories .................................................................. 6,045 6,452
Other ........................................................................ 159 226
------------ ------------
Total current assets ....................................... 9,933 10,974
------------ ------------
Property and equipment, at cost ................................................... 2,045 1,782
Less accumulated depreciation ................................................ (1,344) (1,098)
------------ ------------
701 684
------------ ------------
Investments:
Equity ....................................................................... 1,125 --
Other ........................................................................ 1,379 --
Note receivable ................................................................... 1,330 --
Excess of cost over net assets acquired, net ...................................... 2,080 2,275
Other assets ...................................................................... 328 383
------------ ------------
6,242 2,658
------------ ------------
$ 16,876 $ 14,316
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................................. $ 5,662 $ 6,392
Accrued compensation ......................................................... 509 519
Current maturities of long-term obligations .................................. 218 646
Current maturities of long-term obligations, related parties ................. 88 88
Accrued interest ............................................................. 78 76
Other accrued expenses ....................................................... 399 249
------------ ------------
Total current liabilities .................................. 6,954 7,970
------------ ------------
Long-term obligations:
Long-term debt ............................................................... 4,669 4,058
Long-term debt, related parties .............................................. 3,408 198
Other long-term obligations .................................................. 177 62
------------ ------------
8,254 4,318
------------ ------------
Commitments and contingencies ..................................................... -- --
Stockholders' equity:
Preferred stock, par value $0.01; authorized 1,000,000 shares, none issued ... -- --
Common stock, par value $0.01 per share; authorized 14,000,000
shares; issued 4,943,018 and 3,207,053 shares, respectively ................ 49 32
Additional paid-in capital ................................................... 47,204 46,535
Deficit (Reorganized on August 26, 1989) ..................................... (45,584) (44,538)
Treasury stock, at cost, 207 common shares ................................... (1) (1)
------------ ------------
Total stockholders' equity ................................. 1,668 2,028
------------ ------------
$ 16,876 $ 14,316
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-F2-
<PAGE> 39
OAKHURST COMPANY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1999 1998 1997
(as restated) (as restated)
-------------- -------------- --------------
<S> <C> <C> <C>
Sales ...................................................... $ 31,660 $ 32,307 $ 41,928
Other income ............................................... 492 286 327
-------------- -------------- --------------
32,152 32,593 42,255
-------------- -------------- --------------
Cost of goods sold, including occupancy and
buying expenses ......................................... 25,849 26,126 32,555
Operating, selling and administrative expenses ............. 6,337 6,705 10,573
Provision for doubtful accounts ............................ 106 165 102
Amortization of excess of cost over net assets acquired .... 194 194 448
Interest expense ........................................... 558 634 843
Income from the sale of real estate ........................ -- (1,760) --
(Income) loss on assets held for sale -
H&H and Puma (see Note 2) ............................... -- (72) 3,493
-------------- -------------- --------------
33,044 31,992 48,014
-------------- -------------- --------------
(Loss) income before loss on equity
investment and income taxes ............................. (892) 601 (5,759)
-------------- -------------- --------------
Loss from equity investment ................................ (150) -- --
-------------- -------------- --------------
Current income tax expense ................................. (4) (16) (12)
Deferred income tax expense ................................ -- (1,000) (3,086)
-------------- -------------- --------------
(4) (1,016) (3,098)
-------------- -------------- --------------
Net loss ................................................... $ (1,046) $ (415) $ (8,857)
============== ============== ==============
Basic and diluted per share amounts ........................ $ (0.30) $ (0.13) $ (2.77)
============== ============== ==============
Weighted average number of shares outstanding
used in computing per share amounts ..................... 3,501,075 3,206,179 3,200,140
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-F3-
<PAGE> 40
OAKHURST COMPANY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION> ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL DEFICIT STOCK TOTALS
--------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE AT FEBRUARY 29, 1996 (AS RESTATED)............... $ 32 $ 46,522 $ (35,266) $ (1) $ 11,287
Net loss................................................. (8,857) (8,857)
Employee stock award..................................... * 7 7
--------- ----------- ---------- ----------- -----------
BALANCE AT FEBRUARY 28, 1997 (AS RESTATED)............... 32 46,529 (44,123) (1) 2,437
Net loss ................................................ (415) (415)
Employee stock award..................................... * 6 6
--------- ----------- ---------- ----------- -----------
BALANCE AT FEBRUARY 28, 1998 (AS RESTATED)............... 32 46,535 (44,538) (1) 2,028
Net loss ................................................ (1,046) (1,046)
Employee stock award..................................... * 6 6
Issuance of common stock, net of expenses................ 17 663 680
--------- ----------- ---------- ----------- -----------
BALANCE AT FEBRUARY 28, 1999 ............................ $ 49 $ 47,204 $ (45,584) $ (1) $ 1,668
========= =========== ========== =========== ===========
</TABLE>
* Rounds to less than $1 thousand
The accompanying notes are an integral part of these
consolidated financial statements.
-F4-
<PAGE> 41
OAKHURST COMPANY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1999 1998 1997
(AS RESTATED) (AS RESTATED)
-------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Loss from continuing operations ........................................... $ (1,046) $ (415) $ (8,857)
Adjustments to reconcile loss from continuing
operations to net cash (used in) provided by operating activities:
Depreciation and amortization ......................................... 537 661 1,207
Deferred tax expense .................................................. -- 1,000 3,086
Gain on sale of real estate ........................................... -- (1,761) --
Loss on assets held for sale .......................................... -- -- 3,297
Loss on retirement of assets .......................................... 9 18 36
Employee stock award .................................................. 6 6 7
Other changes in operating assets and liabilities:
Accounts receivable ................................................... 696 (144) (255)
Inventories ........................................................... 407 (474) 1,198
Accounts payable ...................................................... (730) 286 760
Other ................................................................. 177 216 330
-------------- -------------- --------------
Net cash (used in) provided by operating activities of:
Continuing operations ..................................................... 56 (607) 809
Discontinued operations ................................................... (294) (294) (255)
-------------- -------------- --------------
Net cash (used in) provided by operating activities: ......................... (238) (901) 554
-------------- -------------- --------------
Cash flows from investing activities:
Additions to property and equipment ....................................... (297) (347) (187)
Proceeds from the sale of real estate ..................................... -- 2,657 --
Acquisition of subsidiaries, net of cash acquired ......................... -- -- (79)
Loss on assets held for sale .............................................. -- -- (196)
Purchase of investments ................................................... (3,834) -- --
Other ..................................................................... -- 52 (25)
-------------- -------------- --------------
Net cash (used in) provided by investing activities .......................... (4,131) 2,362 (487)
-------------- -------------- --------------
Cash flows from financing activities:
Net borrowings under revolving credit agreement ........................... 552 162 693
Proceeds from issuance of long-term debt .................................. 3,561 -- 1,510
Issuance of common stock, net of expenses ................................. 680 -- --
Repayment of notes payable ................................................ -- (105) --
Principal payments on long-term obligations ............................... (230) (1,475) (2,276)
Deferred loan costs ....................................................... -- (35) (273)
-------------- -------------- --------------
Net cash provided by (used in) financing activities .......................... 4,563 (1,453) (346)
-------------- -------------- --------------
Net increase (decrease) in cash .............................................. 194 8 (279)
Cash at beginning of year .................................................... 47 39 318
-------------- -------------- --------------
Cash at end of year .......................................................... $ 241 $ 47 $ 39
============== ============== ==============
Supplemental disclosures of cash flow information:
Cash paid during the year for operating activities:
Interest ................................................................ $ 555 $ 667 $ 791
============== ============== ==============
Income taxes, net of refunds received ................................... $ 10 $ 16 $ (3)
============== ============== ==============
Supplemental schedule of non-cash financing activities:
Capital lease obligations incurred for new equipment .................... $ 144 $ -- $ --
============== ============== ==============
Fiscal year ending February 28, 1997:
A note payable of $105 and a non-compete agreement with a discounted value of $274 were issued in connection
with the acquisition of a subsidiary (see Note 14). In addition, there were charges relating to the disposal of two
subsidiaries (see Note 2).
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-F5-
<PAGE> 42
OAKHURST COMPANY, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation:
Oakhurst Company, Inc. ("Oakhurst" or "the Company") was formed as a
result of a merger transaction (the "merger") in fiscal 1992 between Steel City
Products, Inc. ("SCPI") and an Oakhurst subsidiary. The merger resulted in a
restructuring of SCPI such that it became a majority-owned subsidiary of
Oakhurst. In accordance with the merger, Oakhurst owns 10% of the outstanding
common stock of SCPI and all of SCPI's Series A Preferred Stock. The merger was
structured such that the aggregate fair market value of SCPI's common stock and
Series A Preferred Stock owned by Oakhurst would be approximately 90% of the
aggregate fair market value of the issued and outstanding common and voting
preferred stock of SCPI. Accordingly, Oakhurst controls approximately 90% of the
voting power of SCPI. The accompanying consolidated financial statements reflect
this control and include the accounts of SCPI.
Oakhurst acquired all of the outstanding capital stock of H&H
Distributors d/b/a Harry Survis, ("H&H") of Dowling's Fleet Service Co., Inc.
("Dowling's") and of Puma Products, Inc. ("Puma") in January 1994, August 1994
and October 1994, respectively. In March 1995, Oakhurst formed Oakhurst
Management Corporation ("OMC") a wholly-owned subsidiary, to coordinate the
provision of certain corporate administrative, legal, and accounting services to
the Company and its subsidiaries. In March 1996, Dowling's acquired the
outstanding capital stock of G&O Sales Company ("G&O") (see Note 14). In May
1997 and June 1997, Oakhurst sold the capital stock of H&H and Puma,
respectively (see Note 2).
In December 1998 Oakhurst formed a wholly-owned subsidiary, Oakhurst
Technology, Inc. ("OTI") in order to take advantage of the restructuring
opportunity at New Heights (see Note 12) and entered into an agreement with KTI,
Inc. ("KTI") pursuant to which KTI purchased approximately 1.7 million shares of
Oakhurst's common stock at a price of $0.50 per share. In December 1998, OTI
acquired a 50% equity interest in, and became the managing member of, New
Heights Recovery & Power LLC ("New Heights") which is to re-develop an existing
waste tire recycling facility in Ford Heights, Illinois into a fully integrated
recycling and waste-to-energy facility. Summarized financial information for New
Heights is not presented as New Heights has not completed its evaluation of the
impact of adopting fresh-start accounting upon its emergence from bankruptcy in
December 1998.
The accompanying consolidated financial statements include the accounts
of subsidiaries for which the Company has a greater than 50% ownership interest
and all significant intercompany accounts and transactions have been eliminated
in consolidation.
Use of Estimates:
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principals, which requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Business Activities:
The Company's operations at February 28, 1999 consisted of three
businesses, two of which are primarily engaged in the wholesale distribution
trade to the automotive aftermarket. SCPI is a wholesale distributor
-F6-
<PAGE> 43
operating under the trade name Steel City Products principally selling
automotive accessories, primarily to discount retail chains, hardware and
supermarket retailers and to automotive specialty stores, based mainly in the
Northeastern United States. In fiscal 1996, SCPI also began the wholesale
distribution of non-food pet supplies, primarily to supermarket retailers.
Dowling's is a wholesale distributor of automotive radiators and related parts
mostly serving radiator repair shops in the New York, Connecticut, New Jersey
and greater Philadelphia, Pennsylvania markets. OTI is principally engaged in
investments in the recycling and waste-to-energy business.
For the year ended February 28, 1997, the Company's operations also
included H&H and Puma. H&H was involved in the retail and wholesale distribution
and installation of automotive accessories and cellular phones. Puma was a
wholesale distributor of high quality truck and van conversion products to
automotive and truck converters, restylers and accessories retailers.
Fiscal Year:
The Company's fiscal year ends on the last day of February.
Inventories:
The Company's inventories are stated at the lower of cost or market. In
fiscal 1999 SCPI changed its method of inventory valuation from the last-in
first-out (LIFO) method to the first-in first-out (FIFO) method. The change is
reported as if it were effective on the first day of the Company's fiscal year
1997 (March 1, 1996). The accounting change was made because the Company
believes that this method of accounting will reflect inventory at a value that
more closely represents current costs. Dowling's inventory has been historically
valued using the FIFO method.
The effect of the change in accounting principle was to increase the
net loss reported by $7,000 and $96,000 for fiscal 1998 and 1997, respectively.
There was no effect on the net loss per share for fiscal 1998, and an additional
$0.03 per share for fiscal 1997. The effect of this restatement was to increase
retained earnings (deficit) as of March 1, 1996 by $388,000.
Property and Equipment:
Depreciation and amortization are computed using the straight-line
method. Estimated useful lives used for computing depreciation and amortization
are: leasehold improvements, 3-10 years; and office furniture, warehouse
equipment and vehicles, 3-10 years. Depreciation expense was approximately
$271,000, $278,000 and $493,000 in fiscal 1999, 1998 and 1997, respectively.
Investments:
Oakhurst accounts for investments in affiliated companies with a 20% or
greater ownership interest on the equity basis of accounting and accordingly,
consolidated results of operations include Oakhurst's share of the income or
loss of such affiliated companies. Oakhurst utilizes the cost method of
accounting for investments in which it has less than a 20% ownership interest as
there is no readily determinable market value.
Excess of Cost Over Net Assets Acquired:
The excess of cost over net assets acquired is associated with the
acquisition of Oakhurst's subsidiaries and is amortized over periods ranging
from 15 to 40 years. The unamortized values at February 28, 1999 and 1998, are
net of accumulated amortization of approximately $989,000 and $795,000,
respectively, and relate principally to the acquisition of Dowling's in fiscal
1995.
-F7-
<PAGE> 44
Oakhurst periodically evaluates its long-lived assets to assess whether
the carrying values have been impaired, using the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
Revenue Recognition:
Revenues are recognized at the time products are shipped.
Federal Income Taxes:
Oakhurst accounts for income taxes using an asset and liability
approach to accounting for income taxes. Deferred tax liabilities and assets are
recognized for the future tax consequences of events that have already been
recognized in the financial statements or tax returns. Net deferred tax assets
are recognized to the extent that management believes that realization of such
benefits is considered more likely than not. Changes in enacted tax rates or
laws may result in adjustments to the recorded deferred tax assets or
liabilities in the period that the tax law is enacted (see Note 6).
Stock-Based Compensation:
The Company accounts for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations.
Earnings Per Share:
During fiscal 1998, Oakhurst adopted statement SFAS No. 128, "Earnings
per Share". This standard requires presentation of basic and diluted earnings
per share and restatement of all prior period earnings per share presented.
Basic earnings or loss per share is computed by dividing net earnings or loss by
the weighted average number of common shares outstanding during the year. The
diluted earnings per share calculation assumes the conversion of dilutive stock
options into common shares. Loss per share amounts do not include common stock
equivalents since that would have an antidilutive effect and reduce net loss per
share. At February 28, 1999, there were options to purchase 1,682,357 shares of
common stock outstanding that were not included in the computation of diluted
earnings per share because of the antidilutive effect on the net loss per share.
New Accounting Standards:
As of March 1, 1998, the Company adopted two standards, SFAS No. 130
and 131, "Reporting Comprehensive Income" and "Disclosures about Segments of an
Enterprise and Related Information", respectively. Both of these new standards
relate to the presentation of financial information rather than impacting the
computation of net income or earnings per share. SFAS 130 requires that
companies present "comprehensive income", which in addition to the current
definition of net income includes certain amounts recorded directly in equity.
The adoption of SFAS No. 130 had no effect on the Company's consolidated
financial statements.
SFAS 131 mandates the management approach to identifying business
segments. Under the management approach, segments are defined as the
organizational units that have been established for internal performance
evaluation purposes. In adopting this standard, the Company has defined its
specific business segments. See Note 11 for further information.
In June 1998, the SFAS issued No. 133 "Accounting for Derivative
Instruments and Hedging Activities" which is required to be adopted in years
beginning after June 15, 1999. The Company does not anticipate that the adoption
of SFAS No. 133 will have a significant effect on the financial position or
results of operations of the Company.
-F8-
<PAGE> 45
2. SALE OF SUBSIDIARIES
Effective as of May 31, 1997, Oakhurst entered into an agreement to
sell all of the capital stock of Puma, and in July 1997, Oakhurst entered into
an agreement to sell all of the capital stock of H&H. Because there was no net
realizable value relative to such subsidiaries, the results for fiscal 1997
included a charge related to the disposal of such subsidiaries representing the
net effect of the write-off of the net assets of the subsidiaries and the
related excess of cost over net assets acquired. The results for fiscal 1998
include other income from these two subsidiaries, including recoveries on
certain insurance claims related to H&H.
Effective as of May 31, 1997, the former owner of Puma, who was a
director of Oakhurst until January 1999, acquired the capital stock of Puma in
exchange for his repayment of the revolving debt attributable to Puma of
approximately $400,000, the cancellation of a note payable and an earn-out to
him aggregating $1.2 million, the forgiveness of Oakhurst's intercompany debts
to Puma and the payment by Oakhurst of $50,000. The agreement contains mutual
releases and provided for a payment to Oakhurst in the event of a re-sale of
Puma's stock within one year, equal to 12.5% of the excess of any such sales
price (including debt assumed by an acquirer) over $1 million. The buyer of Puma
also acquired all of the assets relating to SCPI's Wing-Tech division for the
net book value of approximately $170,000. As a result of the sale of Puma,
Oakhurst was relieved of contingent liabilities in respect of Puma's lease and
employment agreement obligations aggregating approximately $500,000.
Effective as of July 14, 1997, a Vice-President of H&H acquired the
capital stock of H&H in exchange for H&H's forgiveness of Oakhurst's
intercompany debt to H&H and the retention by Oakhurst of certain insurance
claims related to H&H. As a result of the sale of H&H, Oakhurst was relieved of
contingent liabilities in respect of H&H's lease and employment obligations
aggregating approximately $900,000.
3. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows (in thousands):
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28,
1999 1998
------------ ------------
<S> <C> <C>
Leasehold improvements......................................... $ 468 $ 451
Office furniture, warehouse equipment and vehicles............. 1,577 1,331
------------ ------------
2,045 1,782
Less accumulated depreciation.................................. (1,344) (1,098)
------------ ------------
$ 701 $ 684
============ ============
</TABLE>
In December 1997, SCPI sold its warehouse in Pittsburgh, Pennsylvania
for a gross sales price of approximately $2.8 million in cash. Accordingly, in
the fourth quarter of fiscal 1998 SCPI recorded a pre-tax gain of approximately
$1.8 million in connection with the sale. After repayment of the term loan
secured by the property, the net proceeds of approximately $1.6 million were
used to reduce revolving debt, to cover the expenses of moving SCPI's operations
to newer, leased premises and to make certain improvements to such premises.
-F9-
<PAGE> 46
4. LINE OF CREDIT AND LONG-TERM OBLIGATIONS
Long-term obligations, including the present value of the Creditor
Notes (see Note 7), consist of the following (in thousands):
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28,
1999 1998
-------------- -------------
<S> <C> <C>
Revolving Credit Agreement due in April 2000 .................................. $ 4,595 $ 4,043
KTI Loan, due April 2001 ...................................................... 3,299 --
Dowling's Notes, due quarterly through March 2001 ............................. 198 286
Capital lease obligations for computer and warehouse equipment,
due monthly through October 2003......................................... 167 27
Creditor Notes (Note 7)........................................................ 147 522
Subordinated loan for leasehold improvements
due monthly through October 2003......................................... 92 --
Other.......................................................................... 62 174
-------------- -------------
8,560 5,052
Less current portion........................................................... (306) (734)
-------------- -------------
$ 8,254 $ 4,318
============== =============
</TABLE>
On March 28, 1996, Oakhurst and its subsidiaries entered into a two
year revolving credit agreement with an institutional lender that provided for a
total facility for Oakhurst and its then subsidiaries of $9.5 million, comprised
of a SCPI term loan of $1.5 million (the "Fixed Asset Loan") secured by a
mortgage on SCPI's real estate and a maximum revolving credit facility of $8
million (the "Revolver") (collectively, the "Credit Facility").
Borrowings under the Credit Facility carried interest at the higher of
the Citibank N.A. base rate plus 1.5%, or $5,000 per month and borrowings under
the Revolver are subject to a borrowing base that is calculated according to
defined accounts receivable and inventory levels of Oakhurst's subsidiaries'
except OTI. The Credit Facility had an initial term of two years and contained
restrictive financial covenants, including among other things, the maintenance
of defined subsidiary and consolidated tangible net worth levels and
consolidated current ratio and limitations on annual cash dividends. The Credit
Facility is secured by the accounts receivable, inventories and fixed assets of
Oakhurst and its subsidiaries,except OTI, contains certain Revolver prepayment
penalties and provides for the payment of loan management fees, unused Revolver
facility fees and examination fees.
In June 1997, Oakhurst and its subsidiaries entered into an agreement
with the lender to amend the Credit Facility to reflect the dispositions of H&H
and Puma. The agreement principally reduced the maximum amount available under
the Revolver to $7 million, subject to a borrowing base, and amended certain
financial covenants, including the elimination of the consolidated tangible net
worth covenant. In September 1997, Oakhurst and its subsidiaries reached an
agreement with the lender to extend the Revolver beyond its initial two year
term to April 1999 and paid a fee of $35,000 in connection with the renewal. The
Credit Agreement provides for subsequent automatic renewal terms of one year
each, upon payment of a renewal fee of 0.5% of the entire line, unless earlier
terminated as provided for in the Agreement. In December 1997, the Fixed Asset
Loan was repaid in full, from the proceeds of the sale of SCPI's warehouse.
In March 1999, the Credit Agreement was renewed to April 2000 and
amended further to increase certain borrowing base percentages, increase the
interest rate to Citibank N.A. base rate plus 2%, and amend the financial
covenants to include a minimum level of Earnings Before Interest Taxes,
Depreciation and Amortization (EBITDA).
At February 28, 1999, the borrowing base under the Revolver was
approximately $4.9 million. During fiscal 1999, the borrowing base ranged from
$4.5 million to $5.5 million, and averaged approximately $5.0 million.
-F10-
<PAGE> 47
The Dowling's Notes were issued in connection with the fiscal 1995
acquisition of Dowling's, bear interest at 6% and provide for repayment in
quarterly installments of $22,000 each, together with accrued interest thereon.
In October 1998, SCPI obtained from the Redevelopment Authority of the
City of McKeesport a low-interest loan (the "Subordinated Loan"), subordinated
to the Credit Facility, in the amount of $98,000 and carrying interest at 5% per
annum. The loan, which funded leasehold improvements at SCPI, is to be repaid in
monthly installments through October 2003.
In December 1998, Oakhurst entered into a Multiple Advance Term Loan
Facility (the "KTI Loan") with KTI pursuant to which KTI committed to loan up to
$11.5 million. Such amount may increase to a maximum of $17 million to the
extent that the funding for the New Heights Business Plan exceeds the minimum
specified therein (see Note 12). The KTI Loan bears interest at a fixed rate of
14%, payable quarterly and is due in its entirety in April 2001. The KTI Loan is
subject to an Intercreditor Agreement between KTI and the institutional lender
of the Credit Facility, and is secured by a pledge of all the capital stock of
OTI, and all of OTI's equity interest in New Heights. As such, funds drawn by
Oakhurst will be invested in OTI to facilitate the funding of the New Heights
Business Plan or related investments.
Long-term obligations mature during each fiscal year as follows (in
thousands):
<TABLE>
<CAPTION>
FISCAL
------
<S> <C>
2000.......................... $ 306
2001.......................... 4,753
2002.......................... 3,386
2003.......................... 70
2004.......................... 45
----------
$ 8,560
==========
</TABLE>
5. FINANCIAL INSTRUMENTS
Financial instruments at February 28, 1999 and 1998 consist of the
following (in thousands):
<TABLE>
<CAPTION>
FEBRUARY 28, 1999 FEBRUARY 28, 1998
---------------------- ---------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
--------- -------- ---------- --------
<S> <C> <C> <C> <C>
Credit Facility............................ $ 4,595 $ 4,595 $ 4,043 $ 4,043
KTI Loan................................... 3,299 3,299 -- --
Note Receivable from Sterling.............. 1,330 1,330 -- --
Creditor Notes............................. 147 295 522 580
Subordinated Loan.......................... 92 92 -- --
</TABLE>
The fair values of the instruments were based upon the rate available
to the Company for instruments of the same maturities.
6. INCOME TAXES
At February 28, 1999, Oakhurst has, for tax reporting purposes,
estimated net operating tax loss carry-forwards of approximately $154 million
which expire in the years 2001 through 2012. Under SFAS No. 109, Oakhurst
records as an asset the estimated future benefit of its net operating tax loss
carry-forwards and other tax benefits.
Fluctuations in market conditions and trends and other changes in the
Company's earnings base, such as subsidiary acquisitions and disposals, warrant
periodic management reviews of the recorded tax asset to determine
-F11-
<PAGE> 48
if an increase or decrease in the recorded valuation allowance is necessary to
change the tax asset to an amount that management believes will more likely than
not be realized.
In fiscal 1997, the Board of Directors of Oakhurst made the decision to
dispose of Puma and H&H, which led to a further increase of approximately $4.9
million in the valuation allowance of the deferred tax asset, with a
corresponding charge to deferred tax expense for the year ended February 28,
1997. In fiscal 1998, the valuation allowance was increased to the full value of
the deferred tax asset, resulting in an additional charge to deferred tax
expense of $701,000 for the year ended February 28, 1998. If future profit
levels exceed current expectations and economic or business changes warrant
upward revisions in the estimate of the realizable value of net operating tax
loss carry-forwards, the consequent reduction in the valuation allowance would
result in a corresponding deferred tax benefit in future results of operations
to the extent of the aggregate charges of approximately $8 million to deferred
tax expense for fiscal 1998, 1997 and 1996, and any benefit in excess of such
charge would be reflected as an addition to paid-in capital. The accounting
treatment to increase paid-in capital results from SCPI's quasi-reorganization
accounting in fiscal 1990.
The deferred tax effects of temporary differences are not significant,
and current income taxes payable represent state income taxes.
Income tax expense consists of the following (in thousands):
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Current tax expense......................... $ 4 $ 313 $ 12
Current tax benefit from utilization of
net operating tax loss carryforwards...... -- (297) --
------------ ------------ ------------
4 16 12
Increase in valuation allowance
of the deferred tax asset................. 263 703 4,887
Deferred tax (benefit) expense ............. (263) 297 (1,801)
------------ ------------ ------------
Income tax (benefit) expense................ $ 4 $ 1,016 $ 3,098
============ ============ ============
</TABLE>
The income tax provision differs from the amount using the statutory
federal income tax rate of 34% applied to income or loss from continuing
operations for the following reasons (in thousands):
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1999 1998 1997
------------- ------------ -------------
<S> <C> <C> <C>
Tax (benefit) expense at the U.S.
federal statutory rate.......................... $ (354) $ 204 $ (1,958)
State income tax expense (benefit),
net of refunds and federal benefit.............. 4 11 7
Increase in deferred tax asset
valuation allowance............................. 263 703 4,887
Non-deductible costs.............................. 91 98 162
------------- ------------ -------------
Income tax expense............................ $ 4 $ 1,016 $ 3,098
============= ============ =============
</TABLE>
-F12-
<PAGE> 49
The availability of the net operating tax loss carry-forwards may be
adversely affected by future ownership changes of SCPI or Oakhurst; at this
time, such changes cannot be predicted. Oakhurst's estimated net operating tax
loss carry-forwards at February 28, 1999, expire as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal
------
<S> <C>
2001 .......................... $ 12,000
2002 .......................... 52,000
2003 .......................... 22,000
2004 .......................... 49,000
2005 .......................... 13,000
2010........................... 1,000
2011........................... 2,000
2012 .......................... 3,000
----------
$ 154,000
==========
</TABLE>
7. DISCONTINUED RETAIL OPERATIONS
SCPI disposed of its former Retail Division to Retail Acquisition Corp.
("RAC") in September 1990, when RAC acquired substantially all the assets of the
former division and assumed substantially all of its liabilities. SCPI remained
contingently liable for certain of those liabilities. Subsequently, RAC was
forced into bankruptcy and in fiscal 1993, SCPI participated in a global
settlement pursuant to which SCPI issued $2.5 million of non-interest bearing
notes (the "Creditor Notes") solely for the benefit of contingent creditors. In
return, SCPI and Oakhurst were relieved of any further obligations to contingent
creditors, except for payment on the Creditor Notes.
The Creditor Notes have been discounted using an imputed interest rate
of 7.5%. Imputed interest expense of approximately $9,000, $34,000 and $56,000
is included in results of continuing operations for fiscal 1999, 1998 and 1997,
respectively. In addition, income of $127,000 associated with the expiration of
unpresented Creditor Notes is included in results of continuing operations for
fiscal 1999.
The accompanying statements of cash flows reflect any cash payments
associated with the disposal of the former Retail Division as discontinued
operations.
8. STOCK OPTIONS
In fiscal 1995, the Board of Directors and shareholders approved two
stock option plans, the 1994 Omnibus Stock Plan (the "1994 Omnibus Plan") and
the 1994 Non-Employee Director Stock Option Plan (the "Director Plan"). Under
both plans, the exercise price of the option granted may not be less than the
fair market value of the common stock on the date of the grant and the term of
the grant may not exceed ten years.
The 1994 Omnibus Plan initially provided for the issuance of a maximum
of 350,000 shares of Oakhurst's common stock pursuant to the grant of incentive
stock options to employees of Oakhurst and its subsidiaries and the grant of
non-qualified stock options, stock or restricted stock to employees,
consultants, directors and officers of Oakhurst and its subsidiaries. In fiscal
1998 and 1997 options issuable under the plan were increased by 450,000 and
350,000 options, respectively. The options generally vest over a four year
period and expire ten years from the date of the grant. None of these options
have been exercised.
The Director Plan (a "formula plan") provides for the issuance of up to
100,000 shares of common stock pursuant to options granted to directors who are
not employees of the Company. The plan provides that on every May 1, each
non-employee director holding office on such date shall receive a
fully-exercisable, fully vested, ten year option to purchase 3,000 shares at the
market value on such date. Each director's options expire upon such director's
resignation. None of these options have been exercised.
-F13-
<PAGE> 50
In December 1998, the Board of Directors approved the 1998 Omnibus
Stock Plan (the "1998 Omnibus Plan"). Under the 1998 Omnibus Plan, the exercise
price of the options granted may not be less than the fair market value of the
common stock on the date of grant and the term of the grant may not exceed ten
years. The 1998 Omnibus Plan provides for the issuance of 700,000 shares. The
options generally vest over a three year period. None of the options granted
under the 1998 Omnibus Plan have been exercised.
In fiscal 1992, the Board of Directors granted ten year options to
purchase 194,388 shares of Oakhurst's common stock to key employees and to
certain members of the Board of Directors. The exercise price of the options,
which was equal to the market value of the stock at the date of the grant, was
$2.75 and in fiscal 1996, the exercise price of 49,984 of such options was
reduced to $2.00 per share. These options are fully vested, will remain
exercisable through 2001, and each employee's options expire upon such
employee's resignation.
The following tables summarize the activity under the four plans:
<TABLE>
<CAPTION>
1998 Omnibus Plan(a) 1994 Omnibus Plan(b) Directors Plan Fiscal 1992 Grant(c)
Shares Price range Shares Price range Shares Price range Shares Price range
--------- ------------ ----------- ----------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at 2/96: -- -- 442,584 $ 1.25-3.88 42,000 $ 2.75-3.38 179,395 $ 2.00-2.75
Granted -- -- 49,900 $ 1.16-1.25 15,000 $ 1.22 -- --
Expired -- -- (21,850) $ 12.5-3.88 (9,000) $ 1.22-3.38 (29,992) $ 2.75
--------- ------------ ----------- ----------- --------- ----------- ---------- -----------
Outstanding at 2/97: -- -- 470,634 $ 1.16-3.88 48,000 $ 1.22-3.38 149,400 $ 2.00-2.75
Granted -- -- 466,600 $ 0.88-1.00 12,000 $ 1.00 -- --
Expired -- -- (35,100) $ 1.16-3.88 (3,000) $ 2.75 (20,827) $ 2.00
--------- ------------ ----------- ----------- --------- ----------- ---------- -----------
Outstanding at 2/98: -- -- 902,134 $ 0.88-3.88 57,000 $ 1.00-3.38 128,573 $ 2.00-2.75
Granted 600,000 $ 0.50 -- -- 9,000 $ 0.84 -- --
Expired -- -- (14,350) $ 1.00-3.88 -- -- -- --
--------- ------------ ----------- ----------- --------- ----------- ---------- -----------
Outstanding at 2/99: 600,000 $ 0.50 887,784 $ 0.88-3.88 66,000 $ 0.84-3.38 128,573 $ 2.00-2.75
========= ============ =========== =========== ========= =========== ========== ===========
</TABLE>
(a) Of the 600,000 options issued in fiscal 1999, one third are immediately
exercisable, one third vest in December 1999 and one third vest in December
2000.
(b) Of the options granted in fiscal 1997, 49,500 were immediately exercisable.
Of the options granted in fiscal 1998, 50,000 vested in May 1998 and
305,000 were to vest upon the earlier of the achievement of certain defined
objectives, a change of control of the Company, or the ninth anniversary of
the grant date. Upon consummation of the transaction with KTI in December
1998, the 305,000 options became fully vested.
(c) In December 1998, the options issued under the Fiscal 1992 grant were
extended three years and one month beyond the date of the KTI closing
(December 29, 1998).
-F14-
<PAGE> 51
The following table summarizes information about stock options
outstanding and exercisable at February 28, 1999:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
--------------------------------------- ------------------------
Weighted Weighted Weighted
average average average
Range of remaining exercise exercise
exercise price Number contractual price Number price
per share of shares life (years) per share of shares per share
--------- --------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$0.88 - $3.88 887,784 7.24 $ 1.51 857,484 $ 1.53
$0.50 - $0.50 600,000 9.81 $ 0.50 199,998 $ 0.50
$1.00 - $3.38 66,000 6.86 $ 2.04 66,000 $ 2.04
$2.00 - $2.75 128,573 2.92 $ 2.58 128,573 $ 2.58
----------- ---------
1,682,357 1,252,055
=========== =========
</TABLE>
At February 28, 1998, options were exercisable for 614,882 shares at a
weighted average exercise price of $2.20 per share.
As described in Note 1, the Company accounts for its stock-based compensation
using the intrinsic value method. The net loss during fiscal 1999, 1998 and 1997
would have been increased by $306,000, $50,000 and $34,000 or $0.09, $0.02 and
$0.01 per share, respectively, had the Company used the fair value method to
determine compensation costs instead of the intrinsic value method. The pro
forma adjustments were calculated using the Black-Scholes option pricing model
to value all stock options granted since March 1, 1995 under the following
assumptions in each year:
<TABLE>
<CAPTION>
1999 1998 1997
------- -------- --------
<S> <C> <C> <C>
Risk free interest rate 6.00% 6.00% 6.50%
Expected volatility 93.0% 68.0% 32.0%
Expected life of options 10.00 years 8.33 years 10.00 years
Expected dividends none none none
</TABLE>
9. EMPLOYEE PENSION PLAN
Oakhurst and its subsidiaries maintain a profit-sharing plan ("the Plan")
covering substantially all persons employed by the Company and its subsidiaries,
whereby employees may contribute a percentage of compensation, limited to
maximum allowed amounts under the Internal Revenue Code. The Plan provides for
discretionary employer contributions, the level of which, if any, may vary by
subsidiary and is determined annually by each company's Board of Directors.
Total plan related expense was approximately $33,200, $60,000 and $53,000 in
fiscal 1999, 1998 and 1997, respectively.
10. OPERATING LEASES
The Company leases its subsidiaries' warehouses under operating leases which
expire over the next six years. Generally, the leases are net leases that
require payment by the Company of executory expenses such as real estate taxes,
insurance, maintenance and other operating costs. The leases generally provide
for renewal options. Certain of these leases were with related parties (see Note
16).
-F15-
<PAGE> 52
Minimum annual rentals for all operating leases having initial non-cancelable
lease terms in excess of one year are as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal
------
<S> <C>
2000........................................ $ 595
2001........................................ 555
2002........................................ 525
2003........................................ 365
2003........................................ 149
Thereafter........................................ 62
------
Total future minimum rental payments $2,251
======
</TABLE>
Total rent expense for all operating leases amounted to approximately
$642,000, $443,000 and $703,000 for fiscal 1999, 1998 and 1997, respectively.
11. SEGMENT INFORMATION
The Company historically has operated as a wholesale distributor to the
automotive aftermarket. SCPI, operating under the trade name Steel City
Products, principally sells automotive accessories, primarily to discount retail
chains, hardware and supermarket retailers and to automotive specialty stores.
Its customers are based primarily in the Northeastern United States. Dowling's
is a wholesale distributor of automotive radiators and related parts mostly
serving radiator repair shops in the New York, Connecticut, New Jersey, and
Greater Philadelphia, Pennsylvania markets. OTI was formed in December 1998 and
holds investments principally in the recycling and waste-to-energy business.
Each entity is managed by its own decision makers and is comprised of unique
customers, suppliers and employees. The Company's operations are thereby
organized into the three management segments included in the following table (in
thousands):
<TABLE>
<CAPTION>
=================================================================================================================================
Fiscal 1999
CONSOLIDATED
SEGMENTS SCPI DOWLING'S OTI(a) CORPORATE(b) TOTAL
------- --------- ------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Net sales $18,092 $ 13,568 -- -- $ 31,660
======= ========= ======== ============ ==============
Operating profit (loss) $ 803 $ 200 $ (47) $ (1,290) $ (334)
Interest expense (558)
--------------
Loss before equity investment and income taxes (892)
Net loss in equity affiliate (150) (150)
Income taxes (4)
--------------
Net loss $ (1,046)
==============
Depreciation and amortization $ 120 $ 201 $ 1 $ 215 $ 537
Segment assets $ 6,797 $ 4,083 $ 3,968 $ 2,028 $ 16,876
Investment in equity affiliate -- -- $ 1,125 -- $ 1,125
Capital expenditures $ 178 $ 108 $ 3 $ 8 $ 297
=================================================================================================================================
</TABLE>
-F16-
<PAGE> 53
<TABLE>
<CAPTION>
==============================================================================================================
Fiscal 1998
CONSOLIDATED
SEGMENTS SCPI(c) DOWLING'S CORPORATE(b) TOTAL
------- --------- ------------ --------------
<S> <C> <C> <C> <C>
Net sales $17,879 $ 14,428 -- $ 32,307
======= ========= ============ ==============
Operating profit (loss) $ 2,353 $ 351 $ (1,469) $ 1,235
Interest expense (634)
--------------
Income before taxes 601
Income taxes (1,016)
--------------
Net loss $ (415)
==============
Depreciation and amortization $ 174 $ 215 $ 272 $ 661
Segment assets $ 7,215 $ 4,878 $ 2,223 $ 14,316
Capital expenditures $ 279 $ 55 $ 13 $ 347
==============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
============================================================================================================================
Fiscal 1997
CONSOLIDATED
SEGMENTS SCPI DOWLING'S H&H(d) PUMA(d) CORPORATE(b) TOTAL
---- --------- ------ ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $17,977 $ 14,593 $3,709 $ 5,649 -- $ 41,928
======= ========= ====== ======= ============ ============
Operating profit (loss) $ 653 $ 425 $ (213) $ (197) $ (5,584) $ (4,916)
Interest expense (843)
-------------
Loss before taxes (5,759)
Income taxes (3,098)
-------------
Net loss $ (8,857)
=============
Depreciation and amortization $ 276 $ 258 $ 74 $ 53 $ 546 $ 1,207
Segment assets $ 8,621 $ 5,118 -- -- $ 2,460 $ 16,199
Capital expenditures $ 7 $ 145 $ 16 $ 14 $ 5 $ 187
============================================================================================================================
</TABLE>
(a) OTI was formed in fiscal 1999; the loss in equity affiliate relates to -
OTI's ownership share of New Heights loss from December 1998 to February
1999.
(b) Corporate segment assets are primarily goodwill associated with the
acquisition of Dowling's
(c) In fiscal 1998, SCPI sold its warehouse facility in Pittsburgh,
Pennsylvania and recorded a gain of $1.8 million on the sale. SCPI moved
its operations to a newer, leased facility in McKeesport, Pennsylvania.
(d) H&H and Puma were sold in fiscal 1998 and were reflected as assets held for
sale at the end of fiscal 1997. Fiscal 1997 results reflect a charge of
$3.5 million primarily from the write-off of goodwill associated with the
two subsidiary disposals.
12. COMMITMENTS AND CONTINGENCIES
SCPI has employment agreements with two senior executives that provide
termination rights in the event of a change in control of SCPI, as defined. The
rights include payments ranging from twelve to twenty-four months of the
executives' base salaries, along with continuation of benefits and certain other
payments to each
-F17-
<PAGE> 54
executive. Each agreement also provides for substantially the same provisions in
the event that the executive's employment were to be terminated by SCPI without
cause. The agreements were extended in August 1996 on a year to year basis, and
will continue under the same terms unless a notice of non-renewal is given by
either party 90 days prior to the anniversary date of such renewal or unless
replaced by a new agreement. In fiscal 1999, one SCPI executive entered into a
new employment agreement which provided for termination rights similar to those
described above.
In fiscal 1996, Oakhurst entered into employment agreements with
certain senior executives of Dowling's that provide for certain termination
rights in the event that the executive's employment were to be terminated by
Oakhurst without cause. The employment agreements expire in February 2001.
In December 1998, Oakhurst entered into employment agreements with two
senior executives of Oakhurst that provide for certain termination rights in the
event that the executive's employment were to be terminated by Oakhurst without
cause. The employment agreements expire in February 2001.
Also in December 1998, OTI entered into employment agreements with two
senior executives of OTI that provide for certain termination rights in the
event that the executive's employment were to be terminated by OTI without
cause. The employment agreements expire in February 2001.
In December 1998 the Company's subsidiary, OTI, entered into an
Investment Agreement with New Heights pursuant to which OTI agreed to fund
defined capital expenditures, permitting costs, start-up losses and working
capital of the New Heights waste-to-energy facility in Ford Heights, Illinois,
and to receive in return a 50% equity interest in New Heights. The funding
requirements are specified in a Business Plan that provides for three phases.
Phase One of the Business Plan provides for the removal of approximately 70,000
tons of scrap tires from the New Heights site and the establishment of a crumb
rubber processing facility, and also includes the obligation to establish a
waste paper recycling facility. The funding requirement for Phase One is at
least $4.5 million and not more than $8.5 million. OTI is required to use its
best efforts to implement Phase Two of the Business Plan, subject to approval of
the New Heights Board. Phase Two provides for the permitting and start-up of
waste-to-energy operations, and requires an investment (including the Phase One
investment) of at least $8.5 million and not more than $13.5 million. Phase
Three of the Business Plan provides for the building of an environmental campus
at New Heights, requiring funding of at least $12 million and not more than $17
million (including the Phase One and Two investments). Subject to the
satisfaction of certain conditions precedent (including the obtaining of
permits) if the specified investments are not made by OTI within the time
periods required by the Business Plan, amounts available to Oakhurst under the
KTI Loan may be reduced, and OTI's 50% equity interest in New Heights may be
reduced.
In January 1999, OTI acquired an equity interest of approximately 7% in
Sterling at a cost of $1.35 million, and acquired $1.35 million of Sterling's
convertible subordinated notes. Sterling is a Texas-based pipe laying and road
building contractor. Pursuant to the terms of such acquisition, the original
shareholders of Sterling may require OTI to acquire a further approximate 7%
equity interest at a cost of $1.35 million, upon the achievement of defined
growth objectives. If such objectives are not achieved, OTI may nevertheless
acquire such additional equity shares, at its discretion.
Management is unaware of any other significant contingencies.
13. NOTE RECEIVABLE
As part of OTI's investment in Sterling, OTI acquired $1.35 million of
Sterling's convertible subordinated notes. The note receivable bears interest at
the rate of 8%, payable quarterly, and is due in its entirety on December 31,
2005.
-F18-
<PAGE> 55
The note is convertible into shares of common stock of Sterling, at any
time at the option of OTI.
14. ACQUISITIONS
On March 28, 1996, Dowling's acquired all of the outstanding capital stock
of G&O, a radiator distributor based in Philadelphia, Pennsylvania. The purchase
price of approximately $210,000 consisted of $105,000 in cash, with the balance
in the form of a note payable to the seller. The note carried interest at 7% and
was paid in full on the first anniversary of the acquisition date, together with
interest thereon. The seller continues with G&O under a four year employment
agreement.
In connection with the acquisition, Dowling's entered into a
non-competition agreement with the seller that provided for aggregate payments
of $315,000 over a three-year period that began in March 1996 and for payments
of 7.5% of the defined profits of G&O for the first four years of ownership. The
value of the non-competition agreement has been discounted using an imputed
interest rate of 9.75% and the related asset is being amortized over the life of
the agreement, which is ten years.
The acquisition was accounted for using the purchase method of accounting.
In connection with the acquisition, assets were acquired and liabilities were
assumed as follows (in thousands):
<TABLE>
<S> <C>
Fair value of assets acquired......................... $279
Liabilities assumed................................... 67
-----
Net assets acquired................................ $ 212
=====
</TABLE>
15. CORPORATE REORGANIZATION
Under the 1991 merger (see Note 1) SCPI was required for a period of
five years following the merger to issue to Oakhurst or cancel such number of
shares of Series A Preferred Stock and/or common stock as were necessary, in
accordance with periodic determinations, to maintain Oakhurst's aggregate stock
ownership of SCPI at 90%. Revaluations of SCPI required subsequent to fiscal
1994 have not yet been completed. Management expects that such revaluations,
when complete, will result in a cumulative decrease in the valuation of SCPI and
that additional Series A Preferred shares outstanding and related dividends may
be canceled once the valuations are completed.
During fiscal 1993, the cumulative dividends on SCPI's Series A
Preferred Stock exceeded SCPI's net income for that year, thus creating a loss
attributable to SCPI's common stockholders in excess of Oakhurst's minority
interest and, accordingly, Oakhurst reduced to zero the minority interest
liability related to SCPI. At such time as SCPI's cumulative net income
attributable to common stockholders from the effective date of the merger
exceeds the cumulative Series A Preferred Stock dividends in arrears, Oakhurst
will again reflect the appropriate minority interest liability.
16. RELATED PARTY TRANSACTIONS
In fiscal 1994, H&H entered into a seven-year lease with Harold
Garfinkel, the President and former owner of H&H, for the principal property
from which it conducted its business. The purchaser of H&H assumed all future
obligations under the lease effective as of July 1998. The lease required annual
lease payments of $144,000. H&H paid Mr. Garfinkel $48,000 and $144,000 in
fiscal 1998 and 1997 respectively, under this lease.
In fiscal 1995, Puma entered into a six-year lease with Anthony Puma,
the former Chairman of Puma, and until January 1999, a director of Oakhurst, for
the facility from which it conducted its business. The purchaser of Puma assumed
all future obligations under the lease effective as of May 1998. The lease
required minimum
-F19-
<PAGE> 56
in full on the first anniversary of the acquisition date, together with interest
thereon. The seller continues with G&O under a four year employment agreement.
In connection with the acquisition, Dowling's entered into a
non-competition agreement with the seller that provided for aggregate payments
of $315,000 over a three-year period that began in March 1996 and for payments
of 7.5% of the defined profits of G&O for the first four years of ownership. The
value of the non-competition agreement has been discounted using an imputed
interest rate of 9.75% and the related asset is being amortized over the life of
the agreement, which is ten years.
The acquisition was accounted for using the purchase method of accounting.
In connection with the acquisition, assets were acquired and liabilities were
assumed as follows (in thousands):
<TABLE>
<S> <C>
Fair value of assets acquired......................... $279
Liabilities assumed................................... 67
-----
Net assets acquired................................ $ 212
=====
</TABLE>
15. CORPORATE REORGANIZATION
Under the 1991 merger (see Note 1) SCPI was required for a period of
five years following the merger to issue to Oakhurst or cancel such number of
shares of Series A Preferred Stock and/or common stock as were necessary, in
accordance with periodic determinations, to maintain Oakhurst's aggregate stock
ownership of SCPI at 90%. Revaluations of SCPI required subsequent to fiscal
1994 have not yet been completed. Management expects that such revaluations,
when complete, will result in a cumulative decrease in the valuation of SCPI and
that additional Series A Preferred shares outstanding and related dividends may
be canceled once the valuations are completed.
During fiscal 1993, the cumulative dividends on SCPI's Series A
Preferred Stock exceeded SCPI's net income for that year, thus creating a loss
attributable to SCPI's common stockholders in excess of Oakhurst's minority
interest and, accordingly, Oakhurst reduced to zero the minority interest
liability related to SCPI. At such time as SCPI's cumulative net income
attributable to common stockholders from the effective date of the merger
exceeds the cumulative Series A Preferred Stock dividends in arrears, Oakhurst
will again reflect the appropriate minority interest liability.
16. RELATED PARTY TRANSACTIONS
In fiscal 1994, H&H entered into a seven-year lease with Harold
Garfinkel, the President and former owner of H&H, for the principal property
from which it conducted its business. The purchaser of H&H assumed all future
obligations under the lease effective as of July 1998. The lease required annual
lease payments of $144,000. H&H paid Mr. Garfinkel $48,000 and $144,000 in
fiscal 1998 and 1997 respectively, under this lease.
In fiscal 1995, Puma entered into a six-year lease with Anthony Puma,
the former Chairman of Puma, and until January 1999, a director of Oakhurst, for
the facility from which it conducted its business. The purchaser of Puma assumed
all future obligations under the lease effective as of May 1998. The lease
required minimum
-F19-
<PAGE> 57
annual lease payments of approximately $80,000. Puma paid Mr. Puma approximately
$20,000 and $80,000 in fiscal 1998 and 1997 respectively, under this lease.
Two of the Company's senior executives are principals of a private
equity advisory firm that introduced to OTI the investment in Sterling. Upon
making the investment, OTI paid the advisory firm a customary introduction fee
of $40,000 and granted the advisory firm a participation in any gain on the
eventual sale of the investment, in both cases at the same rates as paid or
granted by other investors in the transaction. A similar fee and related equity
interest will be due in the event that a further equity investment is made in
Sterling by OTI (see Note 12).
-F20-
<PAGE> 58
SCHEDULE II
OAKHURST COMPANY, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE AT CHARGED CHARGES TO BALANCE
BEGINNING TO COSTS OTHER ACCOUNTS DEDUCTIONS AT END
DESCRIPTION OF PERIOD AND EXPENSES - DESCRIBE - DESCRIBE OF PERIOD
============================================================================================================================
Allowance for doubtful accounts deducted
from trade accounts receivable:
Years ended:
<S> <C> <C> <C> <C> <C>
February 28, 1999..................... $ 461 101 $ - $ 174(A) $ 388
========== =========== ============ =========== ============
February 28, 1998..................... $ 555 165 $ - $ 259(A) $ 461
========== =========== ============ =========== ============
February 28, 1997..................... $ 558 102 $ - $ 105(A) $ 555
========== =========== ============ =========== ============
</TABLE>
(A) Amounts were deemed uncollectible.
-F21-
<PAGE> 59
INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
2.1 Agreement and Plan of Merger dated as of May 20, 1991 (filed
as Appendix A to the Proxy Statement/Prospectus dated April
16, 1991 of the Company and Steel City Products, Inc.).
3.1 Restated and Amended Certificate of Incorporation (filed as
Exhibit 3 to the Company's Quarterly Report on Form 10-K for
the fiscal quarter ended August 31, 1996).
3.2 By-laws - as amended through January 13, 1998.
4.1 Agreement and Plan of Merger dated as of May 20, 1991 (see
Exhibit 2, above).
4.2 Certificate of Designations of Series A Junior Participating
Preferred Stock dated as of February 10, 1998 - filed as
exhibit 4.2 to company's annual report on form 10-k for the
fiscal year ended February 28, 1998.
<PAGE> 60
/10.1 Form of Option Agreement dated August 29, 1991 with directors
and executive officers (filed as Exhibit 10(b) to the
Company's Annual report on Form 10-K for the fiscal year ended
February 29, 1992).
10.3 Purchase and Sale Agreement relating to the acquisition of
Dowling's Fleet Service Company, Inc. by Oakhurst Capital,
Inc., also containing employment agreements with Robert Keane
and Joseph Quattrochi (filed as Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the period ended August 27,
1994).
10.4 Lease agreements by and between James Dowling and Dowling's
Fleet Service Company, Inc. (filed as Exhibit 10.13 to the
Company's Annual Report on Form 10-K for the fiscal year ended
February 28, 1995).
/10.5 The 1994 Omnibus Stock Plan with form of option agreement
(filed as Exhibit 10.13 to the Company's Annual Report on Form
10-K for the fiscal year ended February 28, 1995).
/10.6 The 1994 Non-Employee director Stock Option Plan with form of
option agreement (filed as Exhibit 10.13 to the Company's
Annual Report on Form 10-K for the fiscal year ended February
28, 1995).
10.7 Loan and Security Agreement; Schedule to Loan and Security
Agreement; Secured Promissory Note with FINOVA Capital
Corporation all dated March 28, 1996 (filed as Exhibit 10.17
to the Company's Annual Report on Form 10-K for the fiscal
year ended February 29, 1996).
10.8 Open-End Mortgage between Steel City Products, Inc. and FINOVA
Capital Corporation dated March 28, 1996 (filed as Exhibit
10.18 to the Company's Annual Report on Form 10-K for the
fiscal year ended February 29, 1996).
10.9 Consulting Agreement with Bryanston Management, Ltd, dated as
of December 19, 1995 (filed as Exhibit 10.19 to the Company's
Annual Report on Form 10-K for the fiscal year ended February
29, 1996).
/10.10 Employment Agreement and Form of Promissory Note between
Dowling's Fleet Service, Co., Inc. and Joseph B. Quattrochi
dated as of March 1, 1996 (filed as Exhibit 10.22 to the
Company's Annual Report on Form 10-K for the fiscal year ended
February 28, 1997).
/10.11 Employment Agreement and Form of Promissory Note between
Dowling's Fleet Service, Co., Inc. and Robert M. Keane dated
as of March 1, 1996 (filed as Exhibit 10.23 to the Company's
Annual Report on Form 10-K for the fiscal year ended February
28, 1997).
10.13 Non-Competition Agreement between G&O Sales Company and Arthur
Gruber dated as of March 12, 1996 (filed as Exhibit 10.25 to
the Company's Annual Report on Form 10-K for the fiscal year
ended February 28, 1997).
/10.14 Amendment to Consulting Agreement and Amended Non-Qualified
Stock Option Agreement between Mark Auerbach and Oakhurst
Company, Inc. dated as of October 1, 1996 (filed as Exhibit
10.26
<PAGE> 61
to the Company's Annual Report on Form 10-K for the fiscal
year ended February 28, 1997).
10.15 Stock Purchase and Sale Agreement between Anthony N. Puma,
Puma Products, Inc. and Oakhurst Company, Inc., dated as of
June 10, 1997 (filed as Exhibit 10.27 to the Company's Annual
Report on Form 10-K for the fiscal year ended February 28,
1997).
10.16 Stock Purchase and Sale Agreement between James Stein, H&H
Distributors, Inc. and Oakhurst Company, Inc., dated as of
July 14, 1997 (filed as Exhibit 10 to the Company's Quarterly
Report on Form 10-Q for the first quarter ended May 31, 1997).
10.17 Agreement of Sale and Purchase by and between Steel City
Products, Inc. and Bearing Service Company of Pennsylvania
dated as of August 18, 1997 (filed as Exhibit 10 to the
Company's Quarterly Report on Form 10-Q for the second quarter
ended August 31, 1997).
10.18 Second, and Third Amendments to the Loan and Security
Agreement between Oakhurst and its subsidiaries and FINOVA
Capital Corporation, dated effective June 1, 1997 and October
31, 1997, respectively. Filed as Exhibit 10.18 to Company's
annual report on Form 10-K for the fiscal year ended February
28, 1998.
10.19 Lease agreement between Regional Industrial Development
Corporation and Steel City Products, Inc. dated as of Nov. 11,
1997. Filed as Exhibit 10.19 to the Company's annual report on
Form 10-K for the fiscal year ended February 28, 1998.
10.20 Rights Agreement, dated as of December 29, 1998 between
Oakhurst Company, Inc. and American Stock Transfer and Trust
Company, including the form of Certificate of Designation, the
form of Rights Certificate and the Summary of Rights attached
thereto as Exhibits A, B and C, respectively. Filed as Exhibit
99.1 to the Company's Registration Statement on Form 8-A filed
on January 5, 1999.
*/10.21 Amendment to the 1994 Omnibus Stock Plan, amended as of
December 18, 1998
*10.22 Fourth Amendment to the Loan and Security Agreement between
Oakhurst and its subsidiaries and FINOVA Capital Corporation,
dated as of December 29, 1998.
*10.23 Investment Agreement among Oakhurst Company, Inc., Oakhurst
Technology, Inc. and KTI, Inc. dated as of December 29, 1998.
*10.24 Intercreditor Agreement among Oakhurst Company, Inc., KTI,
Inc. and FINOVA Capital Corporation dated December 29, 1998.
*10.25 Stock Purchase and Investment Agreement between Oakhurst
Technology, Inc. and Sterling Construction Company dated as of
January 19, 1999.
*10.26 Note Purchase Agreement between Sterling Construction Company
and Oakhurst Technology, Inc. dated as of January 19, 1999.
*/10.27 Employment agreement between Oakhurst Company, Inc. and Robert
M. Davies dated as of December 29, 1998.
*/10.28 Employment agreement between Oakhurst Technology, Inc. and
Robert M. Davies dated as of December 29, 1998.
<PAGE> 62
*/10.29 Employment agreement between Oakhurst Company, Inc. and
Maarten D. Hemsley dated as of December 18, 1998.
*/10.30 Employment agreement between Oakhurst Technology, Inc. and
Maarten D. Hemsley dated as of December 1, 1998.
*18.1 Letter regarding change in accounting principle
21 Subsidiaries at February 28, 1999:
Steel City Products, Inc. - Delaware
Dowling's Fleet Service Co., Inc. - New York
Oakhurst Management Corporation - Texas
Oakhurst Technology, Inc - Delaware
*23 Consent of Deloitte & Touche LLP.
*27 Financial Data Schedule (EDGAR transmission only).
*27.1 Restated Financial Data Schedule for the quarter ended
November 30, 1998 (filed as exhibit #27 to the Company's Form
10-Q for the quarter ended November 30, 1998) (EDGAR
transmission only).
*27.2 Restated Financial Data Schedule for the quarter ended August
31, 1998 (filed as exhibit #27 to the Company's Form 10-Q for
the quarter ended August 31, 1998) (EDGAR transmission only).
*27.3 Restated Financial Data Schedule for the quarter ended May 31,
1998 (filed as exhibit #27 to the Company's Form 10-Q for the
quarter ended May 31, 1998) (EDGAR transmission only).
*27.4 Restated Financial Data Schedule for the year ended February
28, 1998 (filed as exhibit #27 to the Company's Form 10-K for
the year ended February 28, 1998) (EDGAR transmission only).
*27.5 Restated Financial Data Schedule for the quarter ended
November 30, 1997 (filed as exhibit #27 to the Company's Form
10-Q for the quarter ended November 30, 1997) (EDGAR
transmission only).
*27.6 Restated Financial Data Schedule for the quarter ended August
31, 1997 (filed as exhibit #27 to the Company's Form 10-Q for
the quarter ended August 31, 1997) (EDGAR transmission only).
*27.7 Restated Financial Data Schedule for the quarter ended May 31,
1997 (filed as exhibit #27 to the Company's Form 10-Q for the
quarter ended May 31, 1997) (EDGAR transmission only).
*27.8 Restated Financial Data Schedule for the year ended February
28, 1997 (filed as exhibit #27 to the Company's Form 10-K for
the year ended February 28, 1997) (EDGAR transmission only).
- -----------------
/ Management contract or compensatory plan or arrangement.
*filed herewith
<PAGE> 1
EXHIBIT 10.21
OAKHURST CAPITAL, INC.
1994 OMNIBUS STOCK PLAN
-------------------------------------------
1. PURPOSE.
This Oakhurst Capital, Inc. 1994 Omnibus Stock Plan (the "PLAN") is
intended to provide incentives (a) to the officers and other employees of
Oakhurst Capital, Inc. (the "COMPANY"), its parent (if any) and any present
or future subsidiaries of the Company (collectively, "RELATED
CORPORATIONS") by providing them with opportunities to purchase stock in
the Company pursuant to options which qualify as "incentive stock options"
under Section 422 of the Internal Revenue Code of 1986, as amended (the
"CODE"), granted hereunder ("ISO" or "ISOS"); (b) to directors, officers,
employees and consultants of the Company and Related Corporations by
providing them with opportunities to purchase stock in the Company pursuant
to options granted hereunder which do not qualify as ISOs ("NON-QUALIFIED
OPTION" or "NON-QUALIFIED OPTIONS"); and (c) to directors, officers,
employees and consultants of the Company and Related Corporations by
providing them with opportunities to make direct purchases of stock and
restricted stock in the Company ("RESTRICTED STOCK"). Both ISOs and
Non-Qualified Options are referred to hereafter individually as an "OPTION"
and collectively as "OPTIONS". As used herein, the terms "parent" and
"subsidiary" mean "parent corporation" and "subsidiary corporation" as
those terms are defined in Section 425 of the Code.
2. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by the Stock Plans Committee (the
"COMMITTEE") of the Board of Directors of the Company (the "BOARD")
which committee shall consist of at least two directors, each of whom
shall be a "disinterested person" as defined in Rule 16b-3 under the
Exchange Act. Subject to ratification of the grant of each Option or
award of stock by the Board (if so required by applicable state law),
and subject to the terms of the Plan, the Committee, shall have the
authority (i) to determine the employees of the Company and Related
Corporations (from among the class of employees eligible under
Paragraph 3 to receive ISOs) to whom ISOs may be granted, and to
determine (from among the class of individuals and entities eligible
under Paragraph 3 to receive Non-Qualified Options and Restricted
Stock) to whom Non-Qualified Options or Restricted Stock may be
granted; (ii) to determine the time or times at which Options or
Restricted Stock may be granted; (iii) to determine the option price
of shares subject to each Option, which price shall not be less than
the minimum specified in Paragraph 6, and the purchase price of
Restricted Stock; (iv) to determine whether each Option granted shall
be an ISO or a Non-Qualified Option; (v) to determine (subject to
Paragraph 7) the time or times when each Option shall become
exercisable and the duration of the exercise period; (vi) to determine
whether restrictions, such as repurchase options, are to be imposed on
shares subject to Options and Restricted Stock, and the nature of such
restrictions, if any; and (vii) to interpret the Plan and prescribe
and rescind rules and regulations relating to it. In the case of
Restricted Stock subject to restrictions that lapse over time, the
minimum period of such restriction must be three years, but if the
restrictions lapse upon the achievement of a performance goal no such
limitation shall apply. If the Committee determines to issue a
Non-Qualified Option, it shall take whatever actions it deems
necessary, under Section 422 of the Code and the regulations
promulgated thereunder, to ensure that such Option is not treated as
an ISO. The interpretation and construction by the Committee of any
provisions of the Plan or of any Option or authorization or agreement
for Restricted Stock granted under it shall be final unless
Page 1 of 9
<PAGE> 2
OAKHURST CAPITAL, INC. 1994 OMNIBUS STOCK PLAN - Continued
-----------------------
otherwise determined by the Board. The Committee may from time to time
adopt such rules and regulations for carrying out the Plan as it may
deem best. No member of the Board or the Committee shall be liable for
any action or determination made in good faith with respect to the
Plan or any Option or Restricted Stock granted under it.
(b) The Committee may select one of its members as its chairman, and shall
hold meetings at such time and places as it may determine. Acts by a
majority of the Committee, or acts reduced to or approved in writing
by a majority of the members of the Committee, shall be the valid acts
of the Committee. All references in the Plan to the Committee shall
mean the Board if there is no Committee so appointed. From time to
time the Board may increase the size of the Committee and appoint
additional members thereof, remove members (with or without cause),
and appoint new members in substitution therefor, fill vacancies
however caused, or remove all members of the Committee and thereafter
directly administer the Plan.
3. ELIGIBLE EMPLOYEES AND OTHERS.
ISOs may be granted to any officer or other employee of the Company or any
Related Corporation. Those directors of the Company who are not employees
may not be granted ISOs under the Plan. Non-Qualified Options and
Restricted Stock may be granted to any director (whether or not an
employee), officer, employee or consultant of the Company or any Related
Corporation. The Committee may take into consideration an optionee's
individual circumstances in determining whether to grant an ISO or a
Non-Qualified Option or Restricted Stock. Granting of any Option or
Restricted Stock to any individual or entity shall neither entitle that
individual or entity to, nor disqualify him from, participation in any
other grant of Options or Restricted Stock.
4. STOCK.
The stock subject to Options and Restricted Stock shall be authorized but
unissued shares of Common Stock of the Company, par value $.01 per share
(the "COMMON STOCK"), or shares of Common Stock re-acquired by the Company
in any manner. The aggregate number of shares which may be issued pursuant
to the Plan is 920,000, subject to adjustment as provided in Paragraph 13.
Any such shares may be issued as ISOs, Non-Qualified Options or Restricted
Stock so long as the aggregate number of shares so issued does not exceed
such number, as adjusted. If any Option granted under the Plan shall expire
or terminate for any reason without having been exercised in full or shall
cease for any reason to be exercisable in whole or in part, or if any
Restricted Stock shall be reacquired by the Company by exercise of its
repurchase option, the shares subject to such expired or terminated Option
and reacquired shares of Restricted Stock shall again be available for
grants of Options or Restricted Stock under the Plan.
5. GRANTS UNDER THE PLAN.
Options or Restricted Stock may be granted under the Plan at any time on or
after April 29, 1994 and prior to the close of business on April 29, 2004.
Any such grants of ISOs shall be subject to the receipt, within 12 months
of April 29, 1994, of the approval of Stockholders as provided in Paragraph
17. The date of grant of an Option under the Plan will be the date
specified by the Committee at the time it awards the Option; provided,
however, that such date shall not be prior to the date of award. The
Committee shall have the right, with the consent of the optionee, to
convert an ISO granted under the Plan to a Non-Qualified Option pursuant to
Paragraph 15.
Page 2 of 9
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OAKHURST CAPITAL, INC. 1994 OMNIBUS STOCK PLAN - Continued
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6. MINIMUM OPTION PRICE: ISO LIMITATIONS.
(a) The price per share specified in the agreement relating to each option
granted under the Plan shall not be less than the fair market value
per share of Common Stock on the date of such grant. In the case of an
ISO to be granted to an employee owning stock possessing more than ten
percent of the total combined voting power of all classes of stock of
the Company or any Related Corporation, the price per share specified
in the agreement relating to such ISO shall not be less than 110
percent of the fair market value of Common Stock on the date of grant.
(b) In no event shall the aggregate fair market value (determined at the
time the option is granted) of Common Stock for which ISOs granted to
any employee are exercisable for the first time by such employee
during any calendar year (under all stock option plans of the Company
and any Related Corporation) exceed $100,000.
(c) If, at the time an Option is granted under the Plan, the Company's
Common Stock is publicly traded, "fair market value" shall be
determined on the date of grant and shall mean (i) the average (on
that date) of the high and low prices of the Common Stock on the
principal national securities exchange on which the Common Stock is
traded, if such stock is then traded on a national securities
exchange; or (ii) the last reported sale price (on that date) of the
Common Stock on the Nasdaq National Market System or Small Cap Market,
if the Common Stock is not then traded on a national securities
exchange; or (iii) the closing bid price (or average of bid prices)
last quoted (on that date) by an established quotation service for
over- the-counter securities, if the Common Stock is not reported on
the Nasdaq National Market System, the Nasdaq Small Cap Market or on a
national securities exchange. However, if the Common Stock is not
publicly traded at the time an Option is granted under the Plan, "fair
market value" shall be deemed to be the fair value of the Common Stock
as determined by the Committee after taking into consideration all
factors which it deems appropriate, including, without limitation,
recent sale and offer prices of the Common Stock in private
transactions negotiated at arm's length.
7. OPTION DURATION.
Subject to earlier termination as provided in Paragraphs 9 and 10, each
Option shall expire on the date specified by the Committee, but not more
than ten years from the date of grant and in the case of ISOs granted to an
employee owning stock possessing more than ten percent of the total
combined voting power of all classes of stock of the Company or any Related
Corporation, not more than five years from date of grant. Subject to
earlier termination as provided in Paragraphs 9 and 10, the term of each
ISO shall be the term set forth in the original instrument granting such
ISO, except with respect to any part of such ISO that is converted into a
Non-Qualified Option pursuant to Paragraph 15.
8. EXERCISE OF OPTIONS.
Subject to the provisions of Paragraphs 9 through 12, each Option granted
under the Plan shall be exercisable as follows:
(a) The Option shall either be fully exercisable on the date of grant or
shall become exercisable in such installments as the Committee may
specify.
Page 3 of 9
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OAKHURST CAPITAL, INC. 1994 OMNIBUS STOCK PLAN - Continued
-----------------------
(b) Once an installment becomes exercisable it shall remain exercisable
until expiration or termination of the Option, unless otherwise
specified by the Committee.
(c) Each Option or installment may be exercised at any time or from time
to time, in whole or in part, for up to the total number of shares
with respect to which it is then exercisable.
(d) The Committee shall have the right to accelerate the date of exercise
of any installment; provided that the Committee shall not accelerate
the exercise date of any installment of any Option granted to any
employee as an ISO (and not previously converted into a Non-Qualified
Option pursuant to Paragraph 15) if such acceleration would violate
the annual vesting limitation contained in Section 422(d) of the Code
which provides generally that the aggregate fair market value
(determined at the time the option is granted) of the stock with
respect to which ISOs granted to any employee are exercisable for the
first time by such employee during any calendar year (under all plans
of the Company and any Related Corporation) shall not exceed $100,000.
9. TERMINATION OF EMPLOYMENT.
If an ISO optionee ceases to be employed by the Company or any Related
Corporation other than by reason of death or disability as provided in
Paragraph 10, no further installments of his ISOs shall become exercisable,
and his ISOs shall terminate no later than after the passage of 60 days
from the date of termination of his employment, but in no event later than
on their specified expiration dates, provided however, that to the extent
that such ISOs (or unexercised installments thereof) are or have been
converted into Non-Qualified Options pursuant to Paragraph 15, the
Committee or an employment agreement relating to such optionee may provided
for their continuation after termination of employment. Leave of absence
with the written approval of the Committee shall not be considered an
interruption of employment under the Plan, provided that such written
approval contractually obligates the Company or any Related Corporation to
continue the employment of the employee after the approved period of
absence. Employment shall also be considered as continuing uninterrupted
during any other bona fide leave of absence (such as those attributable to
illness, military obligations or governmental service) provided that the
period of such leave does not exceed 90 days or, if longer, any period
during which such optionee's right to reemployment is guaranteed by
statute. Nothing in the Plan shall be deemed to give any grantee of any
Option or Restricted Stock the right to be retained in employment or other
service by the Company or any Related Corporation for any period of time.
ISOs granted under the Plan shall not be affected by any change of
employment within or among the Company and Related Corporations, so long as
the optionee continues to be an employee of the Company or any Related
Corporation. In granting any Option, the Committee may specify that it
shall be subject to such termination or cancellation provisions as the
Committee may determine, provided that in the case of ISOs such provisions
do not conflict with the requirements for qualification as an ISO.
10. DEATH; DISABILITY; DISSOLUTION.
(a) If an optionee ceases to be employed by the Company and all Related
Corporations by reason of his death, any ISO of his may be exercised,
to the extent of the number of shares with respect to which he could
have exercised it on the date of his death, by his estate, personal
representative or beneficiary who has acquired the Option by will or
by the laws of descent and distribution, at any time prior to the
earlier of the Option's specified expiration date or 180 days from the
date of the optionee's death. The Committee may make such other or
different
Page 4 of 9
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OAKHURST CAPITAL, INC. 1994 OMNIBUS STOCK PLAN - Continued
-----------------------
provisions regarding ISOs that have been converted to Non-Qualified
Options or that were originally issued as Non-Qualified Options as it
may determine.
(b) If an optionee ceases to be employed by the Company and all Related
Corporations by reason of his disability, he shall have the right to
exercise any Option held by him on the date of termination of
employment, to the extent of the number of shares with respect to
which he could have exercised it on that date, at any time prior to
the earlier of the Option's specified expiration date or 180 days from
the date of the termination of the optionee's employment. The
Committee may make such other or different provisions regarding ISOs
that have been converted to Non-Qualified Options or that were
originally issued as Non-Qualified Options as it may determine. For
the purposes of the Plan, the term "disability" shall have the meaning
assigned to it in Section 22(e)(3) of the Code or any successor
statute.
(c) In the case of a partnership, corporation or other entity holding a
Non-Qualified Option, if such entity is dissolved, liquidated, becomes
insolvent or enters into a merger or acquisition with respect to which
such optionee is not the surviving entity, such Option shall terminate
immediately.
11. ASSIGNABILITY.
No Option shall be assignable or transferable by the optionee except by
will or by the laws of descent and distribution, and during the lifetime of
the Optionee each Option shall be exercisable only by him.
12. TERMS AND CONDITIONS OF OPTIONS.
Options shall be evidenced by instruments (which need not be identical) in
such forms as the Committee may from time to time approve. Such instruments
shall conform to the terms and conditions set forth in Paragraphs 6 through
11 hereof and may contain such other provisions as the Committee deems
advisable which are not inconsistent with the Plan, including transfer and
repurchase restrictions applicable to shares of Common Stock issuable upon
exercise of Options. The Committee may from time to time confer authority
and responsibility on one or more of its own members and/or one or more
officers of the Company to execute and deliver such instruments. The proper
officers of the Company are authorized and directed to take any and all
action necessary or advisable from time to time to carry out the terms of
such instruments.
13. ADJUSTMENTS.
Upon the happening of any of the following described events, an optionee's
rights with respect to Options granted to him hereunder shall be adjusted
as hereinafter provided:
(a) In the event shares of Common Stock shall be sub-divided or combined
into a greater or smaller number of shares or if, upon a merger,
consolidation, reorganization, split-up, liquidation, combination,
recapitalization or the like of the Company, the shares of Common
Stock shall be exchanged for other securities of the Company or of
another corporation, each optionee shall be entitled, subject to the
conditions herein stated, to purchase such number of shares of common
stock or amount of other securities of the Company or such other
corporation as were exchangeable for the number of shares of Common
Stock which such optionee would have been entitled to purchase except
for such action, and appropriate
Page 5 of 9
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OAKHURST CAPITAL, INC. 1994 OMNIBUS STOCK PLAN - Continued
-----------------------
adjustments shall be made in the purchase price per share to reflect
such subdivision, combination, or exchange.
(b) In the event the Company shall issue any of its shares as a stock
dividend upon or with respect to the shares of stock of the class
which shall at the time be subject to option hereunder, each optionee
upon exercising an Option shall be entitled to receive (for the
purchase price paid upon such exercise) the shares as to which he is
exercising his Option and, in addition thereto (at no additional
cost), such number of shares of the class or classes in which such
stock dividend or dividends were declared or paid, and such amount of
cash in lieu of a fractional share, as he would have received if he
had been the holder of the shares as to which he is exercising his
Option at all times between the date of grant of such Option and the
date of its exercise.
(c) Notwithstanding the foregoing, any adjustments made pursuant to
subparagraph (a) or (b) shall be made only after the Committee, after
consulting with counsel for the Company, determines whether such
adjustments with respect to ISOs will constitute a "modification" of
such ISOs as that term is defined in Section 425 of the Code, or cause
any adverse tax consequences for the holders of such ISOs. No
adjustments shall be made for dividends paid in cash or in property
other than securities of the Company.
(d) No fractional shares shall actually be issued under the Plan. Any
fractional share which, but for this subparagraph (d), would have been
issued to an optionee pursuant to an Option, shall be deemed to have
been issued and immediately sold to the Company for its fair market
value, and the optionee shall receive from the Company cash in lieu of
such fractional share.
(e) Upon the happening of any of the foregoing events described in
subparagraphs (a) or (b) above, the class and aggregate number of
shares set forth in Paragraph 4 hereof which are subject to Options
which previously have been or subsequently may be granted under the
Plan shall also be appropriately adjusted to reflect the events
specified in such subparagraphs. The Committee shall determine the
specific adjustments to be made under this Paragraph 13, and subject
to Paragraph 2, its determination shall be conclusive.
14. MEANS OF EXERCISING OPTIONS.
An Option (or any part or installment thereof) shall be exercised by giving
written notice to the Company at its principal office address. Such notice
shall identify the Option being exercised (by grant date) and specify the
number of shares as to which such Option is being exercised, accompanied by
full payment of the purchase price therefor either (i) in United States
dollars in cash or by check, or (ii) at the discretion of the Committee,
through delivery of shares of Common Stock having fair market value equal
as of the date of the exercise to the cash exercise price of the Option, or
(iii) at the discretion of the Committee, by delivery of the optionee's
personal recourse note bearing interest payable not less frequently than
annually at no less than the lowest applicable federal rate, as defined in
Section 1274(d) of the Code, or (iv) at the discretion of the Committee, by
any combination of (i), (ii) and (iii) above. If the Committee exercises
its discretion to permit payment of the exercise price of an ISO by means
of the methods set forth in clauses (ii) or (iii) of the preceding
sentence, such discretion shall be exercised in writing at the time of the
grant of the ISO in question. The holder of an Option shall not have the
rights of a shareholder with respect to the shares covered by his Option
until the date of issuance of a stock certificate to him for such
Page 6 of 9
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OAKHURST CAPITAL, INC. 1994 OMNIBUS STOCK PLAN - Continued
-----------------------
shares. Except as expressly provided above in Paragraph 13 with respect to
change in capitalization and stock dividends, no adjustment shall be made
for dividends or similar rights for which the record date is before the
date such stock certificates is issued.
15. CONVERSION OF ISOS INTO NON-QUALIFIED OPTIONS: TERMINATION OF ISOS.
The Committee, at the written request of any optionee, may in its
discretion take such actions as may be necessary to convert such optionee's
ISOs (or any installments or portions of installments thereof) that have
not been exercised on the date of conversion into Non-Qualified Options at
any time prior to the expiration of such ISOs, regardless of whether the
optionee is an employee of the Company or a Related Corporation at the time
of such conversion. Such actions may include, but not be limited to,
extending the exercise period or, subject to Stockholder approval, reducing
the exercise price of the appropriate installments of such Options. At the
time of such conversion, the Committee (with the consent of the optionee)
may impose such conditions on the exercise of the resulting Non-Qualified
Options as the Committee in its discretion may determine, provided that
such conditions shall not be inconsistent with the Plan. Nothing in the
Plan shall be deemed to give any optionee the right to have such optionee's
ISOs converted into Non-Qualified Options, and no such conversion shall
occur until and unless the Board takes appropriate action. The Committee,
with the consent of the optionee, may also terminate any portion of any ISO
that has not been exercised at the time of such termination.
16. RESTRICTED STOCK.
Each Grant of Restricted Stock under the Plan shall be evidenced by an
instrument (a "RESTRICTED STOCK AGREEMENT") in such form as the Committee
shall prescribe from time to time in accordance with the Plan and shall
comply with the following terms and conditions, and with such other terms
and conditions as the Committee, in its discretion, shall establish:
(a) The Committee shall determine the number of shares of Common Stock to
be issued to an eligible person pursuant to the grant of Restricted
Stock, and the extent, if any, to which they shall be issued in
exchange for cash, other consideration, or both.
(b) Shares issued pursuant to a grant of Restricted Stock may not be sold,
assigned, transferred, pledged or otherwise disposed of, except by
will or the laws of descent and distribution, or as otherwise
determined by the Committee in the Restricted Stock Agreement, for
such period as the Committee shall determine, from the date on which
the Restricted Stock is granted (the "RESTRICTED PERIOD"). The Company
will have the option to repurchase the Common Stock at such price as
the Committee shall have fixed in the Restricted Stock Agreement which
option will be exercisable (i) if the Participant's continuous
employment or performance of services for the Company and the Related
Corporations shall terminate prior to the expiration of the Restricted
Period, (ii) if, on or prior to the expiration of the Restricted
Period or the earlier lapse of such repurchase option, the Participant
has not paid to the Company an amount equal to any federal, state,
local or foreign income or other taxes which the Company determines is
required to be withheld in respect of such Restricted Stock, or (iii)
under such other circumstances as determined by the Committee in its
discretion. Such repurchase option shall be exercisable on such terms,
in such manner and during such period as shall be determined by the
Committee in the Restricted Stock Agreement. Each certificate for
shares issued as Restricted Stock shall bear an appropriate legend
referring to the foregoing repurchase option and other restrictions;
shall be deposited by the Stockholder with the
Page 7 of 9
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OAKHURST CAPITAL, INC. 1994 OMNIBUS STOCK PLAN - Continued
-----------------------
Company, together with a stock power endorsed in blank; or shall be
evidenced in such other manner permitted by applicable law as
determined by the Committee in its discretion. Any attempt to dispose
of any such shares in contravention of the foregoing repurchase option
and other restrictions shall be null and void and without effect. If
shares issued as Restricted Stock shall be repurchased pursuant to the
repurchase option described above, the Stockholder, or in the event of
his death, his personal representative, shall forthwith deliver to the
Secretary of the Company the certificates for the shares, accompanied
by such instrument of transfer, if any, as may reasonably be required
by the Secretary of the Company. If the repurchase option described
above is not exercised by the Company, such repurchase option and the
restrictions imposed pursuant to the first sentence of this
subparagraph (b) shall terminate and be of no further force and
effect.
(c) If a person who has been in continuous employment or performance of
services for the Company or a Related Corporation since the date on
which Restricted Stock was granted to him shall, while in such
employment or performance of services, die, or terminate such
employment or performance of services by reason of disability or by
reason of early, normal or deferred retirement under an approved
retirement program of the Company or a Related Corporation (or such
other plan or arrangement as may be approved by the Committee in its
discretion, for this purpose) and any of such events shall occur after
the date on which the Restricted Stock was granted to him and prior to
the end of the Restricted Period, the Committee may determine to
cancel the repurchase option (and any and all other restrictions) on
any or all of the shares of Restricted Stock; and the repurchase
option shall become exercisable at such time only as to the remaining
shares, if any.
17. TERM AND AMENDMENT OF PLAN.
(a) The Plan was adopted by the Board on April 29, 1994, subject to
approval of the Plan by the holders of a majority of the outstanding
voting stock of the Company. The Plan shall expire at the close of
business on April 29, 2004 (except as to Options and Restricted Stock
outstanding on that date). Subject to the provisions of Paragraph 5
above, Options and Restricted Stock may be granted under the Plan by
the Committee, prior to the date of Stockholder approval of the Plan.
If the approval of Stockholders is not obtained by April 29, 1995, any
grants of Options or Restricted Stock under the Plan made prior to
that date will be rescinded.
(b) The Board may terminate or amend the Plan in any respect at any time
subject to the provisions of Paragraph 17(c).
(c) Except as provided in the last sentence of Paragraph 17(a), in no
event may action of the Board or Stockholders alter or impair the
rights of an optionee or purchaser of Restricted Stock without his
consent, under any Option or Restricted Stock previously granted to
him.
18. APPLICATION OF FUNDS.
The proceeds received by the Company from the sale of shares pursuant to
Options and Restricted Stock authorized under the Plan shall be used for
general corporate purposes.
Page 8 of 9
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OAKHURST CAPITAL, INC. 1994 OMNIBUS STOCK PLAN - Continued
-----------------------
19. GOVERNMENTAL REGULATION.
The Company's obligation to sell and deliver shares of the Common Stock
under the Plan is subject to the approval of any governmental authority
required in connection with the authorization, issuance or sale of such
shares.
20. WITHHOLDING OF ADDITIONAL INCOME TAXES.
The Company, in accordance with the Code, may, upon exercise of a
Non-Qualified Option or the purchase of Common Stock for less than its fair
market value or the lapse of restrictions on Restricted Stock or the making
of a Disqualifying Disposition (as defined in Paragraph 21) require the
employee to pay additional withholding taxes in respect of the amount that
is considered compensation includible in such person's gross income.
21. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION.
Each employee who receives ISOs shall agree to notify the Company in
writing immediately after the employee makes a disqualifying disposition of
any Common Stock received pursuant to the exercise of an ISO (a
"DISQUALIFYING DISPOSITION"). Disqualifying Disposition means any
disposition (including any sale) of such stock before the later of (a) two
years after the employee was granted the ISO under which he acquired such
stock, or (b) one year after the employee acquired such stock by exercising
such ISO. If the employee has died before such stock is sold, these holding
period requirements do not apply and no Disqualifying Disposition will
thereafter occur.
22. COMPLIANCE WITH REGULATIONS. With respect to persons subject to Section 16
of the Securities Exchange Act of 1934 (the "1934 Act"), it is the
Company's intent that transactions under this Plan comply with all
applicable conditions of Rule 16b-3 under the 1934 Act (or any successor or
amended version thereof) and any applicable Securities and Exchange
Commission interpretations thereof. To the extent that any provision of the
Plan or action by the plan administrator fails to so comply, it shall be
deemed null and void to the extent permitted by law and deemed advisable by
the plan administrators.
23. GOVERNING LAWS; CONSTRUCTION.
The validity and construction of the Plan and the instruments evidencing
Options and Restricted Stock shall be governed by the laws of the State of
Delaware. In construing the Plan, the singular shall include the plural and
the masculine gender shall include the feminine and neuter, unless the
context otherwise requires.
Adopted by the Board of Directors this 29th day of April 1994
Approved by Stockholders on July 19, 1994
Amended by the Board of Directors on July 19, 1994 and December 18, 1995
Approved by Stockholders on July 18, 1996
Amended by the Board of Directors on July 18, 1997;
January 13, 1998; and December 18, 1998
Page 9 of 9
<PAGE> 1
EXHIBIT 10.22
FOURTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THIS FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "Amendment"),
dated as of December 29, 1998, is entered into between FINOVA CAPITAL
CORPORATION, a Delaware corporation ("FINOVA"), and Oakhurst Company, Inc., a
Delaware corporation ("Oakhurst"), Steel City Products, Inc., a Delaware
corporation ("SCPI"), Dowling's Fleet Service Co., Inc., a New York corporation
("DFS"), Oakhurst Management Corporation, a Texas corporation ("OMC"), Oakhurst
Holdings, Inc., a Delaware corporation ("OH"), and G & O Sales Company, a
Pennsylvania corporation ("G&O"), jointly and severally (individually, a
"Borrower" and collectively "Borrowers").
RECITALS
A. Borrowers and FINOVA have previously entered into that certain Loan
and Security Agreement dated as of March 28, 1996, as amended by that certain
First Amendment to Loan and Security Agreement dated as of June, 1996, that
certain Second Amendment to Loan and Security Agreement effective as of June 1,
1997 and that certain Third Amendment to Loan and Security Agreement effective
as of October 31, 1997(collectively, the "Loan Agreement"), pursuant to which
FINOVA has made certain loans and financial accommodations available to
Borrowers. Terms used herein without definition shall have the meanings ascribed
to them in the Loan Agreement.
B. Borrowers have informed FINOVA that Oakhurst is in the process of (i)
issuing 1,730,056 shares of common stock of Oakhurst, $0.01 par value per share
("Oakhurst Common Stock"), to KTI, Inc., a New Jersey corporation ("KTI"), at a
price of $.50 per share pursuant to the terms and conditions of that certain
Investment Agreement dated as of December 29, 1998 (the "Investment Agreement")
by and among KTI, Oakhurst and Oakhurst Technology, Inc., a Delaware corporation
and a wholly owned subsidiary of Oakhurst ("OTI") and (ii) incurring
subordinated indebtedness from KTI in the initial aggregate amount of Eleven
Million Five Hundred Thousand Dollars ($11,500,000), which amount may be
increased to an amount not to exceed Seventeen Million Dollars ($17,000,000)
(the "KTI Subordinated Indebtedness") pursuant to the terms and conditions of
that certain Letter Loan Agreement dated as of December 29, 1998 by and among
KTI, OTI and Oakhurst (collectively with any and all agreements, documents
and/or instruments executed by Oakhurst or any Affiliate in connection
therewith, the "KTI Financing Agreements"). Borrowers have further informed
FINOVA that Oakhurst intends to use all the proceeds from the issuance of
Oakhurst Common Stock to KTI and the KTI Subordinated Indebtedness to form OTI
and to make additional capital contributions to OTI from time to time and that
the KTI Subordinated Indebtedness will be secured by a pledge of the capital
stock of OTI. OTI will then acquire fifty percent (50%) of the outstanding
capital stock of New Heights Recovery & Power, LLC, a Delaware limited liability
company ("New Heights"), pursuant to an amended plan of reorganization dated as
of November 17, 1998 (the "Plan"). Borrowers hereby acknowledge and confirm that
the incurrence of the KTI Subordinated Indebtedness and the capital
contributions to OTI without the consent of FINOVA would constitute Events of
Default
<PAGE> 2
under the Loan Agreement. Accordingly, Borrowers have requested that FINOVA
consent to and amend the Loan Agreement to reflect the incurrence of the KTI
Subordinated Indebtedness and the capital contributions to OTI by Oakhurst.
C. Lender is willing to give such consent and further amend the Loan
Agreement under the terms and conditions set forth in this Amendment. Borrowers
are entering into this Amendment with the understanding and agreement that,
except as specifically provided herein, none of Lender's rights or remedies as
set forth in the Loan Agreement is being waived or modified by the terms of this
Amendment.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. Consent by FINOVA. Subject to the terms and conditions set forth
herein, FINOVA hereby consents to the incurrence of the KTI Subordinated
Indebtedness by Oakhurst and the capital contributions to OTI by Oakhurst;
provided, however, that (a) any amounts now or hereafter contributed to OTI from
Oakhurst shall be made only from the proceeds of funds received from KTI; (b)
the KTI Subordinated Indebtedness shall not exceed Seventeen Million Dollars
($17,000,000) at any time; (c) KTI shall have entered into a Intercreditor
Agreement with FINOVA, in form and substance satisfactory to FINOVA, which shall
include, without limitation, an agreement by KTI that any payments made with
respect to the KTI Subordinated Indebtedness shall be made only in accordance
with such Intercreditor Agreement; (d) without the prior written consent of
FINOVA, the capital contribution by Oakhurst to OTI contemplated herein shall
not exceed Seventeen Million Dollars ($17,000,000) at any time; (e) the KTI
Subordinated Indebtedness shall be secured only by a pledge of the capital stock
of OTI and shall be incurred without recourse to the Collateral; (f) FINOVA
shall have received fully executed copies of the Investment Agreement and the
KTI Financing Agreements, the terms and conditions of all of which shall be
acceptable to FINOVA and its counsel; (g) the Plan is confirmed by order of the
United States Bankruptcy Court, District of Delaware; (h) KTI shall have entered
into a management agreement with New Heights; and (i) any audit costs or
expenses relating to OTI and incurred by any Borrower shall be promptly and
fully reimbursed by OTI. Borrowers hereby acknowledge that FINOVA has relied
upon information furnished by Borrowers to FINOVA as of the date hereof in
granting the foregoing consent, including copies of the Investment Agreement
Term Sheet, the Investment Agreement and the KTI Financing Agreements provided
by Borrowers to FINOVA. In the event FINOVA after the date hereof shall discover
that any such information was materially incorrect or shall discover additional
relevant facts that cause the information furnished by Borrowers to have been
materially incorrect, FINOVA reserves the right to amend, modify or revoke the
consent set forth herein as FINOVA shall determine.
2. Amendments to the Loan Agreement.
(a) The paragraph under the heading "Indebtedness" set forth in
Section 14 of the Schedule Loan Agreement (entitled "Negative Covenants")
is hereby amended, effective upon satisfaction of the conditions set forth
in paragraph 1 above, to read in its entirety as follows:
"Indebtedness. The Borrower shall not create, incur, assume or permit to
exist any
2
<PAGE> 3
Indebtedness (including Indebtedness in connection with
Capital Leases) in excess of One Hundred Thousand Dollars
($100,000) in the aggregate, in any year without the prior
written consent of FINOVA, other than (i) the Obligations,
(ii) trade payables and other contractual obligations to
suppliers and customers incurred in the ordinary course of
business, (iii) other Indebtedness existing on the date of
this Agreement and reflected in the Prepared Financials
(other Indebtedness paid on the date of this Agreement from
proceeds of the initial advance hereunder), (iv)
Indebtedness incurred by Oakhurst in favor of KTI, in an
amount not to exceed Seventeen Million Dollars ($17,000,000)
at any time, provided, that such Indebtedness shall at all
times be subject to the terms and conditions of the KTI
Intercreditor Agreement, and (v) Indebtedness permitted
under 'Permitted Intercompany Transactions' below."
(b) The following is hereby added as paragraph (o) to
Section 17.1 of the Loan Agreement (entitled "Events of
Default"):
"(o) That certain Investment Agreement dated as of December
29, 1998 among KTI, Oakhurst, and Oakhurst Technology, Inc.
or that certain Letter Loan Agreement dated as of December
29, 1998 among Oakhurst, Oakhurst Technology, Inc. and KTI
or any other agreements, documents or instruments executed
in connection therewith by Oakhurst or any of its Affiliates
is amended, modified or changed in any way without the prior
written consent of FINOVA."
(c) The definition of "Loan Documents" set forth in Section
18.1 of the Loan Agreement (entitled "Defined Terms") is hereby
amended to read in its entirety follows:
"'Loan Documents' means, collectively, this Agreement, any
note or notes executed by the Borrowers and payable to
FINOVA, and any other agreement entered into in connection
with this Agreement, including, without limitation, the KTI
Intercreditor Agreement, together with all alterations,
amendments, changes, extensions, modifications,
refinancings, refundings, renewals, replacements,
restatements, or supplements, of or to any of the
foregoing."
(d) The definition of "Loan Party" set forth in Section
18.1 of the Loan Agreement (entitled "Defined Terms") is hereby
amended to read in its entirety as follows:
"'Loan Party' means the Borrowers, the Validator, KTI, and
each other party, if any (other than FINOVA), to any Loan
Document."
(e) The following definitions are hereby added to Section
18.1 of the Loan Agreement (entitled "Defined Terms") in their
respective alphabetical order:
"'KTI' means KTI, Inc., a New Jersey corporation.
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<PAGE> 4
"'KTI Intercreditor Agreement' means that certain
Intercreditor Agreement dated as of December 29, 1998 among
FINOVA, KTI and Oakhurst."
3. Effectiveness of this Amendment. In addition to the
conditions set forth in paragraph 1 above, FINOVA must have received the
following items, in form and content acceptable to FINOVA, before this
Amendment and the consents provided herein are effective and before FINOVA
is required to extend any credit to Borrowers as provided for by this
Amendment.
(a) Amendment. This Amendment fully executed in a sufficient
number of counterparts for distribution to FINOVA and Borrowers.
(b) Authorizations. Evidence that the execution, delivery and
performance by each Borrower and each guarantor or subordinating
creditor of this Amendment and any instrument or agreement required
under this Amendment have been duly authorized.
(c) Representations and Warranties. The Representations and
Warranties set forth in the Loan Agreement must be true and correct.
Payment of Amendment Fee. Payment by Borrowers to FINOVA of an
amendment fee equal to Fifteen Thousand Dollars ($15,000) in
consideration of the consents and amendment provided herein, which fee
shall be fully earned as of the date hereof and payable on January 4,
1999.
Other Required Documentation. All other documents and legal
matters in connection with the transactions contemplated by this
Agreement shall have been delivered or executed or recorded and shall
be in form and substance satisfactory to FINOVA, including, without
limitation, a certificate of the secretary of each Borrower as to
board resolutions and the incumbency of officers.
4. Fees and Expenses. Borrowers hereby confirm that pursuant to
Section 13.1 of the Loan Agreement, Borrowers shall reimburse FINOVA for
all costs, fees and expenses incurred by FINOVA in connection with the
negotiation, preparation, execution, delivery, administration and
enforcement of this Amendment, including, but not limited to, attorneys'
fees.
5. Representations and Warranties. The Borrowers, jointly and
severally, represent and warrant as follows:
(a) Authority. Each Borrower has the requisite corporate power
and authority to execute and deliver this Amendment, and to perform
its obligations hereunder and under the Loan Documents (as amended or
modified hereby) to which it is a party. The execution, delivery and
performance by each Borrower of this Amendment, and the performance by
each Borrower of each Loan Document (as amended or modified hereby) to
which it is a party have been duly approved by all necessary corporate
action of such Borrower and no other corporate proceedings on the part
of such Borrower are necessary to consummate such transactions;
(b) Enforceability. This Amendment has been duly executed and
delivered by each Borrower. This Amendment and each Loan Document (as
amended or modified
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<PAGE> 5
hereby) is the legal, valid and binding obligation of each Borrower
hereto or thereto, enforceable against such Borrower in accordance
with its terms, and is in full force and effect;
(c) Representations and Warranties. The representations and
warranties contained in each Loan Document (other than any such
representations or warranties that, by their terms, are specifically
made as of a date other than the date hereof) are correct on and as of
the date hereof as though made on and as of the date hereof; and
(d) No Default. No event has occurred and is continuing that
constitutes an Event of Default.
6. Choice of Law. THIS AMENDMENT SHALL BE INTERPRETED IN ACCORDANCE
WITH THE INTERNAL LAWS (AND NOT THE CONFLICT OF LAWS RULES) OF THE STATE OF
ARIZONA GOVERNING CONTRACTS TO BE PERFORMED ENTIRELY WITHIN SUCH STATE. THE
BORROWERS HEREBY CONSENT TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR
FEDERAL COURT LOCATED WITHIN THE COUNTY OF MARICOPA, THE STATE OF ARIZONA
OR, AT THE SOLE OPTION OF FINOVA, IN ANY OTHER COURT IN WHICH FINOVA SHALL
INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER
JURISDICTION OVER THE MATTER IN CONTROVERSY. THE BORROWERS WAIVE ANY
OBJECTION OF FORUM NON CONVENIENS AND VENUE. THE BORROWERS WAIVE PERSONAL
SERVICE OF ANY AND ALL PROCESS UPON THEM, AND CONSENT THAT ALL SUCH SERVICE
OF PROCESS BE MADE IN THE MANNER SET FORTH IN SECTION 19.13 OF THE LOAN
AGREEMENT FOR THE GIVING OF NOTICE. THE BORROWERS FURTHER WAIVE ANY RIGHT
THEY MAY OTHERWISE HAVE TO COLLATERALLY ATTACK ANY JUDGMENT ENTERED AGAINST
THEM.
7. Counterparts. This Amendment may be executed in any number of
counterparts and by different parties and separate counterparts, each of
which when so executed and delivered, shall be deemed an original, and all
of which, when taken together, shall constitute one and the same
instrument. Delivery of an executed counterpart of a signature page to this
Amendment or by telefacsimile shall be effective as delivery of a manually
executed counterpart of this Amendment.
8. Due Execution. The execution, delivery and performance of this
Amendment are within the power of Borrower, have been duly authorized by
all necessary corporate action, have received all necessary governmental
approval, if any, and do not contravene any law or any contractual
restrictions binding on any Borrower.
9. Reference to and Effect on the Loan Documents.
(a) Upon and after the effectiveness of this Amendment, each
reference in the Loan Agreement to "this Agreement", "hereunder",
"hereof" or words of like import referring to the Loan Agreement, and
each reference in the other Loan Documents to "the Loan Agreement",
"thereof" or words of like import referring to the Loan Agreement,
shall
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<PAGE> 6
mean and be a reference to the Loan Agreement as modified and amended
hereby.
(b) Except as specifically amended above, the Loan Agreement and
all other Loan Documents, are and shall continue to be in full force
and effect and are hereby in all respects ratified and confirmed and
shall constitute the legal, valid, binding and enforceable obligations
of Borrower to FINOVA.
(c) The execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as a waiver of
any right, power or remedy of any FINOVA or the Agent under any of the
Loan Documents, nor constitute a waiver of any provision of any of the
Loan Documents.
(d) To the extent that any terms and conditions in any of the
Loan Documents shall contradict or be in conflict with any terms or
conditions of the Loan Agreement, after giving effect to this
Amendment, such terms and conditions are hereby deemed modified or
amended accordingly to reflect the terms and conditions of the Loan
Agreement as modified or amended hereby.
10. Ratification. Borrowers hereby restate, ratify and reaffirm each
and every term and condition set forth in the Loan Agreement, as amended
hereby, and the Loan Documents effective as of the date hereof.
11. Estoppel. To induce FINOVA to enter into this Amendment and to
continue to make advances to Borrowers under the Loan Agreement, Borrowers
hereby acknowledge and agree that, after giving effect to this Amendment,
as of the date hereof, there exists no Event of Default and no right of
offset, defense, counterclaim or objection in favor of Borrower as against
FINOVA with respect to the Obligations.
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<PAGE> 7
IN WITNESS WHEREOF, the parties have entered into this Amendment as of
the date first above written.
FINOVA CAPITAL CORPORATION
By: /s/ Frank Monzo
--------------------------------
Name: Frank Monzo
------------------------------
Title: Assistant Vice President
-----------------------------
OAKHURST COMPANY, INC.
By: /s/ Maarten D. Hemsley
--------------------------------
Name: Maarten D. Hemsley
------------------------------
Title: Vice President
-----------------------------
STEEL CITY PRODUCTS, INC.
By: /s/ Maarten D. Hemsley
--------------------------------
Name: Maarten D. Hemsley
------------------------------
Title: Vice President
-----------------------------
DOWLING'S FLEET SERVICE CO.
By: /s/ Maarten D. Hemsley
--------------------------------
Name: Maarten D. Hemsley
------------------------------
Title: Vice President
-----------------------------
OAKHURST MANAGEMENT
CORPORATION
By: /s/ Maarten D. Hemsley
--------------------------------
Name: Maarten D. Hemsley
------------------------------
Title: Vice President
-----------------------------
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<PAGE> 8
OAKHURST HOLDINGS, INC.
By: /s/ Maarten D. Hemsley
--------------------------------
Name: Maarten D. Hemsley
------------------------------
Title: Vice President
-----------------------------
G & O SALES COMPANY
By: /s/ Maarten D. Hemsley
--------------------------------
Name: Maarten D. Hemsley
------------------------------
Title: Vice President
-----------------------------
8
<PAGE> 1
EXHIBIT 10.23
INVESTMENT AGREEMENT
This INVESTMENT AGREEMENT (this "Agreement"), dated as of December 29,
1998, is made and entered into between and among KTI, Inc., a New Jersey
corporation, ("KTI"), Oakhurst Company, Inc, a Delaware corporation ("OCI"), and
Oakhurst Technology, Inc., a Delaware corporation that is a wholly-owned
subsidiary of OCI ("OTI").
RECITALS
A. New Heights Recovery & Power, LLC ("New Heights") is a reorganized
entity under an amended plan of reorganization dated November 17, 1998 (the
"Plan") under Chapter 11 of the federal Bankruptcy Code. The Plan was confirmed
by order of the United States Bankruptcy Code in the United States Bankruptcy
Court, District of Delaware (the "Court") (Bky. No. 96-442 (HSB)) entered on
December 28, 1998 (the "Confirmation Order").
B. Following entry of the Confirmation Order, pursuant to the terms of
the Plan and by agreement with KTI, (i) OTI will enter into an Investment
Agreement, to be dated December 29, 1998 and in the form attached to the Plan as
Exhibit C, between OTI and New Heights (the "Investment Agreement"), (ii) OTI
will become the owner of 50% of the equity interests in New Heights and a member
of New Heights under the terms of the New Heights Limited Liability Company
Agreement (the "LLC Agreement"), and (iii) OTI will receive and incur certain
rights and obligations under the Investment Agreement and the LLC Agreement.
C. It is the intention of the parties hereto that OTI will receive the
full benefits accruing to its interest as a party to the Investment Agreement
and the LLC agreement, and will assume and incur substantially all of the
obligations related there to, the performance of which obligations will be
guaranteed by KTI.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE I
SALE OF SHARES AND CLOSING
1.01 Purchase and Sale. OCI agrees to sell to KTI, and KTI agrees to
subscribe for and purchase from OCI, 1,730,056 shares of the common stock, par
value $.01, of OCI (the "Shares") at the Closing (as defined in Section 1.03) on
the terms and subject to the conditions set forth in this Agreement.
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<PAGE> 2
1.02 Purchase Price. The aggregate purchase price for the Shares is
$865,028.00 (the "Purchase Price"), payable in the manner provided in
Section 1.03.
1.03 The Closing.
(a) The closing of the transactions contemplated by this Agreement (the
"Closing") will take place at the offices of Dorsey & Whitney at 250 Park
Avenue, New York, New York, at 9:00 a.m. on December 29, 1998, or at such other
place and on such other date as is mutually agreeable to KTI, OCI and OTI (the
date of the Closing being hereinafter referred to as the "Closing Date"). The
Closing will be effective as of the close of business on the Closing Date.
(b) Subject to the conditions set forth in this Agreement, the parties
agree to consummate the following "Closing Transactions" on the Closing Date:
(i) KTI will subscribe for the Shares, and OCI will, upon
receipt of the Purchase Price, issue the Shares and deliver to deliver
to KTI a stock certificate or certificates representing the Shares.
(ii) KTI shall deliver to OCI the Purchase Price by wire
transfer of immediately available funds to the account designated by
OCI to KTI prior to the Closing; and
(iii) Each of the parties shall deliver to the other the
documents required to be delivered pursuant to Article VI hereof.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF OCI
OCI hereby represents and warrants to KTI that, except as set forth in
the Disclosure Schedule delivered by OCI to KTI on the date hereof (the
"Disclosure Schedule") (which Disclosure Schedule sets forth the exceptions to
the representations and warranties contained in this Article II under captions
referencing the Sections to which such exceptions apply):
2.01 Incorporation and Corporate Power. Each of OCI and OTI is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, has the requisite corporate power and authority to
execute and deliver this Agreement and to perform its obligations hereunder,
including, without limitation, (i) in the case of OCI, the corporate power and
authority to issue the Shares and to enter into the Loan Agreement (as defined
in Section 6.01(m)(vi)), and (ii) in the case OTI, to enter into the Investment
Agreement and the LLC Agreement (the Loan Agreement, the Investment Agreement
and the LLC Agreement, and any other agreements to be executed by the parties as
contemplated by this Agreement being referred to herein as the "Ancillary
Agreements"), and has the corporate power and authority and all authorizations,
licenses, permits and certifications necessary to own and operate its properties
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<PAGE> 3
and to carry on its business as now conducted and presently proposed to be
conducted. The copies of OCI's and OTI's Certificates of Incorporation and
Bylaws which have been furnished by them to KTI prior to the date hereof reflect
all amendments made thereto and are correct and complete as of the date hereof.
OTI is qualified to do business as a foreign corporation in the State of
Illinois, and OCI and OTI each is qualified to do business as a foreign
corporation in every other jurisdiction in which the nature of its business or
its ownership of property requires it to be so qualified except for those
jurisdictions in which the failure to be so qualified would not, individually or
in the aggregate, have a material adverse effect on OCI's or OTI's business or
results of operations.
2.02 Execution, Delivery; Valid and Binding Agreements. The execution,
delivery and performance of this Agreement and the Ancillary Agreements by each
of OCI and OTI and the consummation of the transactions contemplated hereby and
thereby have been duly and validly authorized by all requisite corporate action,
and no other corporate proceedings on its part are necessary to authorize the
execution, delivery and performance of this Agreement or any of the Ancillary
agreements. This Agreement has been, and the Ancillary Agreements will be, duly
executed and delivered by OCI and OTI and, when so executed and delivered, will
constitute the valid and binding obligations of OCI and OTI, as the case may be,
enforceable in accordance with their respective terms, except as such
enforcement may be subject to (a) bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally and (b) general principles of equity (whether
considered in a proceeding in equity or at law).
2.03 No Breach. The execution, delivery and performance of this
Agreement and the Ancillary Agreements by OCI and OTI and the consummation by
OCI and OTI of the transactions contemplated hereby and thereby do not and will
not conflict with or result in any breach of any of the provisions of,
constitute a default, result in a violation, result in the creation of a right
of termination or acceleration or any lien, security interest, charge or
encumbrance upon any of the Shares or any assets of OCI or OTI, or require any
authorization, consent, approval, exemption or other action by or notice to any
court or other governmental body, under, the provisions of the Certificate of
Incorporation or Bylaws of OCI or OTI or any material indenture, mortgage,
lease, loan agreement or other agreement or instrument by which OCI or OTI is
bound or affected, or any material law, statute, rule or regulation or order,
judgment or decree to which OCI or OTI is subject.
2.04 Governmental Authorities; Consents. Neither OCI nor OTI is
required to submit any notice, report or other filing with any governmental
authority in connection with the execution or delivery by it of this Agreement
or any Ancillary Agreement or the consummation of the transactions contemplated
hereby or thereby. No consent, approval or authorization of any governmental or
regulatory authority or any other party or person is required to be obtained by
OCI or by OTI in connection with its execution, delivery and performance of this
Agreement or any Ancillary Agreement or the transactions contemplated hereby or
thereby.
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<PAGE> 4
2.05 Capital Stock; Rated Debt Securities. The authorized capital stock
of OCI consists of 14,000,000 shares of common stock, par value $.01 per share
(the "OCI Common Stock"), of which, as of the date hereof, 3,212,926 shares are
issued and outstanding, and all of which shares of OCI Common Stock have been
duly authorized and are validly issued, fully paid and nonassessable, and
1,000,000 shares of preferred stock, none of which are issued or outstanding.
The authorized capital stock of OTI consists of 7,500,000 shares of common
stock, par value $.01 per share (the "OTI Common Stock"), of which, as of the
date hereof, one share is issued and outstanding, which share of OTI Common
Stock has been duly authorized, is validly issued, fully paid and nonassessable,
and is owned by OCI. Neither OCI nor OTI has any other equity securities or
securities containing any equity features authorized, issued or outstanding.
Except as set forth on the Disclosure Schedule, there are no agreements or other
rights or arrangements existing which provide for the sale or issuance of
capital stock by OCI or OTI, and there are no rights, subscriptions, warrants,
options, conversion rights or agreements of any kind outstanding to purchase or
otherwise acquire from OCI or OTI any shares of capital stock or other
securities of OCI or OTI of any kind. There are no agreements or other
obligations (contingent or otherwise) which may require OCI or OTI to repurchase
or otherwise acquire any shares of its capital stock. OCI has not issued any
debt securities that are rated by any rating agency.
2.06 The Shares. The delivery by OCI of a certificate or certificates
in the manner set forth in Section 1.04(b) will invest in KTI good and valid
title to the Shares, free and clear of any security interests, claims, liens,
pledges, options, encumbrances, charges, agreements, voting trusts, proxies or
other arrangements or restrictions other than those contemplated by this
Agreement or the Ancillary Agreements or imposed under any state or federal
securities laws.
2.07 Financial Statements. OCI has delivered to KTI copies of (a) its
report on Form 10-Q for the six-month period ended August 31, 1998 (the "Form
10-Q"), including the unaudited balance sheet, as of August 31, 1998, of OCI
(the "Latest Balance Sheet") and the unaudited statements of earnings,
shareholders' equity and cash flows of OCI for such period (such statements and
the Latest Balance Sheet being herein referred to as the "Latest Financial
Statements") and (b) its report on Form 10-K the for the year ended February 28,
1998 (the "Form 10-K" and, together with the Form 10-Q and any amendments
thereto and any report on Form 8-K filed since the date of filing of the Form
10-K, the "SEC Documents"), including the audited balance sheets, as of February
28, 1998 and 1997, of OCI and the audited statements of earnings, shareholders'
equity and cash flows of OCI for each of the years ended February 28, 1998 and
1997 and February 29, 1996 (collectively, the "Annual Financial Statements").
The Latest Financial Statements and the Annual Financial Statements are based
upon the information contained in the books and records of OCI and fairly
present the financial condition of OCI as of the dates thereof and results of
operations for the periods referred to therein. The Annual Financial Statements
have been prepared in accordance with generally accepted accounting principles,
consistently applied throughout the periods indicated. The Latest Financial
Statements have been prepared in accordance with generally accepted accounting
principles applicable to unaudited interim financial statements (and thus may
not contain all notes and may
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<PAGE> 5
not contain prior period comparative data which are required to be prepared in
accordance with generally accepted accounting principles) consistently with the
Annual Financial Statements and reflect all adjustments necessary to a fair
statement of the results for the interim period(s) presented.
2.08 Absence of Undisclosed Liabilities. Except as reflected in the
Latest Balance Sheet and any SEC Document, neither OCI nor OTI has any
liabilities (whether accrued, absolute, contingent, unliquidated or otherwise,
whether due or to become due, whether known or unknown, and regardless of when
asserted) arising out of transactions or events heretofore entered into, or any
action or inaction, or any state of facts existing, with respect to or based
upon transactions or events heretofore occurring, except liabilities which have
arisen after the date of the Latest Balance Sheet in the ordinary course of
business (none of which is a material uninsured liability for breach of
contract, breach of warranty, tort, infringement, claim or lawsuit).
2.09 No Material Adverse Changes. Since the date of the Latest Balance
Sheet, there has been no material adverse change in the assets, financial
condition, operating results, customer, employee or supplier relations, business
condition or prospects of OCI.
2.10 Employment Agreements. OCI does not have employment agreements
with any of its employees other than Robert M. Davies and Maarten D. Hemsley.
2.10 Brokerage. No third party shall be entitled to receive any
brokerage commissions, finder's fees, fees for financial advisory services or
similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement made by or on behalf of OCI or
OTI.
2.11 Disclosure. Neither the representations and warranties of OCI set
forth in this Agreement nor the Disclosure Schedule nor any of the financial
statements referred to in Section 2.07 hereof, taken as a whole, contain any
untrue statement of a material fact regarding OCI or its business or any of the
other matters dealt with in this Article II relating to OCI or OTI. Neither the
representations and warranties of OCI set forth in this Agreement, the
Disclosure Schedule nor the financial statements referred to in Section 2.07
hereof, contain any untrue statement of a material fact or omits any material
fact necessary to make the statements contained herein or therein, in light of
the circumstances in which they were made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF KTI
KTI hereby represents and warrants to OCI and OTI that:
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<PAGE> 6
3.01 Incorporation and Corporate Power. KTI is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of New Jersey, with the requisite corporate power and authority to enter into
this Agreement and the Ancillary Agreements and perform its obligations
hereunder and thereunder.
3.02 Execution, Delivery; Valid and Binding Agreements. The execution,
delivery and performance of this Agreement and the Ancillary Agreements by KTI
and the consummation of the transactions contemplated hereby and thereby have
been duly and validly authorized by all requisite corporate action, and no other
corporate proceedings on its part are necessary to authorize the execution,
delivery or performance of this Agreement or any of the Ancillary Agreements.
This Agreement has been, and the Ancillary Agreements will be, duly executed and
delivered by KTI and, when so executed and delivered, will constitute the valid
and binding obligations of KTI, enforceable in accordance with their respective
terms.
3.03 No Breach. The execution, delivery and performance of this
Agreement and the Ancillary Agreements by KTI and the consummation by KTI of the
transactions contemplated hereby and thereby do not conflict with or result in
any breach of any of the provisions of, constitute a default under, result in a
violation of, result in the creation of a right of termination or acceleration
or any lien, security interest, charge or encumbrance upon any assets of KTI, or
require any authorization, consent, approval, exemption or other action by or
notice to any court or other governmental body, under the provisions of the
Articles of Incorporation or Bylaws of KTI or any indenture, mortgage, lease,
loan agreement or other agreement or instrument by which KTI is bound or
affected, or any law, statute, rule or regulation or order, judgment or decree
to which KTI is subject.
3.04 Governmental Authorities; Consents. KTI is not required to submit
any notice, report or other filing with any governmental authority in connection
with the execution or delivery by it of this Agreement and the Ancillary
Agreements or the consummation of the transactions contemplated hereby or
thereby. No consent, approval or authorization of any governmental or regulatory
authority or any other party or person is required to be obtained by KTI in
connection with its execution, delivery and performance of this Agreement or any
Ancillary Agreement or the transactions contemplated hereby or thereby.
3.05 Brokerage. No third party shall be entitled to receive any
brokerage commissions, finder's fees, fees for financial advisory services or
similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement made by or on behalf of KTI .
3.06 Investment Intent. KTI is purchasing the Shares for its own
account with the present intention of holding the Shares for investment purposes
and not with a view to or for sale in connection with any distribution of the
Shares in violation of any applicable securities law. KTI will refrain from
transferring or otherwise disposing of any of the Shares, or any interest
therein, in such manner as to cause OCI to be in violation of the registration
requirements of the Securities Act of 1933, as amended, or applicable state
securities or blue sky laws.
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3.07 Ownership of OCI Common Stock. KTI does not own any shares of OCI
Common Stock.
ARTICLE IV
COVENANTS OF OCI
4.01 Conduct of the Business. OCI agrees that, from the date hereof
until the Closing Date, unless otherwise consented to by KTI in writing:
(a) The business of OCI shall be conducted only in, and OCI shall not
take any action except in the ordinary course of OCI's business, on an
arm's-length basis and in accordance in all material respects with all
applicable laws, rules and regulations and OCI's past custom and practice,
except that OCI may enter into an agreement with ACF Imports, Inc. on
substantially the terms set forth in the letter of intent attached hereto as
Exhibit A, provided that the proceeds resulting to OCI as a result of such
transaction are used to pay down senior indebtedness other than indebtedness
under the Loan Agreement (as hereinafter defined);
(b) OCI shall not, except as contemplated by this Agreement, directly
or indirectly, do or permit to occur any of the following: (i) issue or sell any
additional shares of, or any options, warrants, conversion privileges or rights
of any kind to acquire any shares of, any of its capital stock, (ii) sell,
pledge, dispose of or encumber any of its assets, except in the ordinary course
of business; (iii) amend or propose to amend its Certificate of Incorporation or
Bylaws; (iv) split, combine or reclassify any outstanding shares of OCI Common
Stock, or declare, set aside or pay any dividend or other distribution payable
in cash, stock, property or otherwise with respect to shares of OCI Common
Stock; (v) redeem, purchase or acquire or offer to acquire any shares of OCI
Common Stock or other securities of OCI; (vi) acquire (by merger, exchange,
consolidation, acquisition of stock or assets or otherwise) any corporation,
partnership, joint venture or other business organization or division or
material assets thereof; (vii) incur any indebtedness for borrowed money or
issue any debt securities except the borrowing of working capital in the
ordinary course of business and consistent with past practice; or (viii) enter
into or propose to enter into, or modify or propose to modify, any agreement,
arrangement or understanding with respect to any of the matters set forth in
this Section 4.01(b); and
(c) OCI shall not adopt or amend any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation,
employment or other employee benefit plan, trust, fund or group arrangement for
the benefit or welfare of any employees or any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation,
employment or other employee benefit plan, agreement, trust, fund or
arrangements for the benefit or welfare of any director.
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4.02 Access to Books and Records. Between the date hereof and the
Closing Date, OCI shall afford to KTI and its authorized representatives full
access at all reasonable times and upon reasonable notice to the offices,
properties, books, records, officers, employees and other items of OCI and OTI,
and otherwise provide such assistance as is reasonably requested by KTI in order
that KTI may have a full opportunity to make such investigation and evaluation
as it shall reasonably desire to make of the business and affairs of OCI and
OTI.
4.03 Regulatory Filings. As promptly as practicable after the execution
of this Agreement, OCI shall, and shall cause OTI to, make or cause to be made
all filings and submissions under any laws or regulations applicable to OCI or
OTI for the consummation of the transactions contemplated herein. OCI will
coordinate and cooperate with KTI in exchanging such information, will not make
any such filing without providing to KTI a final copy thereof for its review and
consent at least two full business days in advance of the proposed filing and
will provide such reasonable assistance as KTI may request in connection with
all of the foregoing.
4.04 Conditions. OCI shall take all commercially reasonable actions
necessary or desirable to cause the conditions set forth in Section 6.01 to be
satisfied and to consummate the transactions contemplated herein as soon as
reasonably possible after the satisfaction thereof (but in any event within
three business days of such date).
ARTICLE V
COVENANTS OF KTI
KTI covenants and agrees with OCI as follows:
5.01 Regulatory Filings. As promptly as practicable after the execution
of the Agreement, KTI shall make or cause to be made all filings and submissions
under any laws or regulations applicable to KTI for the consummation of the
transactions contemplated herein.
5.02 Conditions. KTI shall take all commercially reasonable actions
necessary or desirable to cause the conditions set forth in Section 6.02 to be
satisfied and to consummate the transactions contemplated herein as soon as
reasonably possible after the satisfaction thereof (but in any event within
three business days of such date).
ARTICLE VI
CONDITIONS TO CLOSING
6.01 Conditions to KTI's Obligations. The obligation of KTI to
consummate the transactions contemplated by this Agreement is subject to the
satisfaction of the following conditions on or before the Closing Date:
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(a) The representations and warranties set forth in Article II hereof
shall be true and correct in all material respects at and as of the Closing Date
as though then made and as though the Closing Date had been substituted for the
date of this Agreement throughout such representations and warranties (without
taking into account any disclosures by OCI or OTI of discoveries, events or
occurrences arising on or after the date hereof), except that any such
representation or warranty made as of a specified date (other than the date
hereof) shall only need to have been true on and as of such date;
(b) OCI shall have performed in all material respects all of the
covenants and agreements required to be performed and complied with by it under
this Agreement prior to the Closing;
(c) OCI shall have obtained, or caused to be obtained, each consent and
approval necessary in order that the transactions contemplated herein not
constitute a breach or violation of, or result in a right of termination or
acceleration of, or creation of any encumbrance on any of OCI's or OTI's assets
pursuant to the provisions of, any material agreement, arrangement or
undertaking of or affecting OCI or OTI or any license, franchise or permit of or
affecting OCI or OTI;
(d) All material governmental filings, authorizations and approvals
that are required for the consummation of the transactions contemplated hereby
will have been duly made and obtained;
(e) There shall not be threatened, instituted or pending any action or
proceeding, before any court or governmental authority or agency, domestic or
foreign, (i) challenging or seeking to make illegal, or to delay or otherwise
directly or indirectly restrain or prohibit, the consummation of the
transactions contemplated hereby or seeking to obtain material damages in
connection with such transactions, (ii) seeking to prohibit direct or indirect
ownership by KTI of all or a material portion of Shares, or to compel KTI or any
of its subsidiaries to dispose of or to hold separately all or a material
portion of the business or assets of KTI and its subsidiaries, as a result of
the transactions contemplated hereby, (iii) seeking to require direct or
indirect transfer or sale by KTI of any of the Shares, (iv) seeking to
invalidate or render unenforceable any material provision of this Agreement or
any of the Ancillary Agreements, or (v) otherwise relating to and materially
adversely affecting the transactions contemplated hereby or thereby;
(f) There shall not be any action taken, or any statute, rule,
regulation, judgment, order or injunction enacted, entered, enforced,
promulgated, issued or deemed applicable to the transactions contemplated hereby
by any federal, state or foreign court, government or governmental authority or
agency, which would reasonably be expected to result, directly or indirectly, in
any of the consequences referred to in Section 6.01(e) hereof;
(g) KTI shall not have discovered any fact or circumstance existing as
of the date of this Agreement which has not been disclosed to KTI as of the date
of this Agreement regarding the business, assets, properties, condition
(financial or otherwise), results of operations or
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prospects of OCI or OTI which is, individually or in the aggregate with other
such facts and circumstances, materially adverse to OCI or OTI or to the value
of the Shares;
(h) KTI shall have received from counsel for OCI and OTI a written
opinion, dated as of the Closing Date, addressed to KTI and in form and
substance satisfactory to KTI's counsel, with respect to the matters set forth
in Sections 2.01 through 2.06;
(i) The Board of Directors of OCI shall have authorized the redemption
of all outstanding rights under OCI's existing shareholder rights plan, and
shall have adopted, effective immediately following issuance of the Shares, a
new shareholder rights plan which shall not apply to KTI and for which the
threshold for a triggering event shall be 4.5% ownership of OCI Common Stock;
(j) The Operation and Maintenance Agreement (as defined in Section
8.04) shall have been executed by New Heights;
(k) On the Closing Date, OCI shall have delivered to KTI all of the
following:
(i) certificates of appropriate officers of OCI and OTI, dated
the Closing Date, stating that the conditions precedent set forth in
subsections (a) and (b) above have been satisfied;
(ii) copies of the third party and governmental consents and
approvals referred to in subsections (c) and (d) above;
(iii) the stock certificate or certificates issued to OCI
representing the Shares;
(iv) a copy of the Certificate of Incorporation of OTI,
certified by the Secretary of State of the State of Delaware, and
Certificates of Good Standing from the Secretary of State of Delaware
evidencing the good standing of OCI and OTI in such jurisdiction;
(v) copies of each of (X) the text of the resolutions adopted
by the boards of directors of OCI and OTI authorizing the execution,
delivery and performance of this Agreement and the Ancillary Agreements
and the consummation of all of the transactions contemplated by this
Agreement and the Ancillary Agreements and (Y) Certificate of
Incorporation of OCI and the bylaws of OCI and OTI, along with
certificates executed on behalf of each of OCI and OTI, respectively,
by its corporate secretary certifying to KTI that such copies are true,
correct and complete copies of such resolutions and bylaws,
respectively, and that such resolutions and bylaws were duly adopted
and have not been amended or rescinded;
(vi) an executed copy of each of the Ancillary Agreements,
including, without limitation, a Loan Agreement, Pledge Agreement and
Promissory Note, each dated the
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Closing Date, between KTI and OCI in the forms attached hereto as
Exhibit B (together, the "Loan Agreement"); and
(vii) such other certificates, documents and instruments as
KTI reasonably requests related to the transactions contemplated hereby
and by the Ancillary Agreements; and
(l) KTI shall have received a letter from Deloitte & Touche,
accountants for OCI, to the effect that the issuance of the Shares to KTI will
not have the effect of reducing the dollar amount of net operating loss
carryforwards ("NOLs") available to be used by OCI in any tax year.
6.02 Conditions to OCI's and OTI's Obligations. The obligations of OCI
and OTI to consummate the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions on or before the Closing
Date:
(a) The representations and warranties set forth in Article III hereof
will be true and correct in all material respects at and as of the Closing as
though then made and as though the Closing Date had been substituted for the
date of this Agreement throughout such representations and warranties, except
that any such representation or warranty made as of a specified date (other than
the date hereof) shall only need to have been true on and as of such date;
(b) KTI shall have performed in all material respects all the covenants
and agreements required to be performed by it under this Agreement prior to the
Closing;
(c) All material governmental filings, authorizations and approvals
that are required for the consummation of the transactions contemplated hereby
will have been duly made and obtained;
(d) There shall not be threatened, instituted or pending any action or
proceeding, before any court or governmental authority or agency, domestic or
foreign, (i) challenging or seeking to make illegal, or to delay or otherwise
directly or indirectly restrain or prohibit, the consummation of the
transactions contemplated hereby or seeking to obtain material damages in
connection with such transactions, (ii) seeking to invalidate or render
unenforceable any material provision of this Agreement or any of the Ancillary
Agreements, or (iii) otherwise relating to and materially adversely affecting
the transactions contemplated hereby or thereby;
(e) There shall not be any action taken, or any statute, rule,
regulation, judgment, order or injunction, enacted, entered, enforced,
promulgated, issued or deemed applicable to the transactions contemplated hereby
by any federal, state or foreign court, government or governmental authority or
agency, which would reasonably be expected to result, directly or indirectly, in
any of the consequences referred to in Section 6.02(d) hereof;
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(f) On the Closing Date, KTI shall have delivered to OCI (i) a
certificate of an appropriate officer of KTI, dated the Closing Date, stating
that the conditions precedent set forth in subsections (a) and (b) above have
been satisfied, (ii) an executed copy of each of the Ancillary Agreements
including, without limitation, the Loan Agreement, (iii) the Purchase Price, and
(iv) a copy of each of (X) the text of the resolutions adopted by the board of
directors of KTI authorizing the execution, delivery and performance of this
Agreement and the Ancillary Agreements and the consummation of all of the
transactions contemplated by this Agreement and the Ancillary Agreements and (Y)
the bylaws of KTI, along with certificates executed on behalf of KTI by its
corporate secretary certifying to OCI that such copies are true, correct and
complete copies of such resolutions and bylaws, respectively, and that such
resolutions and bylaws were duly adopted and have not been amended or rescinded.
ARTICLE VII
TERMINATION
7.01 Termination. This Agreement may be terminated at any time prior to
the Closing:
(a) by the mutual consent of KTI and OCI;
(b) by either KTI or OCI if there has been a material
misrepresentation, breach of warranty or breach of covenant on the part of the
other in the representations, warranties and covenants set forth in this
Agreement;
(c) by either KTI or OCI if the transactions contemplated hereby have
not been consummated by December 31, 1998; provided that, neither KTI nor OCI
shall be entitled to terminate this Agreement pursuant to this Section 7.01(c)
if such party's willful breach of this Agreement has prevented the consummation
of the transactions contemplated hereby; or
(d) by KTI if, after the date hereof, there shall have been a material
adverse change in the financial condition or business of OCI or if, after the
date hereof, an event shall have occurred which, so far as reasonably can be
foreseen, would result in any such change, except to the extent such change is
directly caused by KTI.
7.02 Effect of Termination. In the event of termination of this
Agreement by either KTI or OCI as provided in Section 7.01, this Agreement shall
become void and there shall be no liability on the part of either KTI or OCI, or
their respective stockholders, officers, or directors, except that Sections
10.01 and 10.02 hereof shall survive indefinitely, and except with respect to
willful breaches of this Agreement prior to the time of such termination.
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ARTICLE VIII
ADDITIONAL COVENANTS AND AGREEMENTS
8.01 Businesses of OCI and OTI. From and after the Closing Date, and so
long as KTI owns any of the Shares, (i) OCI and its subsidiaries shall not
engage in any business other than the businesses conducted by them on the
Closing Date, and (ii) OTI shall not engage in any business other than the
business conducted by New Heights or other crumb rubber facilities and related
businesses.
8.02 Agreements of OTI Regarding Crumb Rubber Facilities. OTI agrees to
enter into a license agreement with KTI Recycling, Inc. pursuant to which it
will pay to KTI Recycling, Inc. a royalty of $.007 per pound of tires processed
into crumb rubber by OTI or any of its affiliates, including New Heights. OTI
further agrees that it will not purchase crumb rubber processing equipment from
any party other than KTI Recycling of Canada, Inc. and the Village of Ford
Heights, Illinois.
8.03 Agreements Relating to NOLs. KTI agrees that it will not, after
the Closing Date, acquire or dispose of any shares of the capital stock of OCI
without the prior written consent of OCI, which consent shall be given upon the
furnishing to OCI of an opinion of tax counsel reasonably satisfactory to OCI
that such acquisition or disposition will not have the effect of reducing the
dollar amount of NOLs available to be used by OCI in any tax year.
8.04 New Heights Operation and Maintenance Agreement. OTI agrees that
New Heights shall enter into an Operation and Maintenance Agreement (the
"Operation and Maintenance Agreement") with KTI Operations, Inc. ("KTI
Operations"), a subsidiary of KTI, substantially in the form attached to the
Plan and pursuant to which KTI Operations, as Operating Manager shall have
responsibility for day-to-day operations of New Heights and implementation of
the New Heights Business Plan, subject to the direction of the Board of
Directors of New Heights, and that New Heights shall pay KTI Operations the
Operator Fees, the procedures for payment or accrual of which shall be as
provided in the Operation and Maintenance Agreement.
8.05 Boards of Directors; Certain Decisions. OCI agrees that, from and
after the Closing date:
(a) The Board of Directors of OTI shall be comprised of five directors,
two of which shall be nominated by KTI and three of which shall be nominated by
OCI, and KTI and OCI shall have the absolute right to replace or fill vacancies
of directors selected by them. OCI agrees to vote all shares of OTI owned by it
in favor of the election of the nominees selected by KTI.
(b) To the extent permitted by applicable law, commencing at the first
meeting of its Board of directors following the Closing Date, OCI will use its
best efforts to cause the number of directors to be set at nine, and will use
its best efforts to cause three individuals to be selected
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by KTI to be appointed to its Board of Directors, and thereafter, for so long as
KTI continues to hold not less than 50% of the Shares, at each meeting of the
shareholders of OCI at which directors are to be elected, to use its best
efforts to cause such individuals to be nominated, and to use its best efforts
to cause such individuals to be elected, to such Board of Directors.
8.06 Use of Proceeds. OCI agrees that the proceeds of the sale of the
Shares shall be contributed to the capital of OTI, and that the proceeds of any
loans under the Loan Agreement shall be contributed to the capital of OTI.
8.07 Registration Rights. Promptly following a request by KTI or by any
KTI lending institution having a pledge of the Shares (a "Lending Institution"),
Buyer shall (i) file with the Securities and Exchange Commission (the
"Commission") a registration statement under the Securities Act of 1933 (the
"Act") covering resale of the Shares by KTI and/or any Lending Institution, to
the extent that any such Lending Institution has gained title to any of the
Shares or any other OCI Common Stock by virtue of a pledge made or security
interest granted by KTI, and (ii) use its best efforts to cause such
registration statement to be declared or ordered effective by the Commission not
later than 90 days following the date of such request, which efforts shall
include, without limitation, the execution of an undertaking to file
post-effective amendments, appropriate qualification under applicable blue sky
or other state securities laws, and appropriate compliance with applicable
regulations issued under the Act and any other governmental requirements or
regulations.
8.08 SEC Reports; News Releases. So long as KTI continues to own any of
the Shares, OCI shall deliver to KTI copies of all reports filed by OCI with the
Commission promptly after they are filed with the Commission and all news
releases promptly upon their release for publication.
8.09 Amendment of Certificate of Incorporation. At the first meeting of
its stockholders following the Closing Date, OCI will propose an amendment to
its Certificate of Incorporation deleting Section (c) Article Third thereof, and
use its best efforts to cause such amendment to be to be adopted by its
stockholders.
8.10 Within 30 days following the Closing Date, OCI shall enter into
written agreements satisfactory in form and substance to KTI with (i) from
Robert M. Davies and Maarten D. Hemsley that they will not exercise any options
to purchase shares of OCI Common Stock prior to the thirty-first day following
the third anniversary of the Closing Date, and (ii) Anthony N. Puma that he will
not sell any shares of OCI Common Stock prior to the thirty-first day following
the third anniversary of the Closing Date.
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ARTICLE IX
SURVIVAL; INDEMNIFICATION
9.01 Survival of Representations and Warranties. Notwithstanding any
investigation made by or on behalf of any of the parties hereto or the results
of any such investigation and notwithstanding the participation of such party in
the Closing, the representations and warranties contained in Article II and
Article III hereof shall survive the Closing for a period of three years
following the Closing Date.
9.02 Indemnification by OCI. (a) Subject to the limitations set forth
in Section 9.02(b), OCI agrees to indemnify in full KTI and its officers,
directors, employees, agents and stockholders (collectively, the "KTI
Indemnified Parties") and hold them harmless against any loss, liability,
deficiency, damage, expense or cost (including reasonable legal expenses),
whether or not actually incurred or paid prior to the second anniversary of the
Closing Date (collectively, "Losses"), which KTI Indemnified Parties may suffer,
sustain or become subject to, as a result of (i) any misrepresentation in any of
the representations and warranties of OCI contained in this Agreement or in any
exhibits, schedules, certificates or other documents delivered or to be
delivered by or on behalf of OCI pursuant to the terms of this Agreement or any
of the Ancillary Agreements, (ii) any breach of, or failure to perform, any
agreement of OCI or OTI contained in this Agreement or any of the Ancillary
Agreements, or (iii) any "Claims" (as defined in Section 9.04(a)) or threatened
Claims against KTI arising out of the actions or inactions of OCI or OTI prior
to the Closing (collectively, "KTI Losses").
(b) OCI shall be liable to the KTI Indemnified Parties for any KTI
Losses (i) only if KTI or another KTI Indemnified Party delivers to OCI written
notice, setting forth in reasonable detail the identity, nature and amount of
KTI Losses related to such claim or claims prior to the second anniversary of
the Closing Date and (ii) only if the aggregate amount of all KTI Losses exceeds
$10,000 (the "Basket Amount"), in which case OCI shall be obligated to indemnify
the KTI Indemnified Parties only for the excess of the aggregate amount of all
such KTI Losses over the Basket Amount. The KTI Indemnified Party's failure to
provide the detail required by clause (i) in the preceding sentence shall not
constitute either a breach of this Agreement by the KTI Indemnified Party or any
basis for OCI to assert that the KTI Indemnified Party did not comply with the
terms of this Section 9.02 sufficient to cause the KTI Indemnified Party to have
waived its rights under this Section 9.02.
9.03 Indemnification by KTI. (a) Subject to the limitations set forth
in Section 9.03(b), KTI agrees to indemnify in full the OCI, and its officers,
directors, employees, agents and stockholders (collectively, the "OCI
Indemnified Parties") and hold them harmless against any Losses which any of the
OCI Indemnified Parties may suffer, sustain or become subject to as a result of
(i) any misrepresentation in any of the representations and warranties of KTI
contained in this Agreement or in any of the Ancillary Agreements, (ii) any
breach of, or failure to perform, any agreement of KTI contained in this
Agreement or any of the Ancillary Agreements, or (iii) any Claims or threatened
Claims against OCI arising out of the actions or inactions of KTI prior to the
Closing (collectively, "OCI Losses").
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(b) KTI shall be liable to the OCI Indemnified Parties for any OCI
Losses (i) only if OCI or another OCI Indemnified Party delivers to KTI written
notice, setting forth in reasonable detail the identity, nature and amount of
OCI Losses related to such claim or claims prior to the second anniversary of
the Closing Date and (ii) only if the aggregate amount of all OCI Losses exceeds
the Basket Amount, in which case KTI shall be obligated to indemnify the OCI
Indemnified Parties only for the excess of the aggregate amount of all such OCI
Losses over the Basket Amount. The OCI Indemnified Party's failure to provide
the detail required by clause (i) in the preceding sentence shall not constitute
either a breach of this Agreement by the OCI Indemnified Party or any basis for
KTI to assert that the OCI Indemnified Party did not comply with the terms of
this Section 9.03 sufficient to cause the OCI Indemnified Party to have waived
its rights under this Section 9.03.
9.04 Method of Asserting Claims. As used herein, an "Indemnified Party"
shall refer to a "KTI Indemnified Party" or "OCI Indemnified Party," as
applicable, the "Notifying Party" shall refer to the party hereto whose
Indemnified Parties are entitled to indemnification hereunder, and the
"Indemnifying Party" shall refer to the party hereto obligated to indemnify such
Notifying Party's Indemnified Parties.
(a) In the event that any of the Indemnified Parties is made a
defendant in or party to any action or proceeding, judicial or administrative,
instituted by any third party for the liability or the costs or expenses of
which are Losses (any such third party action or proceeding being referred to as
a "Claim"), the Notifying Party shall give the Indemnifying Party prompt notice
thereof. The failure to give such notice shall not affect any Indemnified
Party's ability to seek reimbursement unless such failure has materially and
adversely affected the Indemnifying Party's ability to defend successfully a
Claim. The Indemnifying Party shall be entitled to contest and defend such
Claim; provided, that the Indemnifying Party (i) has a reasonable basis for
concluding that such defense may be successful and (ii) diligently contests and
defends such Claim. Notice of the intention so to contest and defend shall be
given by the Indemnifying Party to the Notifying Party within 20 business days
after the Notifying Party's notice of such Claim (but, in all events, at least
five business days prior to the date that an answer to such Claim is due to be
filed). Such contest and defense shall be conducted by reputable attorneys
employed by the Indemnifying Party. The Notifying Party shall be entitled at any
time, at its own cost and expense (which expense shall not constitute a Loss
unless the Notifying Party reasonably determines that the Indemnifying Party is
not adequately representing or, because of a conflict of interest, may not
adequately represent, any interests of the Indemnified Parties, and only to the
extent that such expenses are reasonable), to participate in such contest and
defense and to be represented by attorneys of its or their own choosing. If the
Notifying Party elects to participate in such defense, the Notifying Party will
cooperate with the Indemnifying Party in the conduct of such defense. Neither
the Notifying Party nor the Indemnifying Party may concede, settle or compromise
any Claim without the consent of the other party, which consents will not be
unreasonably withheld. Notwithstanding the foregoing, (i) if a Claim seeks
equitable relief or (ii) if the subject matter of a Claim relates to the ongoing
business of any of the Indemnified Parties, which Claim, if decided against any
of the Indemnified Parties, would materially adversely affect the ongoing
business or reputation of any of the Indemnified Parties, then, in each such
case, the
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Indemnified Parties alone shall be entitled to contest, defend and settle such
Claim in the first instance and, if the Indemnified Parties do not contest,
defend or settle such Claim, the Indemnifying Party shall then have the right to
contest and defend (but not settle) such Claim.
(b) In the event any Indemnified Party should have a claim against any
Indemnifying Party that does not involve a Claim, the Notifying Party shall
deliver a notice of such claim with reasonable promptness to the Indemnifying
Party. If the Indemnifying Party notifies the Notifying Party that it does not
dispute the claim described in such notice or fails to notify the Notifying
Party within 30 days after delivery of such notice by the Notifying Party
whether the Indemnifying Party disputes the claim described in such notice, the
Loss in the amount specified in the Notifying Party's notice will be
conclusively deemed a liability of the Indemnifying Party and the Indemnifying
Party shall pay the amount of such Loss to the Indemnified Party on demand. If
the Indemnifying Party has timely disputed its Liability with respect to such
claim, the Presidents of each of the Indemnifying Party and the Notifying Party
will proceed in good faith to negotiate a resolution of such dispute, and if not
resolved through the negotiations of such Presidents within 60 days after the
delivery of the Notifying Party's notice of such claim, such dispute shall be
resolved fully and finally in New York City by an arbitrator selected pursuant
to, and an arbitration governed by, the Commercial Arbitration Rules of the
American Arbitration Association. The arbitrator shall resolve the dispute
within 30 days after selection and judgment upon the award rendered by such
arbitrator may be entered in any court of competent jurisdiction.
(c) After the Closing, the rights set forth in this Article IX shall be
each party's sole and exclusive remedies against the other party hereto for
misrepresentations or breaches of covenants contained in this Agreement and the
Ancillary Documents. Notwithstanding the foregoing, nothing herein shall prevent
any of the Indemnified Parties from bringing an action based upon allegations of
fraud or other intentional breach of an obligation of or with respect to either
party in connection with this Agreement and the Ancillary Agreements. In the
event such action is brought, the prevailing party's attorneys' fees and costs
shall be paid by the non-prevailing party.
(d) Any indemnification payable under this Article IX shall be, to the
extent permitted by law, an adjustment to Purchase Price.
ARTICLE X
MISCELLANEOUS
10.01 Press Releases and Announcements. Prior to the Closing
Date, neither party hereto shall issue any press release (or make any other
public announcement) related to this Agreement or the transactions contemplated
hereby without prior written approval of the other party hereto, except as may
be necessary, in the opinion of counsel to the party seeking to make disclosure,
to comply with the requirements of this Agreement or applicable law. If any such
press release or public announcement is so required, the party making such
disclosure shall
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consult with the other party prior to making such disclosure, and the parties
shall use all reasonable efforts, acting in good faith, to agree upon a text for
such disclosure which is satisfactory to both parties.
10.02 Expenses. Except as otherwise expressly provided for herein, OTI
and KTI will pay all of their own expenses (including attorneys' and
accountants' fees (and, in the case of OTI, the expenses of OTI and OCI)) in
connection with the negotiation of this Agreement, the performance of their
respective obligations hereunder and the consummation of the transactions
contemplated by this Agreement (whether consummated or not).
10.03 Further Assurances. KTI and OCI agree that, on and after the
Closing Date, they shall take all appropriate action and execute any documents,
instruments or conveyances of any kind which may be reasonably necessary or
advisable to carry out any of the provisions hereof or of the Ancillary
Agreements.
10.04 Amendment and Waiver. This Agreement may not be amended or waived
except in a writing executed by the party against which such amendment or waiver
is sought to be enforced. No course of dealing between or among any persons
having any interest in this Agreement will be deemed effective to modify or
amend any part of this Agreement or any rights or obligations of any person
under or by reason of this Agreement.
10.05 Notices. All notices, demands and other communications to be
given or delivered under or by reason of the provisions of this Agreement will
be in writing and will be deemed to have been given when personally delivered or
mailed by first class mail, return receipt requested, or when receipt is
acknowledged, if sent by facsimile, telecopy or other electronic transmission
device. Notices, demands and communications to KTI and OCI will, unless another
address is specified in writing, be sent to the address indicated below:
Notices to KTI: with a copy to:
KTI, Inc. Dorsey & Whitney
7000 Boulevard East 220 South Sixth Street
Guttenberg, NJ 07093 Minneapolis, Minnesota 55402-1498
Attention: General Counsel Attention: Diane Malfeld
Telecopy: (201) 854-1771 Telecopy: (612) 340-2643
Notices to OCI and OTI: with a copy to:
Oakhurst Company, Inc. Roger M. Barzun
3365 Spruce Lane 60 Hubbard Street
Grapevine, TX 76501 Concord, MA 01742
Attention: Telecopy: (978) 287-4276
Telecopy: (817) 416-0914
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10.06 Assignment. This Agreement and all of the provisions hereof will
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, except that neither this Agreement
nor any of the rights, interests or obligations hereunder may be assigned by
either party hereto without the prior written consent of the other party hereto.
10.07 Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
10.08 Complete Agreement. This Agreement and the Related Agreements and
other exhibits hereto, the Disclosure Schedule and the other documents referred
to herein contain the complete agreement between the parties and supersede any
prior understandings, agreements or representations by or between the parties,
written or oral, which may have related to the subject matter hereof in any way.
10.9 Counterparts. This Agreement may be executed in one or more
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together will constitute one and the same
instrument.
10.10 Governing Law. The internal law, without regard to conflicts of
laws principles, of the State of New York will govern all questions concerning
the construction, validity and
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interpretation of this Agreement and the performance of the obligations imposed
by this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
KTI, Inc.
By /s/Robert Wetzel
---------------------------------------------
Its Senior Vice President
-----------------------------------------
Oakhurst Company, Inc.
By /s/ Robert M. Davies
---------------------------------------------
Its Chief Executive Officer
-----------------------------------------
Oakhurst Technology, Inc.
By /s/ Robert M. Davies
---------------------------------------------
Its Chief Executive Officer
-----------------------------------------
<PAGE> 21
EXHIBIT A TO
INVESTMENT AGREEMENT
[ACF Imports, Inc. Letter of Intent]
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SUBJECT TO THAT CERTAIN INTERCREDITOR AGREEMENT, DATED AS OF DECEMBER 29, 1998,
AMONG KTI, INC., A NEW JERSEY CORPORATION, FINOVA CAPITAL CORPORATION, A
DELAWARE CORPORATION AND OAKHURST COMPANY, INC., A DELAWARE CORPORATION
EXHIBIT A
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT, dated as of December 29, 1998, is made and
given by OAKHURST COMPANY, INC., a Delaware corporation ("OCI") and Oakhurst
Technology, Inc., a Delaware corporation ("OTI" and, together with OCI, the
"Pledgors"), to KTI, INC., a New Jersey corporation (the "Lender").
RECITALS
A. The Pledgors and the Lender have entered into a Letter Loan
Agreement dated as of the date hereof (as the same may hereafter be amended,
restated, or otherwise modified from time to time, the "Credit Agreement")
pursuant to which the Lender has agreed to extend to OCI for the benefit of OTI
that certain credit accommodation consisting of a multiple advance term loan of
up to $11,500,000, subject to further adjustment.
B. OCI is the owner of the shares (the "Pledged Shares") of all of the
issued and outstanding shares of stock of OTI described in Part I of Schedule I
hereto issued by OTI, and OTI is the owner of membership interests (the
"Pledged LLC Interests") of New Heights Recovery & Power, LLC, a Delaware
limited liability company ("New Heights") described in Part II of Schedule I
and issued by New Heights.
C. It is a condition precedent to the obligation of the Lender to
extend credit accommodations pursuant to the terms of the Credit Agreement that
this Agreement be executed and delivered by the Pledgors.
D. Each Pledgor finds it advantageous, desirable and in the best
interests of such Pledgor to comply with the requirement that this Agreement be
executed and delivered to the Lender.
NOW, THEREFORE, in consideration of the premises and in order to
induce the Lender to enter into the Credit Agreement and to extend credit
accommodations to OCI thereunder, the Pledgors hereby agree with the Lender for
the Lender's benefit as follows:
Section 1. Defined Terms.
1(a) As used in this Agreement, the following terms shall
have the meanings indicated:
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"Collateral" shall have the meaning given to such
term in Section 2.
"Event of Default" shall have the meaning given to
such term in Section 11.
"Lien" shall mean any security interest, mortgage,
pledge, lien, charge, encumbrance, title retention agreement
or analogous instrument or device (including the interest of
the lessors under capitalized leases), in, of or on any
assets or properties of the Person referred to.
"Obligations" shall mean (a) all indebtedness,
liabilities and obligations of the Pledgors to the Lender of
every kind, nature or description under the Credit Agreement,
including either Pledgor's obligation on any promissory note
or notes under the Credit Agreement and any note or notes
hereafter issued in substitution or replacement thereof, (b)
all liabilities of the Pledgors under this Agreement, (c) any
and all other liabilities and obligations of the Pledgors or
either of them to the Lender of every kind, nature and
description, whether direct or indirect or hereafter acquired
by the Lender from any Person, absolute or contingent,
regardless of how such liabilities arise or by what agreement
or instrument they may be evidenced, and in all of the
foregoing cases whether due or to become due, and whether now
existing or hereafter arising or incurred.
"Person" shall mean any individual, corporation,
partnership, limited partnership, joint venture, firm,
association, trust, unincorporated organization, government
or governmental agency or political subdivision or any other
entity, whether acting in an individual, fiduciary or other
capacity.
"Pledged LLC Interests" shall have the meaning given
to such term in Recital B above.
"Pledged Shares" shall have the meaning given to
such term in Recital B above.
"Security Interest" shall have the meaning given to
such term in Section 2.
1(b) Terms Defined in Uniform Commercial Code. All other
terms used in this Agreement that are not specifically defined herein
or the definitions of which are not incorporated herein by reference
shall have the meaning assigned to such terms in the Uniform
Commercial Code in effect in the State of New York as of the date
first above written to the extent such other terms are defined
therein.
1(c) Singular/Plural, Etc. Unless the context of this
Agreement otherwise clearly requires, references to the plural include
the singular, the singular, the plural and
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"or" has the inclusive meaning represented by the phrase "and/or." The
words "include", "includes" and "including" shall be deemed to be
followed by the phrase "without limitation." The words "hereof,"
"herein," "hereunder," and similar terms in this Agreement refer to
this Agreement as a whole and not to any particular provision of this
Agreement. References to Sections are references to Sections in this
Pledge Agreement unless otherwise provided.
Section 2. Pledge. As security for the payment and performance of all
of the Obligations, the Pledgors hereby pledge to the Lender and grant to the
Lender a security interest (the "Security Interest") in the following (the
"Collateral"):
2(a) The Pledged Shares and the certificates representing the
Pledged Shares, and all dividends, cash, instruments and other
property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the Pledged
Shares.
2(b) All additional shares of stock of the issuer of the
Pledged Shares from time to time acquired by the Pledgors in any
manner, and the certificates representing such additional shares, and
all dividends, cash, instruments and other property from time to time
received, receivable or otherwise distributed in respect of or in
exchange for any or all of such shares.
2(c) The Pledged LLC Interests and the certificates, units or
subscription agreements evidencing the Pledged LLC Interests, if any,
and all interest, cash, instruments and other property from time to
time received, receivable or otherwise distributed in respect of or in
exchange for any or all of the Pledged LLC Interests.
2(d) All additional membership interests of New Heights from
time to time acquired by the Pledgors in any manner, and the units,
certificates or subscription agreements, if any, representing such
additional interests, and all dividends, cash, instruments and other
property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such
membership interests.
2(e) All proceeds of any and all of the foregoing (including
proceeds that constitute property of types described above).
Section 3. Delivery of Collateral. All certificates and instruments
representing or evidencing the Pledged Shares and the Pledged LLC Interests
shall be delivered to the Lender contemporaneously with the execution of this
Agreement. All certificates and instruments representing or evidencing
Collateral received by the Pledgors after the execution of this Agreement shall
be delivered to the Lender promptly upon a Pledgor's receipt thereof. All such
certificates and instruments shall be held by or on behalf of the Lender
pursuant hereto and shall be in suitable form for transfer by delivery, or
shall be accompanied by duly executed instruments of transfer or assignment in
blank, all in form and substance satisfactory to the
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Lender. The Lender shall have the right at any time, whether before or after an
Event of Default, to cause any or all of the Collateral to be transferred of
record into the name of the Lender or its nominee (but subject to the rights of
the Pledgors under Section 6) and to exchange certificates or evidence of
membership interests representing or evidencing Collateral for certificates of
smaller or larger denominations. Notwithstanding any of the foregoing, as to
any Collateral consisting of book-entry or uncertificated securities or
securities which are held by a third Person, the Pledgors shall deliver to the
Lender evidence satisfactory to the Lender that such Collateral has been
registered in the name of, or as pledged to, the Lender. Such evidence shall
include the acknowledgment of the issuer or Person holding such Collateral that
such issuer or Person holds such Collateral as agent for the Lender and that
such Collateral is identified on the books of such issuer or third Person as
belonging to or pledged to the Lender.
Section 4. Certain Warranties and Covenants. Each Pledgor makes the
following warranties and covenants:
4(a) OCI has title to the Pledged Shares and OTI has title to
the Pledged LLC Interests and each respective Pledgor will have title
to each other item of Collateral hereafter acquired, free of all Liens
except the Security Interest.
4(b) The Pledgor has full power and authority to execute this
Pledge Agreement, to perform such Pledgor's obligations hereunder and
to subject the Collateral to the Security Interest created hereby.
4(c) No financing statement covering all or any part of the
Collateral is on file in any public office (except for any financing
statements filed by the Lender, and any financing statements or other
documents filed).
4(d) The Pledged Shares have been duly authorized and validly
issued by the issuer thereof and are fully paid and non-assessable.
The Pledged LLC Interests have been duly authorized, issued and
delivered and are fully paid and non-assessable. The certificates
representing the Pledged Shares and the units, certificates or
subscription agreements, if any, evidencing the Pledged LLC Interests
are genuine. A true and correct copy of the Agreement of Limited
Liability Company of New Heights (the "New Heights LLC Agreement") has
been provided to the Lender. Neither the Pledged Shares nor the
Pledged LLC Interests are subject to any offset or similar right or
claim of the issuers thereof.
4(e) The Pledged Shares constitute 100% of the issued and
outstanding shares of stock of OTI. The Pledged LLC Interests
constitute the percentage of interests in New Heights as indicated on
Schedule I hereto.
4(f) OTI will not execute or consent to any amendment to the
New Heights LLC Agreement or any related operating agreement without
the prior written consent of the Lender.
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4(g) OCI has one or more places of business and its chief
executive office is located in the State of Delaware. OTI has one or
more places of business and its chief executive office is located in
the State of Delaware.
Section 5. Further Assurances. The Pledgors agree that at any
time and from time to time, at the expense of the respective Pledgor, each
Pledgor will promptly execute and deliver all further instruments and
documents, and take all further action that may be necessary or that the Lender
may reasonably request, in order to perfect and protect the Security Interest
or to enable the Lender to exercise and enforce its rights and remedies
hereunder with respect to any Collateral (but any failure to request or assure
that the applicable Pledgor execute and deliver such instruments or documents
or to take such action shall not affect or impair the validity, sufficiency or
enforceability of this Agreement and the Security Interest, regardless of
whether any such item was or was not executed and delivered or action taken in
a similar context or on a prior occasion).
Section 6. Voting Rights; Dividends; Etc.
6(a) Subject to paragraph (d) of this Section 6, the Pledgors
shall be entitled to exercise or refrain from exercising any and all
voting and other consensual rights pertaining to the Pledged Shares,
the Pledged LLC Interests or any other stock or interest that becomes
part of the Collateral or any part thereof for any purpose not
inconsistent with the terms of this Agreement or the Credit Agreement;
provided, however, that the Pledgors shall not exercise or refrain
from exercising any such right if such action could reasonably be
expected to have a material adverse effect on the value of the
Collateral or any material part thereof.
6(b) Subject to paragraph (e) of this Section 6, the Pledgors
shall be entitled to receive, retain, and use in any manner not
prohibited by the Credit Agreement any and all interest and dividends
paid in respect of the Collateral; provided, however, that any and all
(i) dividends paid or payable other than in cash in
respect of, and instruments and other property received,
receivable or otherwise distributed in respect of, or in
exchange for, any Collateral,
(ii) dividends and other distributions paid or
payable in cash in respect of any Collateral in connection
with a partial or total liquidation or dissolution or in
connection with a reduction of capital, capital surplus or
paid-in-surplus, and
(iii) cash paid, payable or otherwise distributed in
respect of principal of, or in redemption of, or in exchange
for, any Collateral,
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shall be, and shall be forthwith delivered to the Lender to hold as,
Collateral and shall, if received by the Pledgors, be received in
trust for the benefit of the Lender, be segregated from the other
property or funds of the Pledgor, and be forthwith delivered to the
Lender as Collateral in the same form as so received (with any
necessary indorsement or assignment). The Pledgors shall, upon request
by the Lender, promptly execute all such documents and do all such
acts as may be necessary or desirable to give effect to the provisions
of this Section 6 (b).
6(c) The Lender shall execute and deliver (or cause to be
executed and delivered) to the Pledgors all such proxies and other
instruments as the applicable Pledgor may reasonably request for the
purpose of enabling the applicable Pledgor to exercise the voting and
other rights that it is entitled to exercise pursuant to Section 6 (a)
hereof and to receive the dividends and interest that it is authorized
to receive and retain pursuant to Section 6 (b) hereof.
6(d) Upon the occurrence and during the continuance of any
Event of Default, the Lender shall have the right in its sole
discretion, and the Pledgors shall execute and deliver all such
proxies and other instruments as may be necessary or appropriate to
give effect to such right, to terminate all rights of the Pledgors to
exercise or refrain from exercising the voting and other consensual
rights that it would otherwise be entitled to exercise pursuant to
Section 6 (a) hereof, and all such rights shall thereupon become
vested in the Lender who shall thereupon have the sole right to
exercise or refrain from exercising such voting and other consensual
rights; provided, however, that the Lender shall not be deemed to
possess or have control over any voting rights with respect to any
Collateral unless and until the Lender has given written notice to the
applicable Pledgor that any further exercise of such voting rights by
the applicable Pledgor is prohibited and that the Lender and/or its
assigns will henceforth exercise such voting rights; and provided,
further, that neither the registration of any item of Collateral in
the Lender's name nor the exercise of any voting rights with respect
thereto shall be deemed to constitute a retention by the Lender of any
such Collateral in satisfaction of the Obligations or any part
thereof.
6(e) Upon the occurrence and during the continuance of any
Event of Default:
(i) all rights of the Pledgors to receive the
dividends and interest that it would otherwise be authorized
to receive and retain pursuant to Section 6(b) hereof shall
cease, and all such rights shall thereupon become vested in
the Lender who shall thereupon have the sole right to receive
and hold such dividends as Collateral, and
(ii) all payments of interest and dividends that are
received by the Pledgors contrary to the provisions of
paragraph (i) of this Section 6 (e) shall be received in
trust for the benefit of the Lender, shall be segregated from
other funds of the Pledgors and shall be forthwith paid over
to the Lender as Collateral in the same form as so received
(with any necessary indorsement).
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Section 7. Transfers and Other Liens; Additional Shares and Membership
Interests.
7(a) Except as may be permitted by the Credit Agreement, each
Pledgor agrees that it will not (i) sell, assign (by operation of law
or otherwise) or otherwise dispose of, or grant any option with
respect to, any of the Collateral, or (ii) create or permit to exist
any Lien, upon or with respect to any of the Collateral.
7(b) OCI and OTI, as the case may be, each agrees that it
will (i) cause each issuer of the Pledged Shares that it controls not
to issue any stock, membership interests or other securities in
addition to or in substitution for the Pledged Shares or Pledged LLC
Interests issued by such issuer, except to the applicable Pledgor, and
(ii) pledge hereunder, immediately upon its acquisition (directly or
indirectly) thereof, any and all additional shares of stock,
membership interests or other securities of each issuer of the Pledged
Shares or Pledged LLC Interests.
Section 8. Lender Appointed Attorney-in-Fact. Each Pledgor
hereby appoints the Lender such Pledgor's attorney-in-fact, with full authority
in the place and stead of such Pledgor and in the name of such Pledgor or
otherwise, from time to time in the Lender's good-faith discretion, to take any
action and to execute any instrument that the Lender may reasonably believe
necessary or advisable to accomplish the purposes of this Agreement (subject to
the rights of the Pledgor under Section 6 hereof), in a manner consistent with
the terms hereof, including, without limitation, to receive, indorse and
collect all instruments made payable to such Pledgor representing any dividend
or other distribution in respect of the Collateral or any part thereof and to
give full discharge for the same.
Section 9. Lender May Perform. If a Pledgor fails to perform
any agreement contained herein, the Lender may itself perform, or cause
performance of, such agreement, and the reasonable expenses of the Lender
incurred in connection therewith shall be payable by the applicable Pledgor
under Section 14 hereof.
Section 10. The Lender's Duties. The powers conferred on the
Lender hereunder are solely to protect its interest in the Collateral and shall
not impose any duty upon it to exercise any such powers. The Lender shall be
deemed to have exercised reasonable care in the safekeeping of any Collateral
in its possession if such Collateral is accorded treatment substantially equal
to the safekeeping which the Lender accords its own property of like kind.
Except for the safekeeping of any Collateral in its possession and the
accounting for monies and for other properties actually received by it
hereunder, the Lender shall have no duty, as to any Collateral, as to
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relative to any Collateral, whether or not
the Lender has or is deemed to have knowledge of such matters, or as to the
taking of any necessary steps to preserve rights against any Persons or any
other rights pertaining to any Collateral. The Lender will take action in the
nature of exchanges, conversions, redemption, tenders and the like requested in
writing by a Pledgor with respect to any of the Collateral in the Lender's
possession if the Lender
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in its reasonable judgment determines that such action will not impair the
Security Interest or the value of the Collateral, but a failure of the Lender
to comply with any such request shall not of itself be deemed a failure to
exercise reasonable care.
Section 11. Default. Each of the following occurrences shall
constitute an Event of Default under this Agreement: (a) a Pledgor shall fail
to observe or perform any covenant or agreement applicable to such Pledgor
under this Agreement; or (b) any representation or warranty made by a Pledgor
in this Agreement or in any financial statements, reports or certificates
heretofore or at any time hereafter submitted by or on behalf of a Pledgor to
the Lender shall prove to have been false or materially misleading when made;
or (c) any Event of Default shall occur under the Credit Agreement.
Section 12. Remedies upon Default. If any Event of Default shall have
occurred and be continuing:
12(a) The Lender may exercise in respect of the Collateral,
in addition to other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured
party on default under the Uniform Commercial Code of the State of New
York (the "Code") in effect at that time (whether or not the Code then
applies to the affected Collateral), and may, without notice except as
specified below, sell the Collateral or any part thereof in one or
more parcels at public or private sale, at any exchange, broker's
board or at any of the Lender's offices or elsewhere, for cash, on
credit or for future delivery, and upon such other terms as the Lender
may reasonably believe are commercially reasonable. Each Pledgor
agrees that, to the extent notice of sale shall be required by law, at
least ten days' prior notice to such Pledgor of the time and place of
any public sale or the time after which any private sale is to be made
shall constitute reasonable notification. The Lender shall not be
obligated to make any sale of Collateral regardless of notice of sale
having been given. The Lender may adjourn any public or private sale
from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the
time and place to which it was so adjourned. Each Pledgor hereby
waives all requirements of law, if any, relating to the marshalling of
assets which would be applicable in connection with the enforcement by
the Lender of its remedies hereunder, absent this waiver.
12(b) The Lender may notify any Person obligated on any of
the Collateral that the same has been assigned or transferred to the
Lender and that the same should be performed as requested by, or paid
directly to, the Lender, as the case may be. The applicable Pledgor
shall join in giving such notice, if the Lender so requests. The
Lender may, in the Lender's name or in such Pledgor's name, demand,
sue for, collect or receive any money or property at any time payable
or receivable on account of, or securing, any such Collateral or grant
any extension to, make any compromise or settlement with or otherwise
agree to waive, modify, amend or change the obligation of any such
Person.
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12(c) Any cash held by the Lender as Collateral and all cash
proceeds received by the Lender in respect of any sale of, collection
from, or other realization upon all or any part of the Collateral may,
in the discretion of the Lender, be held by the Lender as collateral
for, or then or at any time thereafter be applied in whole or in part
by the Lender against, all or any part of the Obligations (including
any expenses of the Lender payable pursuant to Section 14 hereof).
Section 13. Waiver of Certain Claims. Each Pledgor acknowledges that
because of present or future circumstances, a question may arise under the
Securities Act of 1933, as from time to time amended (the "Securities Act"),
with respect to any disposition of the Collateral permitted hereunder. Each
Pledgor understands that compliance with the Securities Act may very strictly
limit the course of conduct of the Lender if the Lender were to attempt to
dispose of all or any portion of the Collateral and may also limit the extent
to which or the manner in which any subsequent transferee of the Collateral or
any portion thereof may dispose of the same. There may be other legal
restrictions or limitations affecting the Lender in any attempt to dispose of
all or any portion of the Collateral under the applicable Blue Sky or other
securities laws or similar laws analogous in purpose or effect. The Lender may
be compelled to resort to one or more private sales to a restricted group of
purchasers who will be obliged to agree, among other things, to acquire such
Collateral for their own account for investment only and not to engage in a
distribution or resale thereof. Each Pledgor agrees that the Lender shall not
incur any liability, and any liability of such Pledgor for any deficiency shall
not be impaired, as a result of the sale of the Collateral or any portion
thereof at any such private sale in a manner that the Lender reasonably
believes is commercially reasonable (within the meaning of Section 9-504(3) of
the Uniform Commercial Code). Each Pledgor hereby waives any claims against the
Lender arising by reason of the fact that the price at which the Collateral may
have been sold at such sale was less than the price that might have been
obtained at a public sale or was less than the aggregate amount of the
Obligations, even if the Lender shall accept the first offer received and does
not offer any portion of the Collateral to more than one possible purchaser.
Each Pledgor further agrees that the Lender has no obligation to delay sale of
any Collateral for the period of time necessary to permit the issuer of such
Collateral to qualify or register such Collateral for public sale under the
Securities Act, applicable Blue Sky laws and other applicable state and federal
securities laws, even if said issuer would agree to do so. Without limiting the
generality of the foregoing, the provisions of this Section would apply if, for
example, the Lender were to place all or any portion of the Collateral for
private placement by an investment banking firm, or if such investment banking
firm purchased all or any portion of the Collateral for its own account, or if
the Lender placed all or any portion of the Collateral privately with a
purchaser or purchasers.
Section 14. Costs and Expenses; Indemnity. The Pledgors will pay or
reimburse the Lender on demand for all out-of-pocket expenses (including in
each case all filing and recording fees and taxes and all reasonable fees and
expenses of counsel and of any experts and agents) incurred by the Lender in
connection with the creation, perfection, protection, satisfaction, foreclosure
or enforcement of the Security Interest and the preparation, administration,
continuance, amendment or enforcement of this Agreement, and all such costs and
expenses shall be part of the Obligations secured by the Security Interest. The
Pledgors shall indemnify and
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hold the Lender harmless from and against any and all claims, losses and
liabilities (including reasonable attorneys' fees) growing out of or resulting
from this Agreement (including enforcement of this Agreement) or the Lender's
actions pursuant hereto, except claims, losses or liabilities resulting from
the Lender's gross negligence or willful misconduct as determined by a final
judgment of a court of competent jurisdiction. Any liability of the Pledgors to
indemnify and hold the Lender harmless pursuant to the preceding sentence shall
be part of the Obligations secured by the Security Interest. The obligations of
the Pledgors under this Section shall survive any termination of this
Agreement.
Section 15. Waivers and Amendments; Remedies. This Agreement can be
waived, modified, amended, terminated or discharged, and the Security Interest
can be released, only explicitly in a writing signed by the Lender. A waiver so
signed shall be effective only in the specific instance and for the specific
purpose given. Mere delay or failure to act shall not preclude the exercise or
enforcement of any rights and remedies available to the Lender. All rights and
remedies of the Lender shall be cumulative and may be exercised singly in any
order or sequence, or concurrently, at the Lender's option, and the exercise or
enforcement of any such right or remedy shall neither be a condition to nor bar
the exercise or enforcement of any other.
Section 16. Notices. Any notice or other communication to any party in
connection with this Agreement shall be in writing and shall be sent by manual
delivery, telegram, telex, facsimile transmission, overnight courier or United
States mail (postage prepaid) addressed to such party at the address specified
on the signature page hereof, or at such other address as such party shall have
specified to the other party hereto in writing. All periods of notice shall be
measured from the date of delivery thereof if manually delivered, from the date
of sending thereof if sent by telegram, telex or facsimile transmission, from
the first business day after the date of sending if sent by overnight courier,
or from four days after the date of mailing if mailed.
Section 17. Pledgors Acknowledgements. Each Pledgor hereby
acknowledges that (a) such Pledgor has been advised by counsel in the
negotiation, execution and delivery of this Agreement, (b) the Lender has no
fiduciary relationship to such Pledgor, the relationship being solely that of
debtor and creditor, and (c) no joint venture exists between the Pledgors and
the Lender.
Section 18. Continuing Security Interest; Assignments under Credit
Agreement. This Agreement shall create a continuing security interest in the
Collateral and shall (a) remain in full force and effect until the payment in
full of the Obligations and the expiration of the obligation, if any, of the
Lender to extend credit accommodations to the Pledgors, (b) be binding upon the
Pledgors, and their successors and assigns, and (c) inure, together with the
rights and remedies of the Lender hereunder, to the benefit of, and be
enforceable by, the Lender and its successors, transferees and assigns. Without
limiting the generality of the foregoing clause (c), the Lender may assign or
otherwise transfer all or any portion of its rights and obligations under the
Credit Agreement and the Loan Documents to any other Person to the extent and
in the manner provided in the Credit Agreement, and may similarly transfer all
or any portion of its rights under this Pledge Agreement to such Persons.
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Section 19. Termination of Security Interest. Upon payment in full of
the Obligations and the expiration of any obligation of the Lender to extend
credit accommodations to the Borrower, the security interest granted hereby
shall terminate and all rights to the Collateral shall revert to the applicable
Pledgor. Upon any such termination, the Lender will return to the applicable
Pledgor such of the Collateral as shall not have been sold or otherwise applied
pursuant to the terms hereof and execute and deliver to such Pledgor such
documents as such Pledgor shall reasonably request to evidence such
termination. Any reversion or return of the Collateral upon termination of this
Agreement and any instruments of transfer or termination shall be at the
expense of the applicable Pledgor and shall be without warranty by, or recourse
on, the Lender. As used in this Section, "Pledgors" includes any assigns of a
Pledgor, any Person holding a subordinate security interest in any part of the
Collateral or whoever else may be lawfully entitled to any part of the
Collateral.
SECTION 20. GOVERNING LAW AND CONSTRUCTION. THE VALIDITY, CONSTRUCTION
AND ENFORCEABILITY OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE
OF NEW YORK; PROVIDED, HOWEVER, THAT NO EFFECT SHALL BE GIVEN TO CONFLICT OF
LAWS PRINCIPLES OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE
VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES
HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE MANDATORILY GOVERNED BY
THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. Whenever possible,
each provision of this Agreement and any other statement, instrument or
transaction contemplated hereby or relating hereto shall be interpreted in such
manner as to be effective and valid under such applicable law, but, if any
provision of this Agreement or any other statement, instrument or transaction
contemplated hereby or relating hereto shall be held to be prohibited or
invalid under such applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Agreement or
any other statement, instrument or transaction contemplated hereby or relating
hereto.
SECTION 21. CONSENT TO JURISDICTION. AT THE OPTION OF THE LENDER, THIS
AGREEMENT MAY BE ENFORCED IN ANY FEDERAL COURT OR NEW YORK STATE COURT SITTING
IN THE CITY OF NEW YORK; AND THE PLEDGORS CONSENT TO THE JURISDICTION AND VENUE
OF ANY SUCH COURT AND WAIVE ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT
CONVENIENT. IN THE EVENT A PLEDGOR COMMENCES ANY ACTION IN ANOTHER JURISDICTION
OR VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM
THE RELATIONSHIP CREATED BY THIS AGREEMENT, THE LENDER AT ITS OPTION SHALL BE
ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES
ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE
LAW, TO HAVE SUCH CASE DISMISSED WITHOUT PREJUDICE.
-11-
<PAGE> 33
SECTION 22. WAIVER OF JURY TRIAL. EACH OF THE PLEDGORS AND THE LENDER,
BY ITS ACCEPTANCE OF THIS AGREEMENT, IRREVOCABLY WAIVES ANY AND ALL RIGHT TO
TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 23. Counterparts. This Agreement may be executed in any number
of counterparts, each of which when so executed and delivered shall be deemed
an original, but all such counterparts together shall constitute but one and
the same instrument.
Section 24. General. All representations and warranties contained in
this Agreement or in any other agreement between a Pledgor and the Lender shall
survive the execution, delivery and performance of this Agreement and the
creation and payment of the Obligations. Each Pledgor waives notice of the
acceptance of this Agreement by the Lender. Captions in this Agreement are for
reference and convenience only and shall not affect the interpretation or
meaning of any provision of this Agreement.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
-12-
<PAGE> 34
IN WITNESS WHEREOF, each Pledgor has caused this Pledge Agreement to
be duly executed and delivered by its officer thereunto duly authorized as of
the date first above written.
OAKHURST COMPANY, INC.
By /s/ Robert M.Davies
-------------------------------------
Its Chief Executive Officer
Address for OCI:
3365 Spruce Lane
Grapevine, Texas 76501
Attn: President
Fax: (817) 416-0914
OAKHURST COMPANY, INC.
By /s/ Robert M.Davies
-------------------------------------
Its Chief Executive Officer
Address for OTI:
3365 Spruce Lane
Grapevine, Texas 76501
Attn: President
Fax: (817) 416-0914
Address for Lender:
KTI, Inc.
7000 Boulevard East
Guttenberg, NJ 07093
Attn: President
Fax: (201) 854-1771
-13-
<PAGE> 35
SCHEDULE I
Part I
PLEDGED STOCK
Stock Issuer: Oakhurst Technology, Inc.
Percentage Ownership: 100%
Class of Stock:
Certificate No(s).:
Par Value:
Number of Shares:
Part II
PLEDGED LLC INTERESTS:
Issuer: New Heights Recovery & Power, LLC
Percentage Ownership: 50%
Number of Units: 7,963,500
-14-
<PAGE> 36
Oakhurst Company, Inc.
December 29, 1998
Page 1
SUBJECT TO THAT CERTAIN INTERCREDITOR AGREEMENT, DATED AS OF DECEMBER 29, 1998,
AMONG KTI, INC., A NEW JERSEY CORPORATION, FINOVA CAPITAL CORPORATION, A
DELAWARE CORPORATION AND OAKHURST COMPANY, INC., A DELAWARE CORPORATION
LETTER LOAN AGREEMENT
December 29, 1998
Oakhurst Company, Inc.
3365 Spruce Lane
Grapevine, Texas 76501
RE: $11,500,000 Multiple Advance Term Loan Facility
Gentlemen:
KTI, Inc. ("KTI") agrees to make advances to Oakhurst Company, Inc., a
Delaware corporation (the "Borrower" or "OCI"), for the benefit of Oakhurst
Technology, Inc., a Delaware corporation ("OTI") in an aggregate amount of up
to $11,500,000 (the "Facility Limit"), subject to adjustment as hereinafter set
forth, from now until April 30, 2001 under a promissory note dated the date of
this agreement (the "Note") upon the following terms and conditions:
1. Making and Repaying the Advances; Interest Rate; Use of Proceeds.
The proceeds of each advance will be the used by the Borrower as an equity
investment in OTI, which is the designated "KTI Affiliate" under that certain
Investment Agreement dated as of December 29, 1998, between KTI and New Heights
Recovery & Power, LLC, a Delaware limited liability company ("New Heights") and
that certain Amended Plan of Reorganization for New Heights as confirmed and
modified by an order dated December 15, 1998 of the United States Bankruptcy
Court for the District of Delaware (the "Amended Plan"). The proceeds of each
advance shall be used by the Borrower only for equity contributions to OTI in
order to enable OTI (a) to satisfy its (or KTI's) obligations as the KTI
Affiliate and member of New Heights under the Amended Plan and Investment
Agreement, (b) to invest in businesses having the potential of expanding or
enhancing the recycling of rubber or tires, and (c) to reimburse (or to
contribute capital to New Heights to enable New Heights to reimburse or pay)
KTI for any drawings on or costs related to the BFI Letter of Credit (as
defined below), or the Acknowledgment (as defined below) including, without
limitation,
<PAGE> 37
Oakhurst Company, Inc.
December 29, 1998
Page 2
loans made by KTI, Inc. to New Heights. Any equipment purchased (or moving
costs related to the moving of equipment) under the "Business Plan" described
in the Amended Plan shall be deemed advances under clause (a) of this
paragraph 1, the amount thereof being the cost or fair market value of such
equipment; provided that the equipment contributed from the "Franklin Park"
facility (as described in the Business Plan) shall be at the value designated
in the Investment Agreement.
KTI does not have to make any advance if an Event of Default (as
defined below) has occurred, if KTI has terminated its commitment under this
Agreement pursuant to paragraph 8 below or if any of the representations and
warranties of OCI or OTI in this Agreement would not be true if made on the
date of that advance. Also, KTI does not have to make any advance to the
Borrower until KTI has received (w) a duly executed Pledge Agreement dated as
of the date hereof, in the form of Exhibit A hereto (the "Pledge Agreement")
pursuant to which the Borrower pledges and grants a security interest in all of
the issued and outstanding capital stock of OTI to KTI to secure its
obligations hereunder, together with stock certificates and executed but
undated stock powers or assignments related thereto, and any other security
agreements, other security documents, financing statements, lien searches,
opinions, certified resolutions, opinions of counsel, or other documents or
collateral that KTI may require, all satisfactory to KTI, (x) a Non-exclusive
License to Use Technology dated as of the date hereof duly executed by OTI and
KTI Recycling, Inc. (the "Royalty Agreement"), (y) the Investment Agreement
dated the date hereof (the "OCI Investment Agreement") between KTI, OCI and
OTI, and (z) an intercreditor agreement with FINOVA Capital Corporation, in
form and substance reasonably acceptable to KTI (the "Intercreditor
Agreement"). This Agreement, the Note, the Pledge Agreement, the Royalty
Agreement, the OCI Investment Agreement and the Intercreditor Agreement are
collectively referred to herein as the "Loan Documents."
The Borrower may prepay all or a portion of the Note at any time,
without premium or penalty. Amounts prepaid may not be reborrowed. All amounts
outstanding under the Note shall be due and payable in full on the earlier of
April 30, 2001 or the date KTI terminates its commitment under this Agreement
pursuant to paragraph 8 below.
All amounts outstanding under the Note shall bear interest at the rate
of fourteen percent (14%) per annum, calculated on the basis of actual days
elapsed and a year of 360 days (the "Note Rate"). Interest shall be payable
quarterly in arrears, commencing with the calendar quarter ended March 31,
1999. To the extent any interest is not paid in full when due, then the unpaid
portion shall be added to principal and bear interest at the Note Rate.
2. Adjustments to Principal Amount. The Facility Limit will be
increased to an amount not to exceed $17,000,000 in the event (a) automatic
advances made under paragraph 7 cause the then-current Facility Limit to be
exceeded by the amount of such excess, and (b) the amount required by OTI to
fund the Business Plan under the Investment
<PAGE> 38
Oakhurst Company, Inc.
December 29, 1998
Page 3
Agreement and the Amended Plan exceed the sum of proceeds from the sale of
common stock under the OCI Investment Agreement plus all advances made under
the then-current Facility Limit by the amount of such excess. In such case, the
Borrower shall execute and deliver a promissory note to KTI in the principal
amount of such increase, and otherwise having the same terms as the Note, and
deliver to KTI such authorizing resolutions, certificates of good standing,
opinions, reaffirmations and other documents related to the increase requested
by KTI.
The Facility Limit will be decreased (x) by $7,500,000, in the event
that the Phase Two Business Plan (as defined in the Investment Agreement) is
not implemented by the time set forth in the Amended Plan, (y) by $3,500,000,
in the event that the Phase Three Business Plan (as defined in the Investment
Agreement) is not implemented by the time set forth in the Amended Plan, and
(z) by the cost of the acquisition of additional common stock of the Borrower
in the event the holders of certain stock options to purchase common stock of
the Borrower breach their agreement regarding the exercise of such options.
3. Representations. The Borrower and OTI each represents and warrants
to KTI as follows:
a) It is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware.
b) The execution, delivery and performance of this Agreement,
the Note, the Pledge Agreement and all other instruments and
agreements executed by it in connection with this Agreement, and the
other Loan Documents have been properly authorized by all necessary
corporate action and do not require governmental approval.
c) The Loan Documents to which it is a party have been
properly executed and constitute its legal, valid and binding
obligations, enforceable against it in accordance with their terms.
d) The financial statements that the Borrower has furnished
to KTI fairly represent the Borrower's financial condition on the date
of those statements and the results of the Borrower's operations for
the periods referred to in those statements. Those statements were
prepared in accordance with generally accepted accounting principles.
There have been no material adverse changes in the Borrower's
properties or financial condition since the date of the latest
statements.
e) There are no actions, suits or proceedings pending or
threatened against or affecting the Borrower or the Borrower's
properties before any court or governmental agency.
<PAGE> 39
Oakhurst Company, Inc.
December 29, 1998
Page 4
4. Reporting The Borrower will not change its fiscal year end from
February 28, and will deliver to KTI the following financial statements in a
form acceptable to KTI:
a) The Borrower's annual financial statements within 120 days
after the end of each fiscal year, audited by Deloitteu& Touche or any
other independent certified public accountant of nationally recognized
standing, reasonably satisfactory to KTI.
b) The Borrower's quarterly internally-prepared financial
statements and a covenant compliance certificate within 60 days after
the end of each quarter, each certified as accurate by an officer of
the Borrower.
The financial statements described in clauses (a) and (b) above shall
be prepared in accordance with generally accepted accounting principles,
consistently applied. The Borrower will also notify KTI within 30 days after
any lawsuit or other legal proceeding in which the damages sought exceed
$10,000 has been begun against the Borrower or any of its subsidiaries,
including OTI.
5. Other Affirmative Covenants Unless KTI shall otherwise consent in
writing, the Borrower will:
a) Pay the Borrower's taxes (including payroll and
withholding taxes) when due.
b) Keep adequate and proper financial records, and permit KTI
to examine those records and inspect the Borrower's property, and
discuss the Borrower's affairs and finances with the Borrower's
officers, at any reasonable time.
c) Keep the Borrower's business adequately insured, and
maintain the insurance required under any security agreement or
mortgage.
d) Maintain the Borrower's and OTI's corporate existence in
good standing under the laws of the state of Delaware.
e) Maintain the Borrower's properties in good condition,
repair and working order.
f) Comply in all material respects with all laws, rules and
regulations to which the Borrower and its subsidiaries, including OTI,
may be subject.
6. Negative Covenants Unless KTI shall otherwise consent in writing,
the Borrower will not:
<PAGE> 40
Oakhurst Company, Inc.
December 29, 1998
Page 5
a) Grant any mortgage, security interest or any other lien on
any of the Borrower's assets (including capitalized leases), or permit
any such lien to exist or continue except for: (i) liens in KTI's
favor, (ii) liens in favor of FINOVA Capital Corporation pursuant to
the Loan and Security Agreement (the "FINOVA Agreement") between
FINOVA Capital Corporation ("FINOVA") and "Borrowers" (as the term is
defined in the FINOVA Agreement: Oakhurst Company, Inc., Steel City
Products, Inc., Puma Products, Inc., H&H Distributors, Inc., Dowling's
Fleet Service Co., Inc., Oakhurst Management Corporation, Oakhurst
Holdings, Inc., and G&O Sales Company) (the "FINOVA Borrowers"), dated
as of March 28, 1996, as in effect on the date hereof; and (iii)
deposits or pledges to secure payment of workers' compensation,
unemployment insurance, old age pensions or other social security
obligations and liens of carriers, warehousemen, mechanics and
materialmen for sums not due, in each case arising in the ordinary
course of business of the Borrower, liens for taxes, fees, assessments
and governmental charges not delinquent, liens incurred or deposits or
pledges made or given in connection with, or to secure payment of,
indemnity, performance or other similar bonds, encumbrances in the
nature of zoning restrictions, easements and rights or restrictions of
record on the use of real property and landlord's liens under leases
on the premises rented, which do not materially detract from the value
of such property or impair the use thereof in the business of the
Borrower, and capitalized leases provided that the aggregate annual
payments owed by the Borrower under such capitalized leases do not
exceed $100,000.
b) Borrow any money, or sign any promissory note, except for:
(i) loans from KTI and notes to KTI; (ii) indebtedness secured by
liens permitted under a) above, and (iii) indebtedness of the Borrower
pursuant to the FINOVA Agreement.
c) Guarantee any obligations, except the endorsement of
checks for collection and the indebtedness of the FINOVA Borrowers.
d) Make any investments in "Affiliates" ("Affiliates" means
any person controlling, controlled by or under common control with any
of the Borrowers) other than the acquisition of common stock of OTI or
capital contributions to OTI, or in bank accounts or certificates of
deposit and federal government securities of a maturity of one year or
less.
e) Sell any property subject to liens of KTI, sell any of the
Borrower's assets if such sale will materially and adversely affect
the Borrower's ability to repay advances made to Borrower by KTI or
sell Dowling's Fleet Service Co., Inc., unless substantially all of
the cash portion of the sale proceeds is used to paydown the
indebtedness owed to FINOVA under the FINOVA Agreement or any non-cash
consideration may be pledged to FINOVA to secure such indebtedness.
<PAGE> 41
Oakhurst Company, Inc.
December 29, 1998
Page 6
f) Consolidate or merge with any other business, or acquire
the assets of any other business.
g) Engage in any line of business other than the Borrower's
(and its subsidiaries) current businesses, or permit OTI to engage in
any business other than owning its membership interest in New Heights
or in a business engaged principally in the production and
incineration of crumb rubber or other related businesses which have
the potential to enhance or expand rubber or tire recycling.
h) Pay any dividends or otherwise make any distributions on,
or redemptions of, any of its outstanding stock.
7. KeyBank Letter of Credit and Acknowledgment; Automatic Advances. As
contemplated by paragraph 6 of Article XIII of the Amended Plan, KTI has caused
KeyBank National Association ("KeyBank") to issue a letter of credit (the "BFI
Letter of Credit") to Browning-Ferris Industries of Illinois, Inc. ("BFI") for
the account of KTI, in order to secure and provide for reimbursement to BFI for
the costs of New Heights' remediation obligations relating to the current
stockpile of tire pieces in the event BFI performs such obligations. KTI has
agreed to reimburse and pay all fees to KeyBank relating to the BFI Letter of
Credit, including reimbursement of any drawings thereunder. KTI has executed
and delivered to New Heights an acknowledgment to fund the obligations of OTI
under the Investment Agreement (the "Acknowledgment"). OTI hereby agrees to
make a capital contribution to New Heights to enable New Heights to pay or
reimburse KTI for any amounts paid by KTI in connection with the BFI Letter of
Credit or the Acknowledgment. KTI is hereby authorized, without request or
notice of any kind, to automatically make advances of the Loan hereunder to
itself to reimburse itself for any payments to KeyBank with respect to the BFI
Letter of Credit or for payment or performance by KTI under the Acknowledgment,
including all reasonable expenses relating thereto, and to the extent the
Facility Amount is then insufficient to fund such advances, the Facility Amount
will be automatically increased to provide for such advances.
8. Events of Default Each of the following shall be an Event of
Default:
a) The Borrower shall fail to pay when due any amount owing
on any Note or any other indebtedness to KTI that the Borrower owes or
has guaranteed.
b) Any event referred to in any Note that permits KTI to
declare that Note due and payable shall occur.
<PAGE> 42
Oakhurst Company, Inc.
December 29, 1998
Page 7
c) The Borrower shall breach any of the Borrower's other
obligations under this Agreement and such breach shall continue for 30
days after KTI gives the Borrower notice thereof.
d) An event of default shall occur under any of the Loan
Documents or any other document securing any Note, or under the FINOVA
Agreement.
e) Any representation or warranty that the Borrower has made
under this Agreement or any other Loan Document shall prove to have
been untrue when made.
f) The Borrower or OTI shall become insolvent, or the subject
of any bankruptcy, reorganization, debt arrangement, dissolution or
liquidity proceeding.
If any Event of Default described in clause f) above occurs, KTI's
commitment under this Agreement shall automatically terminate and the Notes and
all of the Borrower's other obligations to KTI under this Agreement shall
immediately become due and payable. If any other Event of Default occurs, KTI
may, without giving the Borrower notice, declare KTI's commitment to make
advances under this Agreement terminated and/or declare the principal balance
of each Note and all accrued interest to be immediately due, and KTI may
exercise any other rights and remedies available to KTI by law or agreement.
The Borrower hereby irrevocably authorizes KTI to set off all sums owing by the
Borrower to KTI against all deposits and credits the Borrower may have with,
and any claims the Borrower may have against, KTI at any time after an Event of
Default occurs.
9. Fees and Expenses The Borrower and OTI agree to pay all of the
costs and expenses incurred by KTI in connection with the negotiation,
preparation, execution, perfection, administration, amendment, or enforcement
of this Agreement and the other Loan Documents, including attorney's fees and
expenses and internal time charges reasonably determined by KTI for lawyers
employed by KTI.
10. Miscellaneous
a) If KTI does not exercise some right KTI has against the
Borrower, or if KTI delays in exercising a right, that does not mean
that KTI gives up that right.
b) No Loan Document can be changed unless KTI signs or
consents in writing to a written amendment.
c) This Agreement is the entire agreement between KTI and the
Borrower with respect to the $11,500,000 line of credit. This
Agreement takes the place of any conversations, oral agreements and
commitment letters or other letters between KTI and the Borrower.
<PAGE> 43
Oakhurst Company, Inc.
December 29, 1998
Page 8
d) This Agreement shall be binding upon the Borrower and OTI,
and their successors and assigns, and shall inure, together with the
rights and remedies of KTI hereunder, to the benefit of, and be
enforceable by, KTI and its successors, transferees and assigns.
Without limiting the generality of the foregoing, KTI may assign or
otherwise transfer all or any portion of its rights and obligations
under the Credit Agreement and the Loan Documents to any other Person.
e) Each of the Borrower and OTI agrees to the provisions
contained in Exhibit B attached hereto, which provisions are fully
incorporated herein.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 44
Oakhurst Company, Inc.
December 29, 1998
Page 9
Please indicate the Borrower's acceptance of this Agreement by signing the
enclosed copy of this letter and returning it to the undersigned.
Very truly yours,
KTI, INC.
By /s/ Martin J. Sergi
-------------------------------
Name Martin J. Sergi
Its President
Accepted this 29th day of December, 1998.
BORROWER:
OAKHURST COMPANY, INC.
By /s/ Robert M. Davies
----------------------------------
Name: Robert M. Davies
Its Chief Executive Officer
OTI:
OAKHURST TECHNOLOGY, INC.
By /s/ Robert M. Davies
----------------------------------
Name: Robert M. Davies
Its Chief Executive Officer
<PAGE> 45
Oakhurst Company, Inc.
December 29, 1998
Page 10
EXHIBIT B
Joint and Several Obligations; Terms with Respect to
Obligations.
If it is at any time determined that either OCI or OTI is liable as a
guarantor with respect to such Obligations arising in connection with Loan or
advances made to the other (the "Guaranteed Obligations"), each of OCI and OTI
hereby agrees to the following terms:
(a) Obligations Absolute. No act or thing need occur to
establish the liability of OCI or OTI for the Guaranteed Obligations,
and no act or thing, except full payment and discharge of all such
Guaranteed Obligations, shall in any way exonerate OCI or OTI or
modify, reduce, limit or release the liability of OCI or OTI for its
Guaranteed Obligations. The obligations of OCI or OTI for its
Guaranteed Obligations shall be absolute, unconditional, and
irrevocable, and shall not be subject to any right of setoff or
counterclaim by OCI or OTI.
(b) Continuing Guaranty . OCI and OTI shall each be liable
for its Guaranteed Obligations, plus accrued interest thereon and all
attorneys' fees, collection costs and enforcement expenses referable
thereto. Guaranteed Obligations may be created and continued in any
amount without affecting or impairing the liability of OCI or OTI
therefor. No notice of such Guaranteed Obligations already or
hereafter contracted or acquired by KTI, or any renewal or extension
of any thereof need be given to OCI or OTI and none of the foregoing
acts shall release OCI or OTI from liability hereunder. The agreement
of OCI or OTI pursuant to the Credit Agreement with respect to its
Guaranteed Obligations is an absolute, unconditional and continuing
guaranty of payment of such Guaranteed Obligations and shall continue
to be in force and be binding upon OCI or OTI until such Guaranteed
Obligations are paid in full and the Credit Agreement is terminated,
and KTI may continue, at any time and without notice to such Borrower,
to extend credit or other financial accommodations and loan monies to
or for the benefit of the other on the faith thereof. Each of OCI and
OTI hereby waives, to the fullest extent permitted by law, any right
they may have to revoke or terminate its guaranty of the Guaranteed
Obligations before the Guaranteed Obligations are paid in full and the
Credit Agreement is terminated. In the event either OCI or OTI shall
have any right under applicable law to otherwise terminate or revoke
its guaranty of the Guaranteed Obligations which cannot be waived,
such termination or revocation shall not be effective until written
notice of such termination or revocation, signed by person, is
actually received by KTI's officer responsible for such matters. Any
notice of termination or revocation described above shall not affect
OCI's or OTI's guaranty of the Guaranteed Obligations in relation to
(i) any of the Guaranteed Obligations that arose prior to receipt
thereof or (ii) any of the Guaranteed Obligations created after
<PAGE> 46
Oakhurst Company, Inc.
December 29, 1998
Page 11
receipt thereof, if such Guaranteed Obligations were incurred through
loans by KTI , and/or for the purpose of protecting any collateral,
including, but not limited, to all protective advances, costs,
expenses, and attorneys' and paralegals' fees, whensoever made,
advanced or incurred by KTI in connection with the Guaranteed
Obligations. If, in reliance on either OCI or OTI's guaranty of its
Guaranteed Obligations, KTI makes loans or other advances to or for
the benefit of the other or takes other action under this Agreement
after such aforesaid termination or revocation by the undersigned but
prior to the receipt by KTI of said written notice as set forth above,
the rights of KTI shall be the same as if such termination or
revocation had not occurred.
(c) Other Transactions. Whether or not any existing
relationship between OCI and OTI has been changed or ended, KTI may,
but shall not be obligated to, enter into transactions resulting in
the creation or continuance of other obligations of the other to KTI,
without consent or approval by the other and without notice to the
other, and all such obligations shall be guaranteed by virtue of the
Credit Agreement. The liability of OCI and OTI under the Credit
Agreement with respect to the Guaranteed Obligations shall not be
affected or impaired by any of the following acts or things (which KTI
is expressly authorized to do, omit or suffer from time to time,
without notice to or approval by OCI or OTI): (i) any acceptance of
collateral security, other guarantors, accommodation parties or
sureties for any or all Guaranteed Obligations; (ii) any one or more
extensions or renewals of Guaranteed Obligations (whether or not for
longer than the original period) or any modification of the interest
rates, maturities or other contractual terms applicable to any
Guaranteed Obligations; (iii) any waiver or indulgence granted to the
other Borrowers, any delay or lack of diligence in the enforcement of
Guaranteed Obligations, or any failure to institute proceedings, file
a claim, give any required notices or otherwise protect any Guaranteed
Obligations; (iv) any full or partial release of, settlement with, or
agreement not to sue,OCI or OTI or any other guarantor or other person
liable in respect of any Guaranteed Obligations; (v) any discharge of
any evidence of Guaranteed Obligations or the acceptance of any
instrument in renewal thereof or substitution therefor; (vi) any
failure to obtain collateral security for Guaranteed Obligations, or
to see to the proper or sufficient creation and perfection thereof, or
to establish the priority thereof, or to protect, ensure, or enforce
any collateral security, or any modification, substitution, discharge,
impairment or loss of any collateral security; (vii) any foreclosure
or enforcement of any collateral security; (viii) any transfer of any
Guaranteed Obligations or any evidence thereof; (ix) any order of
application of any payments or credits upon Guaranteed Obligations;
(x) any release of any collateral security for Guaranteed Obligations;
(xi) any amendment to or modification of, any agreement between KTI
and either OCI or OTI, or any waiver of compliance by OCI or OTI with
the terms thereof; and (xii) any election by KTI under Section 1111(b)
of the United States Bankruptcy Code.
<PAGE> 47
Oakhurst Company, Inc.
December 29, 1998
Page 12
(d) Waivers of Defenses and Rights. Each of OCI and OTI
waives any and all defenses, claims and discharges of the other, or
any other obligor, pertaining to the Guaranteed Obligations, except
the defense of discharge by payment in full. Without limiting the
generality of the foregoing, neither OCI nor OTI will assert, plead or
enforce against KTI any defense of waiver, release, discharge in
bankruptcy, statute of limitations, res judicata, statute of frauds,
anti-deficiency statute, fraud, usury, illegality or unenforceability
which may be available to OCI or OTI or any other person liable in
respect of any Guaranteed Obligations, or any setoff available against
KTI to OCI or OTI or any such other person, whether or not on account
of a related transaction. Each of OCI and OTI expressly agrees that it
shall be and remain liable for any deficiency remaining after
foreclosure of any security interest securing Guaranteed Obligations,
whether or not the liability of or any other obligor for such
deficiency is discharged pursuant to statute, judicial decision or
contract. Each of OCI and OTI waives presentment, demand for payment,
notice of dishonor or nonpayment, and protest of any instrument
evidencing Guaranteed Obligations. Each of OCI and OTI agrees that its
liability under the Credit Agreement for the Guaranteed Obligations
shall be primary and direct, and that KTI shall not be required first
to resort for payment of the Guaranteed Obligations to the other or
other persons or their properties, or first to enforce, realize upon
or exhaust any collateral security for the Guaranteed Obligations, or
to commence any action or obtain any judgment against any other or
against any such collateral security or to pursue any other right or
remedy KTI may have against any other before enforcing the liability
of such Person for the Guaranteed Obligations under the Credit
Agreement.
(e) Approval of Credit. Each of OCI and OTI has,
independently and without reliance upon KTI or the directors,
officers, agents or employees of KTI, and instead in reliance upon
information furnished by the other Borrowers and upon such other
information as OCI or OTI deemed appropriate, made its own independent
credit analysis and decision to guaranty the obligations of the other
Borrowers pursuant to the Credit Agreement.
(f) Waiver of Subrogation. Each of OCI and OTI expressly
waives any and all rights of subrogation, reimbursement, indemnity,
exoneration, contribution or any other claim which it may now or
hereafter have against the other, any endorser or any other guarantor
of all or any part of the Guaranteed Obligations, and each hereby
waives any benefit of, and any right to participate in, any security
or collateral given to KTI to secure payment of the Guaranteed
Obligations or any other liability of the other to KTI. Each of OCI
and OTI further agrees that any and all claims it may have against the
other, any endorser or any other guarantor of all or any part of the
Guaranteed Obligations or against any of their respective properties,
whether arising by reason of any payment by such Person to KTI
pursuant to the provisions hereof or otherwise, is hereby waived.
<PAGE> 1
EXHIBIT 10.24
INTERCREDITOR AGREEMENT
between
KTI, INC.
and
FINOVA CAPITAL CORPORATION
December 29, 1998
<PAGE> 2
INTERCREDITOR AGREEMENT
THIS INTERCREDITOR AGREEMENT (this "Agreement"), dated as of December 29,
1998, is entered into by and among KTI, Inc., a New Jersey corporation ("KTI"),
FINOVA CAPITAL CORPORATION, a Delaware corporation ("FINOVA"), and OAKHURST
COMPANY, INC., a Delaware corporation ("Oakhurst"), with reference to the
following facts:
RECITALS
A. Oakhurst intends to enter into the KTI Loan Documents (as defined below)
with KTI, pursuant to which KTI will extend certain financing to Oakhurst for
the benefit of Oakhurst Technology, Inc., a Delaware corporation ("OTI") on the
terms and conditions set forth in such KTI Loan Documents.
B. Oakhurst, together with Steel City Products, Inc., a Delaware
corporation, Dowling's Fleet Service Co., Inc., a New York corporation, Oakhurst
Management Corporation, a Texas corporation, Oakhurst Holdings, Inc., a Delaware
corporation, and G&O Sales Company, a Pennsylvania corporation (collectively,
"Borrowers"), have entered into various agreements with FINOVA, including that
certain Loan and Security Agreement, dated as of March 28, 1996 (as it may be
amended from time to time, the "FINOVA Loan Agreement"), pursuant to which
FINOVA provides certain loans and financial accommodations to Borrowers.
C. Pursuant to the FINOVA Loan Agreement, Oakhurst must obtain FINOVA's
written consent prior to entering into the KTI Loan Documents and FINOVA is
unwilling to give such consent unless KTI enters into this Agreement.
D. Accordingly, to induce FINOVA to consent to Oakhurst entering into the
KTI Loan Documents and to continue to extend to Oakhurst the loans contemplated
under the FINOVA Loan Agreement, KTI is willing to enter into this Agreement
with FINOVA.
AGREEMENT
NOW, THEREFORE, the parties agree as follows:
1. Certain Defined Terms.
(a) General: When used in this Agreement, the following terms have the
following respective meanings:
"Agreement" has the meaning set forth in the introduction hereto.
"Borrowers" has the meaning set forth in the recitals of this
Agreement.
"FINOVA" has the meaning set forth in the introduction of this
Agreement.
2
<PAGE> 3
"FINOVA Collateral" means the collateral set forth in Exhibit A
attached hereto and incorporated by this reference.
"FINOVA Debt" means all present and future indebtedness and other
obligations (direct or indirect) owing by Oakhurst to FINOVA. FINOVA Debt
includes (without limitation) the Obligations, all present and future
representations, warranties, covenants, agreements, indemnities, and other
obligations which Oakhurst or its successors and assigns may incur to FINOVA,
including (without limitation) those incurred after the filing of a bankruptcy
petition by or against Oakhurst.
"FINOVA Loan Agreement" has the meaning set forth in the recitals of
this Agreement.
"KTI" has the meaning set forth in the introduction of this Agreement.
"KTI Collateral" means the collateral as set forth in Exhibit B
attached hereto and incorporated herein by this reference.
"KTI Debt" means all present and future indebtedness and other
obligations (direct or indirect) owing by Oakhurst to KTI. KTI Debt includes
(without limitation) indebtedness owed under the KTI Loan Documents, together
with any other debts, demands, monies, indebtedness, liabilities, and
obligations now or hereafter owed by Oakhurst to KTI, including interest,
principal, costs, and other charges, together with all claims, rights, causes of
action, judgments, decrees and other obligations, including (without limitation)
those incurred after the filing of a bankruptcy petition by or against Oakhurst.
"KTI Loan Documents" means all instruments and agreements evidencing
the KTI Debt, including, without limitation, that certain Letter Loan Agreement
of even date herewith among Oakhurst, OTI and KTI and that certain Promissory
Note, of even date herewith in the original principal amount of Eleven Million
Five Hundred Thousand Dollars ($11,500,000), subject to increase in accordance
with the Letter Loan Agreement, executed by Oakhurst to the order of KTI and any
other notes which may hereafter be executed by Oakhurst to the order of KTI
(collectively, the "KTI Note"), and that certain Pledge Agreement of even date
herewith among Oakhurst, OTI and KTI, copies of which are attached hereto as
Exhibit C and incorporated herein by this reference and as each may be amended,
modified, supplemented or restated from time to time.
"Lender" means either FINOVA or KTI.
"Oakhurst" has the meaning set forth in the recitals to this
Agreement.
"OTI" has the meaning set forth in the recitals to this Agreement.
(b) Other Terms. Unless otherwise defined in this Agreement, any and
all initially capitalized terms set forth in this Agreement shall have the
meaning ascribed thereto in the FINOVA Loan Agreement.
3
<PAGE> 4
2. Representations, Warranties, and Covenants.
(a) KTI and Oakhurst represent, warrant, and covenant (jointly and
severally) to FINOVA that:
(i) Amount of KTI Debt. As of the date of this Agreement, the
maximum commitment amount for the KTI Debt is Eleven Million Five Hundred
Thousand Dollars ($11,500,000), subject to increase to an amount up to but not
exceeding Seventeen Million Dollars ($17,000,000), in accordance with the
provisions of the KTI Loan Documents.
(ii) KTI Loan Documents. All KTI Loan Documents shall be
conspicuously marked with substantially the following legend:
"Subject to that certain Intercreditor Agreement, dated as of December
29, 1998, among KTI, Inc., a New Jersey corporation, FINOVA Capital
Corporation, a Delaware corporation, and Oakhurst Company, Inc., a
Delaware corporation."
and after being so marked the originals of the KTI Loan Documents shall be
exhibited to FINOVA and a copy of the marked KTI Loan Documents shall be
delivered to FINOVA.
(iii) No Default. Oakhurst is not in default under any KTI Debt
Document.
(iv) Notice of Default. KTI and Oakhurst shall each promptly
notify FINOVA of all defaults, events of default, and events which with the
giving of notice or the passage of time, or both, would become events of default
("unmatured events of default") under any KTI Debt Document.
(v) Further Action. Upon FINOVA's request, KTI and Oakhurst will
promptly take all actions which FINOVA believes appropriate to carry out the
purposes of this Agreement.
(b) FINOVA and Oakhurst represent, warrant, and covenant (jointly and
severally) to KTI that:
(i) No Default. To the best of FINOVA's knowledge, Oakhurst is
not in default under the FINOVA Loan Agreement.
(ii) Further Action. Upon KTI's request, FINOVA and Oakhurst will
promptly take all actions which KTI believes appropriate to carry out the
purposes of this Agreement.
3. Priorities.
(a) General. As more fully provided in the remainder of this Section
3, the KTI Debt is hereby subordinated and made junior to the FINOVA Debt,
except with respect to payments made from any revenues or dividends generated by
OTI and the assets of OTI, and
4
<PAGE> 5
except with respect to proceeds of the KTI Collateral, as to which the KTI Debt
is senior and as to which the FINOVA Debt is subordinated.
(b) Payments to KTI. Notwithstanding any terms or provisions set forth
in the KTI Loan Documents, Oakhurst may make payments of interest and principal
under the terms of the KTI Loan Documents; provided, however, such payments of
principal and interest shall only be made (i) from the proceeds of dividends
received from OTI, (ii) from the proceeds of the sale or disposition of the KTI
Collateral and (iii) from the proceeds of Oakhurst's cash flow or other assets,
including, without limitation, FINOVA Collateral; provided, that (A) Oakhurst
has received FINOVA's prior written consent, which shall not be unreasonably
withheld, (B) no such payment shall be made from the proceeds of Oakhurst's cash
flow or other assets, including, without limitation, FINOVA Collateral prior to
March 28, 1999 and (C) no Event of Default (as defined in the FINOVA Loan
Agreement), or event which with notice or the passage of time would constitute
an Event of Default, exists or has occurred and is continuing. Oakhurst and KTI
agree (and KTI acknowledges such agreement) that Oakhurst shall in no event: (i)
make any payments to KTI in respect of the KTI Debt except as provided in this
Section 3(b) or (ii) without FINOVA's prior written consent, execute or deliver
any negotiable instruments as evidence of the KTI Debt.
(c) Priority of Interests in FINOVA Collateral. KTI currently holds no
security interest or lien in the FINOVA Collateral, or in any other assets of
Oakhurst (other than its security interest in the KTI Collateral), as security
for Oakhurst's payment and performance of its obligations to KTI under the KTI
Loan Documents, and no such security interest or lien is currently contemplated
to be granted by Oakhurst to KTI. In the event KTI hereafter acquires any
security interest, lien, or other right or interest in the FINOVA Collateral,
such security interest, lien, or other right or interest shall at all times be,
prior to the indefeasible payment in full of the FINOVA Debt be junior,
subordinate and subject to any security interest, lien or other right or
interest FINOVA now has or may hereafter acquire in the FINOVA Collateral. The
subordination provided in this Section 3(c) shall apply irrespective of the time
or order of attachment or perfection of any security interest, irrespective of
the time or order of filing of any financing statement or other document, and
irrespective of any statute, rule, law, or court decision to the contrary.
(d) Priority of Interests in KTI Collateral. FINOVA currently holds no
security interest or lien in the KTI Collateral as security for Oakhurst's
payment and performance of its obligations to FINOVA under the FINOVA Loan
Agreement, and no such security interest or lien is currently contemplated to be
granted by Oakhurst to FINOVA. In the event FINOVA hereafter acquires any
security interest, lien, or other right or interest in the KTI Collateral, such
security interest, lien, or other right or interest shall at all times be, prior
to the indefeasible payment in full of the KTI Debt be junior, subordinate and
subject to any security interest, lien or other right or interest KTI now has or
may hereafter acquire in the KTI Collateral. The subordination provided in this
Section 3(d) shall apply irrespective of the time or order of attachment or
perfection of any security interest, irrespective of the time or order of filing
of any financing statement or other document, and irrespective of any statute,
rule, law, or court decision to the contrary.
5
<PAGE> 6
4. Restrictions on Lenders' Actions.
(a) Unless it shall have obtained FINOVA's prior written consent,
until the FINOVA Debt has been paid in full KTI will not:
(i) demand or accept any payment upon the KTI Debt, except as may
be permitted by this Agreement;
(ii) demand or take a security interest in or lien or encumber
any FINOVA Collateral or other asset of Oakhurst other than the KTI Collateral;
or
(iii) commence, prosecute, or participate in any administrative,
legal, or equitable action that in FINOVA's judgment might adversely affect
Oakhurst's business or Oakhurst's ability to pay the FINOVA Debt, except that
KTI may foreclose on the KTI Collateral.
(b) Unless it shall have obtained KTI's prior written consent, until
the KTI Debt has been paid in full FINOVA will not demand or take a security
interest in or lien or encumber any KTI Collateral.
5. Remedies.
(a) If Oakhurst or KTI attempts to violate Section 3(b) or Section
4(a)(i), or if KTI in any other manner receives any funds which by virtue of
this Agreement it is precluded from receiving, KTI shall be deemed to hold any
payment or distribution it receives in trust for FINOVA's benefit. In such case,
KTI shall immediately remit such payment or distribution to FINOVA. If KTI
attempts to violate Section 4(a)(ii), FINOVA (in FINOVA's or Oakhurst's name) or
Oakhurst may seek injunctive or other equitable relief to prevent or stop KTI's
actions, it being agreed that legal remedies may be inadequate. If KTI attempts
to violate Section 4(a)(iii), Oakhurst may interpose as a defense or plea the
making of this Agreement, and FINOVA may intervene and interpose such defense or
plea in its own or Oakhurst's name. The remedies provided in this Section 5 are
not exclusive; FINOVA shall be entitled to all other remedies available at law
or in equity.
(b) If FINOVA attempts to violate Section 4(b), KTI (in KTI's or
Oakhurst's name) or Oakhurst may seek injunctive or other equitable relief to
prevent or stop FINOVA's actions, it being agreed that legal remedies may be
inadequate.
6. No Action to Violate Lenders' Agreements. KTI shall not take any
action which in FINOVA's judgment might cause Oakhurst to violate either the
FINOVA Loan Agreement or any other agreement between Oakhurst and FINOVA or
FINOVA's position in the FINOVA Collateral. FINOVA shall not take any action
which in KTI's judgment might cause Oakhurst to violate either the KTI Loan
Documents or KTI's position in the KTI Collateral.
7. No Amendment of KTI Loan Documents. Unless FINOVA's prior written
consent shall have been obtained, which consent shall not be unreasonably
withheld, no KTI Debt Document may be amended or modified; provided, that the
maximum amount outstanding
6
<PAGE> 7
under the KTI Loan Documents may be increased to an amount not to exceed
Seventeen Million Dollars ($17,000,000).
8. Waiver. Each Lender hereby waives any right it may now or hereafter
have to require the other Lender to marshall assets, to exercise rights or
remedies in a particular manner, or to forbear from exercising such rights and
remedies in any particular manner or order.
9. No Constraint on FINOVA. Nothing contained in this Agreement shall
preclude FINOVA from discontinuing its extension of credit to Oakhurst (whether
under the FINOVA Loan Agreement or otherwise) or from taking (without notice to
KTI, Oakhurst, or any other individual or entity) any other action in respect of
the FINOVA Debt or the FINOVA Collateral which FINOVA is otherwise entitled to
take with respect to the FINOVA Debt or the FINOVA Collateral. Among the actions
which Lender may take in accordance with this Section 9 are: renewing,
extending, and increasing the amount of the FINOVA Debt; otherwise changing the
terms of the FINOVA Debt; settling, releasing, compromising, and collecting on
the FINOVA Debt; making (and refraining from making) other secured and unsecured
loans and advances to Oakhurst; amending any present or future agreement between
FINOVA and Oakhurst; and all other actions which FINOVA deems advisable.
10. Impact of Bankruptcy. If a voluntary or involuntary bankruptcy
petition shall be filed respecting Oakhurst:
(a) this Agreement (including the priority provisions contained in
Section 3 shall continue in full force and effect;
(b) KTI shall take no action in the bankruptcy proceeding which might
(in FINOVA's opinion) adversely affect FINOVA's rights and interests respecting
the FINOVA Debt; and
(c) KTI shall take all actions reasonably requested by FINOVA to
protect FINOVA's interests in the FINOVA Collateral and the FINOVA Debt during
the course of such bankruptcy proceedings.
11. Miscellaneous.
(a) Amendment. No amendment or waiver of this Agreement shall be
effective unless in a writing signed by each party hereto.
(b) Binding Effect; Governing Law; Venue. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and assigns. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Arizona. All actions and
proceedings arising in connection with this Agreement shall be tried and
litigated only in state or federal courts located in the County of Maricopa,
State of Arizona, or (at FINOVA's sole option) in any other court in which
FINOVA may initiate legal or equitable proceedings, so long as such court has
subject matter jurisdiction. KTI and Oakhurst each waives any right it may have
to plead forum non-conveniens or otherwise to object to venue, and hereby
consents to any court-ordered relief.
7
<PAGE> 8
(c) WAIVER OF RIGHT TO TRIAL BY JURY. EACH LENDER AND OAKHURST EACH
WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION TO ENFORCE OR DEFEND ANY
MATTER ARISING FROM OR RELATED TO THIS AGREEMENT, AND ACKNOWLEDGES THAT EACH
OTHER PARTY ALSO WAIVES SUCH RIGHT.
(d) Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original and all of which together shall constitute
one agreement.
(e) Headings. The headings contained in this Agreement are for
convenience only. They shall not affect the interpretation of this Agreement.
(f) Attorneys' Fees; etc. In any suit or action brought to enforce
this Agreement or to obtain an adjudication (declaratory or otherwise) of rights
or obligations hereunder, the losing party shall pay to the prevailing party
reasonable attorneys' fees and other costs and expenses incurred by the
prevailing party.
(g) Severability. Any provision of this Agreement that is prohibited
by law or unenforceable in any jurisdiction shall be ineffective in that
jurisdiction to the extent of such prohibition or unenforceability, without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction. To the extent
permissible, the parties waive any law that renders this Agreement prohibited or
unenforceable.
(h) Entire Agreement. This Agreement constitutes the entire agreement
between and among the parties regarding the subject matter hereof. This
Agreement supersedes all prior and contemporaneous agreements between or among
the parties with respect to the subject matter hereof.
(i) Notice. All notices or demands by any party hereunder must be in
writing and personally delivered or sent by registered or certified mail,
postage prepaid, return receipt requested, or by prepaid telex, facsimile,
telecopy, telegram (with messenger delivery specified), or other method of
electronic communication as follows:
FINOVA: FINOVA CAPITAL CORPORATION
355 South Grand Avenue, Suite 2400
Los Angeles, California 90071
Attention: Dale Abernathy
with a copy to: KELLEY DRYE & WARREN LLP
777 South Figueroa Street, Suite 2700
Los Angeles, California 90017
Attention: Marshall C. Stoddard, Jr., Esq.
KTI: KTI, INC.
7000 Boulevard East
Guttenberg, New Jersey
Attention: President
8
<PAGE> 9
with a copy to: DORSEY & WHITNEY LLP
Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402
Attention: Diane D. Malfeld, Esq.
Oakhurst: OAKHURST COMPANY, INC.
3365 Spruce Lane
Grapevine, Texas
Attention: ___________________
with a copy to: Roger M. Barzun, Esq.
P.O. Box 767
Concord, Massachusetts 01742-0767
The parties may change the address at which they receive notice, by giving
notice to each other in the foregoing manner. Notices or demands sent in
accordance with this Section shall be deemed to be received on the earlier of
the date of actual receipt or five (5) calendar days after deposit in the United
States mail.
(j) Termination. This Agreement shall continue in full force and
effect until Oakhurst has satisfied in full the FINOVA Debt or the KTI Debt,
whichever is earlier.
(k) Rules of Construction. As used in this Agreement, the singular
includes the plural; the plural includes the singular. References to one gender
include all genders. Unless otherwise specified, references to Sections,
Exhibits, and parties refer to Sections, Exhibits, and parties of or to this
Agreement. The words "include," "including," and similar words are not intended
to be limiting.
9
<PAGE> 10
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective duly authorized officers, as of the date first above
written.
KTI, INC.,
a New Jersey corporation
By: /s/ Robert Wetzel
------------------------------
Name: Robert Wetzel
Title: Senior Vice President
FINOVA CAPITAL CORPORATION,
a Delaware corporation
By: /s/ Frank Monzo
------------------------------
Name: Frank Monzo
Title: Assistant Vice President
OAKHURST COMPANY, INC.,
a Delaware corporation
By: /s/ Robert M. Davies
------------------------------
Name: Robert M. Davies
Title: Chief Executive Officer
10
<PAGE> 11
EXHIBIT A
(FINOVA Collateral)
All of Oakhurst's now owned and hereafter acquired accounts (whether
or not earned by performance), any letters of credit naming Oakhurst as
beneficiary, proceeds of letters of credit, contract rights, chattel paper,
instruments, documents and all other forms of obligations at any time owing to
Oakhurst, all guaranties and other security therefor, whether secured or
unsecured, all merchandise returned to or repossessed by Oakhurst, and all
rights of stoppage in transit and all other rights or remedies of an unpaid
vendor, lienor or secured party (collectively, "Receivables").
All of Oakhurst's now owned and hereafter acquired goods, merchandise
or other personal property, wherever located, to be furnished under any contract
of service or held for sale or lease, all raw materials, work in process,
finished goods and materials and supplies of any kind, nature or description
which are or might be used or consumed in Oakhurst's business or used in
connection with the manufacture, packing, shipping, advertising, selling or
finishing of such goods, merchandise or other personal property, and all
documents of title or other documents representing them (collectively,
"Inventory").
All of Oakhurst's present and hereafter acquired machinery, molds,
machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dies, jigs, goods and other tangible
personal property (other than Inventory) of every kind and description used in
Oakhurst's operations or owned by Oakhurst and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions or improvements to any of the foregoing, wherever
located.
All general intangibles of Oakhurst, whether now owned or hereafter
created or acquired by Oakhurst, including, without limitation, all choses in
action, causes of action, corporate or other business records, deposit accounts,
inventions, designs, drawings, blueprints, trademarks, licenses and patents,
names, trade secrets, goodwill, copyrights, registrations, licenses, franchises,
customer lists, security and other deposits, rights in all litigation presently
or hereafter pending for any cause or claim (whether in contract, tort or
otherwise), and all judgments now or hereafter arising therefrom, all claims of
Oakhurst against Secured Party, rights to purchase or sell real or personal
property, rights as a licensor or licensee of any kind, royalties, telephone
numbers, proprietary information, purchase orders, and all insurance policies
and claims (including without limitation credit, liability, property and other
insurance) tax refunds and claims, computer programs, discs, tapes and tape
files, claims under guaranties, security interests or other security held by or
granted to Oakhurst to secure payment of any of the Receivables by an account
Oakhurst, all rights to indemnification and all other intangible property of
every kind and nature (other than Receivables).
All investment property and money of Oakhurst (other than the KTI
Collateral), whether now owned or hereafter acquired by Oakhurst, any and all
property now or at any time hereafter in Secured Party's possession (including
claims and credit balances), and all proceeds (including proceeds of any
insurance policies, proceeds of proceeds and claims against third parties), all
products and all books and records related to any of the foregoing.
11
<PAGE> 12
EXHIBIT B
(KTI Collateral)
See attached.
12
<PAGE> 13
EXHIBIT C
(Copies of KTI Loan Documents)
See attached.
13
<PAGE> 1
EXHIBIT 10.25
STERLING CONSTRUCTION COMPANY
STOCK PURCHASE AND INVESTMENT AGREEMENT
DATED AS OF JANUARY 19, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. PURCHASES AND SALES......................................................................................1
1.1. First Tranche of Purchased Stock................................................................1
1.2. Second Tranche of Purchased Stock...............................................................2
1.3. Escrow Agreement................................................................................2
1.4. Note Purchase Agreements........................................................................2
1.5. Closing.........................................................................................3
1.6. Closing Deliveries of Parent, Subsidiary and Selling Stockholders...............................3
1.7. Closing Deliveries of Purchasers................................................................4
1.8. Merger..........................................................................................5
1.9. Determination of December 31, 1998 Stockholders' Equity Amount and November 30, 1998
Pre-Tax Profit Amount...........................................................................5
1.10. Assurance of December 31, 1998 Stockholders' Equity Amount......................................7
1.11. Possible Adjustment for November 30, 1998 Pre-Tax Profit Amount.................................7
1.12. Final S Corporation Distribution; Subordinated Stockholder Notes................................8
2. DETERMINATIONS, NOTICES AND PROCEDURES FOR PURCHASE AND SALE OF SECOND TRANCHE OF PURCHASED STOCK........9
2.1. Trigger Event Notice and Option Exercise Notice.................................................9
2.2. Purchase and Sale of Second Tranche of Purchased Stock After Trigger Option Exercise
Notice.........................................................................................10
2.3. Conditions to Purchasers Obligation After Trigger Option Exercise Notice by Selling
Stockholders...................................................................................11
2.4. Purchase and Sale of Second Tranche of Purchased Stock After Pre-Trigger Option
Exercise Notice................................................................................12
3. REPRESENTATIONS AND WARRANTIES OF SELLING STOCKHOLDERS..................................................12
3.1. Due Organization...............................................................................12
3.2. Authorization..................................................................................13
3.3. No Conflicts; Approvals........................................................................13
3.4. Capital Stock of the Company...................................................................14
3.5. Subsidiaries...................................................................................14
3.6. Transactions in Company Stock..................................................................14
3.7. Predecessors...................................................................................15
3.8. Financial Statements...........................................................................15
3.9. Balance Sheet Liabilities and Obligations......................................................16
3.10. Accounts and Notes Receivable..................................................................16
3.11. Permits........................................................................................16
3.12. Real and Personal Property.....................................................................16
3.13. Material Contracts and Commitments.............................................................18
3.14. Labor..........................................................................................19
3.15. Title to Owned Real Property...................................................................19
3.16. Insurance......................................................................................20
</TABLE>
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<TABLE>
<S> <C>
3.17. Compensation...................................................................................20
3.18. Employee Benefit Plans.........................................................................20
3.19. No Multiemployer Plans.........................................................................22
3.20. Conformity with Law; Governmental Claims.......................................................22
3.21. Taxes and Tax Returns..........................................................................22
3.22. Intellectual Property..........................................................................23
3.23. Governmental Contracts.........................................................................24
3.24. Absence of Changes.............................................................................24
3.25. Powers of Attorney.............................................................................25
3.26. Brokers and Finders............................................................................25
3.27. Environmental Matters..........................................................................25
3.28. No Underground Storage Tanks...................................................................26
3.29. Relations with Government......................................................................26
3.30. Accounting Records.............................................................................26
3.31. Litigation and Claims..........................................................................26
3.32. Related Party Transactions.....................................................................27
3.33. Management Incentive Plans.....................................................................27
4. REPRESENTATIONS AND WARRANTEES OF PURCHASERS............................................................27
4.1. Due Organization...............................................................................27
4.2. Authorization..................................................................................28
4.3. No Conflicts; Approvals........................................................................28
4.4. Brokers and Finders............................................................................28
4.5. Investment Representations.....................................................................28
5. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLING STOCKHOLDERS AND THE COMPANY.........................29
5.1. Representations and Warranties; Performance of Obligations.....................................29
5.2. No Litigation..................................................................................30
5.3. Closing Documents..............................................................................30
5.4. Opinion of Counsel.............................................................................30
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASERS.......................................................31
6.1. Representations and Warranties.................................................................31
6.2. No Litigation..................................................................................31
6.3. Closing Documents..............................................................................31
6.4. Opinion of Counsel.............................................................................31
6.5. Good Standing Certificates.....................................................................32
6.6. Employee Notes.................................................................................33
7. INDEMNIFICATION.........................................................................................33
7.1. Survival of Representations and Warranties.....................................................33
7.2. Indemnification by the Selling Stockholders....................................................33
7.3. Indemnification by Each Purchaser..............................................................34
7.4. Third Person Claims............................................................................34
7.5. Limitation of the Selling Stockholders' Liability..............................................35
7.6. Limitation of the Purchasers' Liability........................................................36
</TABLE>
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<TABLE>
<S> <C>
7.7. Limitation on Claims...........................................................................36
7.8. Inconsistent Provisions........................................................................36
7.9. Method of Payment..............................................................................36
8. MISCELLANEOUS...........................................................................................36
8.1. Cooperation....................................................................................36
8.2. Successors and Assigns.........................................................................36
8.3. Entire Agreement...............................................................................36
8.4. Counterparts...................................................................................37
8.5. Expenses.......................................................................................37
8.6. Notices........................................................................................37
8.7. Governing Law..................................................................................39
8.8. Exercise of Rights and Remedies................................................................39
8.9. Reformation and Severability...................................................................39
8.10. Attorney's Fees................................................................................39
8.11. Interpretation; Definitions....................................................................39
</TABLE>
iv
<PAGE> 5
<TABLE>
<CAPTION>
CERTAIN DEFINED TERMS
<S> <C>
Advisory Services Agreement..............................................4
Agreement................................................................1
Audited 1998 Financial Statements........................................5
Audited Financial Statements............................................14
Auditor..................................................................5
CERCLA..................................................................24
Closing..................................................................2
Closing Date.............................................................3
Closing Date Distribution................................................8
Code....................................................................19
Company..................................................................5
Contracts...............................................................18
Controlled Group Member.................................................19
Current Year Financial Statements.......................................15
Damages.................................................................32
December 31, 1998 Income Statement.......................................6
December 31, 1998 Stockholders' Equity Amount............................6
December 31, 1998 Unaudited Financial Statements.........................6
Deficiency Amount........................................................6
EBITDA..................................................................17
EBITDA Amount...........................................................10
Employment Agreements....................................................3
Environmental Laws......................................................25
Environmental Permits...................................................25
ERISA...................................................................19
Escrow Agent.............................................................2
Escrow Agreement.........................................................2
Escrowed Funds...........................................................7
Escrowed Shares..........................................................2
Expiration Date.........................................................32
Final Number............................................................10
Final S Corporation Distribution.........................................8
First Tranche of Purchased Stock.........................................1
First Tranche Percentages................................................1
First Tranche Stock Purchase Price.......................................2
GAAP.....................................................................5
Hazardous Substances....................................................24
Indemnified Party.......................................................33
Indemnifying Party......................................................33
Insurance...............................................................19
Leased Real Property....................................................16
Liens....................................................................1
Management Incentive Plans...............................................4
</TABLE>
v
<PAGE> 6
<TABLE>
<S> <C>
Material Adverse Effect.................................................12
Maximum Number...........................................................2
Merger...................................................................4
Merger Corp..............................................................4
Merger Documents.........................................................4
Merger Time..............................................................5
Minimum Number...........................................................2
Note Purchase Agreements.................................................2
Notes....................................................................2
November 30, 1998 Balance Sheet......................................... 6
November 30, 1998 Income Statement.......................................5
November 30, 1998 Pre-Tax Profit Amount..................................5
November 30, 1998 Unaudited Financial Statements.........................5
Owned Real Property.....................................................16
Parent...................................................................1
Parent Common Stock......................................................1
Pension Plan............................................................20
Per Share Amount........................................................10
Permits.................................................................15
Plans...................................................................19
Pre-Signing Balance Sheet...............................................14
Pre-Signing Balance Sheet Date..........................................14
Pre-Tax Profit...........................................................5
Pre-Tax Profit Amount...................................................12
Pre-Trigger Option Exercise Notice.......................................9
Proceeding..............................................................25
Purchaser................................................................1
Purchaser Percentages....................................................1
Purchasers...............................................................1
Purchasers' Indemnified Persons.........................................32
RCRA....................................................................24
Real Property Leases....................................................16
S Election..............................................................21
Second Tranche Audit....................................................10
Second Tranche of Purchased Stock.......................................2
Second Tranche Payment...................................................9
Second Tranche Payment Date.............................................11
Second Tranche Payment Notice............................................9
Second Tranche Percentages...............................................8
Securities..............................................................27
Securities Act..........................................................27
Sellers' Indemnified Persons............................................33
Selling Stockholder......................................................1
Selling Stockholder Percentage...........................................9
Selling Stockholders.....................................................1
Stockholders Agreement...................................................3
</TABLE>
vi
<PAGE> 7
<TABLE>
<S> <C>
Stockholders' Equity.....................................................6
Stockholders' Equity Amount.............................................13
Subordinated Stockholder Notes...........................................8
Subordination Agreement..................................................8
Subsidiary...............................................................1
Subsidiary Common Stock.................................................13
Tax Returns.............................................................22
Taxes...................................................................22
Third Person............................................................33
Trigger Event Notice.....................................................8
Trigger Option Exercise Notice...........................................9
</TABLE>
vii
<PAGE> 8
EXHIBITS
Exhibit A Selling Stockholders, Purchasers, Stock Holdings and Note Holdings
Exhibit B Escrow Agreement
Exhibit C Note Purchase Agreements
Exhibit D Stockholders Agreement
Exhibit E Patrick Manning Employment Agreement
Exhibit F Joseph Harper Employment Agreement
Exhibit G James Manning Employment Agreement
Exhibit H Management Incentive Plans and Related Resolutions and Agreements
Exhibit I Advisory Services Agreement
Exhibit J Merger Documents
Exhibit K Audited 1998 Financial Statements
Exhibit L Calculation of Pre-Tax Profit Amount
Exhibit M Calculation of Stockholders' Equity Amount
Exhibit N Form of Trigger Event Notice
Exhibit O Calculation of EBITDA Amount
SCHEDULES
Schedule 3.3 Required Consents and Approvals
Schedule 3.5 Subsidiaries
Schedule 3.6 Transactions in Company Stock
Schedule 3.9 Balance Sheet Liabilities and Obligations
Schedule 3.10 Accounts and Notes Receivable
Schedule 3.11 Permits
Schedule 3.12 Real and Personal Property
Schedule 3.13 Material Contracts and Commitments
Schedule 3.15 Title to Real Property Liens
Schedule 3.16 Insurance
Schedule 3.17 Compensation
Schedule 3.18 Employee Benefit Plans
Schedule 3.21 Taxes and Tax Returns
Schedule 3.22 Intellectual Property
Schedule 3.24 Absence of Changes
Schedule 3.26 Brokers and Finders
Schedule 3.27 Environmental Matters
Schedule 3.31 Litigation and Claims
Schedule 3.32 Related Party Transactions
viii
<PAGE> 9
STOCK PURCHASE AND INVESTMENT AGREEMENT
THIS STOCK PURCHASE AND INVESTMENT AGREEMENT (the "Agreement") is
entered into as of the 19th day of January, 1999, by and between (a) the
purchasers listed on Exhibit A hereto (each a "Purchaser" and collectively the
"Purchasers"), on the one hand, and (b)(i) STERLING CONSTRUCTION COMPANY, a
Delaware corporation ("Parent"), (ii) STERLING CONSTRUCTION COMPANY, a Michigan
corporation doing business in Texas as Texas-Sterling Construction, Inc. and a
wholly owned subsidiary of Parent ("Subsidiary") and (iii) the stockholders of
Parent listed on Exhibit A hereto (each a "Selling Stockholder" and collectively
the "Selling Stockholders"), on the other hand.
RECITALS
A. The Selling Stockholders are the owners of FIVE HUNDRED
SIXTY-FOUR THOUSAND (564,000) shares of common stock, par value $0.01 per share
("Parent Common Stock"), of Parent, constituting approximately eighty-seven
percent (87%) of the SIX HUNDRED FIFTY THOUSAND ONE HUNDRED (650,100) total
issued and outstanding shares of Parent Common Stock.
B. The Purchasers desire to purchase from the Selling
Stockholders and the Selling Stockholders desire to sell to the Purchasers a
portion of the Parent Common Stock owned by the Selling Stockholders, and the
Purchasers desire to purchase from Subsidiary and Subsidiary desires to sell to
the Purchasers certain subordinated notes of Subsidiary exchangeable for shares
of Parent Common Stock, all upon the terms and subject to the conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. PURCHASES AND SALES.
1.1. First Tranche of Purchased Stock. Upon the terms and subject
to the conditions set forth in this Agreement, on the Closing Date (as defined
in Section 1.5) the Selling Stockholders severally will sell, assign, transfer
and deliver to the Purchasers, and the Purchasers will purchase and acquire
severally from the Selling Stockholders an aggregate of ONE HUNDRED THIRTY
THOUSAND TWENTY (130,020) shares of Parent Common Stock (the "First Tranche of
Purchased Stock") free and clear of all mortgages, pledges, security interests,
encumbrances, liens (statutory or other), conditional sale agreements, claims,
charges, limitations or restrictions ("Liens"). The respective percentages of
the shares of the First Tranche of Purchased Stock so to be sold by each of the
several Selling Stockholders (the "First Tranche Percentages") and the
respective percentages of the First Tranche of Purchased Stock to be purchased
by each of the several Purchasers (the "Purchaser Percentages") are set forth on
Exhibit A. The per share purchase price of each share of Parent Common Stock so
purchased as part of the First Tranche of Purchased Stock shall be THIRTY AND
76.45/100THS DOLLARS ($30.7645), subject to possible adjustment as provided in
<PAGE> 10
Section 1.11 (such purchase price, as so adjusted if applicable, the "First
Tranche Stock Purchase Price").
1.2. Second Tranche of Purchased Stock. Upon the terms and subject
to the conditions set forth in Section 2 of this Agreement, subsequent to the
Closing Date the Selling Stockholders severally will sell assign, transfer and
deliver to the Purchasers, and the Purchasers will purchase and acquire
severally from the Selling Stockholders, an aggregate number of additional
shares of Parent Common Stock free and clear of all Liens, which number of
shares shall be determined in accordance with Section 2 hereof and shall be not
more than ONE HUNDRED THIRTY THOUSAND TWENTY (130,020) (the "Maximum Number")
and not less than ONE HUNDRED ELEVEN THOUSAND ONE HUNDRED TWENTY-EIGHT (111,128)
(the "Minimum Number") shares of Parent Common Stock (the actual number of
additional shares of Parent Common Stock so determined and purchased, the
"Second Tranche of Purchased Stock"). The respective numbers of shares of the
Second Tranche of Purchased Stock so to be sold by each of the several Selling
Stockholders and purchased by each of the Purchasers, and the purchase price of
each share of Parent Common Stock so purchased as part of the Second Tranche of
Purchased Stock, shall be determined as provided in Section 2.
1.3. Escrow Agreement. At the Closing, the Purchasers, the Selling
Stockholders and Parent, as escrow agent (in such capacity, the "Escrow Agent"),
will enter into an Escrow Agreement in substantially the form attached hereto as
Exhibit B (the "Escrow Agreement"), and each of the Selling Stockholders will
deliver to the Escrow Agent, for retention and disposition as part of the Second
Tranche of Purchased Stock as provided in Section 2, certificates representing a
number of shares of Parent Common Stock equal to the number of shares sold by
such Selling Stockholder as part of the First Tranche of Purchased Stock. The
aggregate number of shares so deposited by all Selling Stockholders with the
Escrow Agent (the "Escrowed Shares") shall be equal to the Maximum Number.
1.4. Note Purchase Agreements. At the Closing, Parent, Subsidiary
and the respective Purchasers will enter into Note Purchase Agreements in
substantially the form attached hereto as Exhibit C (the "Note Purchase
Agreements"), and the Purchasers will purchase from Subsidiary and Subsidiary
will issue and sell to the Purchasers for an aggregate purchase price of FOUR
MILLION DOLLARS ($4,000,000) certain subordinated notes exchangeable for shares
of Parent Common Stock as provided in the Note Purchase Agreements (the
"Notes"). The Notes shall be in the aggregate principal amount of FOUR MILLION
DOLLARS ($4,000,000).
1.5. Closing.
(a) The consummation of the purchase and sale of the First
Tranche of Purchased Stock, the delivery of certificates representing
the Escrowed Shares to the Escrow Agent pursuant to the Escrow
Agreement, the execution and delivery of the Escrow Agreement and the
Note Purchase Agreement, the issuance, purchase and sale of the Notes,
and the other transactions that are to take place at that time as
contemplated by this Agreement and the Note Purchase Agreements (the
"Closing") shall take place at the offices of Mayor, Day, Caldwell &
Keeton, L.L.P., 700 Louisiana, 19th Floor, Houston,
2
<PAGE> 11
Texas, at 10:00 a.m. on January 19, 1999 or at such other time and
place as the parties may mutually agree upon. The Closing shall be
deemed to occur at the close of business on the date of the Closing,
and such date and time of the Closing is referred to as the "Closing
Date."
(b) At or prior to the Closing, provided that the conditions
set forth in Section 6 of this Agreement have been satisfied or waived,
Parent, Subsidiary and the Selling Stockholders shall tender delivery,
or cause to be tendered delivery, of each of the instruments and
documents described in Section 1.6 hereof. At or prior to the Closing,
provided that the conditions set forth in Section 7 of this Agreement
have been satisfied or waived, the Purchasers shall tender delivery, or
cause to be tendered delivery, of each of the payments and documents
described in Section 1.7 hereof.
1.6. Closing Deliveries of Parent, Subsidiary and Selling
Stockholders. Upon the terms and subject to the conditions set forth in Section
6 of this Agreement, at the Closing:
(a) the Selling Stockholders will deliver to the Purchasers
certificates representing the First Tranche of Purchased Stock and to
the Escrow Agent certificates representing the Maximum Number of shares
of Parent Common Stock for retention and disposition as part of the
Second Tranche of Purchased Stock, each such certificate duly endorsed
for transfer or accompanied by a stock power duly executed in blank;
(b) Parent and the Selling Stockholders will deliver duly
executed counterparts of the Escrow Agreement;
(c) Parent and Subsidiary will deliver duly executed
counterparts of the Note Purchase Agreements and Subsidiary will issue
and deliver duly executed Notes to the Purchasers;
(d) Parent, Subsidiary and the Selling Stockholders will
deliver to the other parties thereto duly executed counterparts of the
Stockholders Agreement in substantially the form attached hereto as
Exhibit D (the "Stockholders Agreement");
(e) Subsidiary and Patrick T. Manning will deliver to each
other duly executed counterparts of an Executive Employment Agreement
in substantially the form attached hereto as Exhibit E;
(f) Subsidiary and Joseph P. Harper, Sr. will deliver to each
other duly executed counterparts of an Executive Employment Agreement
in substantially the form attached hereto as Exhibit F;
(g) Subsidiary and James D. Manning will deliver to each other
duly executed counterparts of a James Manning Employment Agreement in
substantially the form attached hereto as Exhibit G (collectively, with
Exhibits E and F, the "Employment Agreements");
(h) Parent and Subsidiary will adopt and cause to be effective
the restructuring of Subsidiary's bonus and share purchase agreements
and arrangements and
3
<PAGE> 12
the adoption of Parent's Stock Option Plan and Subsidiary's Incentive
Bonus Plan, in each case effective as of the Closing, by the
implementation of written plans in substantially the forms attached
hereto as Exhibit H (the "Management Incentive Plans");
(i) Parent will deliver to Menai Capital LLC (representing the
Purchasers) a duly executed counterpart of the Advisory Services
Agreement in substantially the form attached hereto as Exhibit I (the
"Advisory Services Agreement");
(j) Parent, Subsidiary and the Selling Stockholders will duly
execute and deliver the other instruments, documents and certificates
contemplated to be delivered by them under Section 6 of this Agreement;
(k) Subsidiary will make the Closing Date Distribution
pursuant to and as defined in Section 1.12; and
(l) With respect to the Subordinated Stockholder Notes, the
applicable parties thereto will enter into the Subordination Agreement,
in each case pursuant to and as defined in Section 1.12.
1.7. Closing Deliveries of Purchasers. Upon the terms and subject
to the conditions set forth in Section 7 of this Agreement, at the Closing:
(a) each of the Purchasers will deliver to Parent, as agent
for the Selling Stockholders, by wire transfers in immediately
available funds for the account set forth on Exhibit A hereto, the cash
sum equal to such Purchaser's portion of the purchase price of the
First Tranche of Purchased Stock;
(b) each of the Purchasers will deliver to Parent duly
executed counterparts of the Note Purchase Agreements;
(c) each of the Purchasers will deliver to Parent, by wire
transfers in immediately available funds for the account set forth on
Exhibit A hereto, the cash sum equal to such Purchaser's portion of the
purchase price of the Notes;
(d) each of the Purchasers will deliver to the other parties
thereto duly executed counterparts of the Stockholders Agreement;
(e) Menai Capital LLC will deliver to Parent a duly executed
counterpart of the Advisory Services Agreement; and
(f) each of the Purchasers will duly execute and deliver, or
cause to be executed and delivered, the other instruments, documents
and certificates contemplated by Section 5 of this Agreement.
1.8. Merger. Prior to the signing of this Agreement, Texas Sterling
Construction, Inc. ("Merger Corp.") merged with and into Subsidiary (the
"Merger") pursuant to and on the terms set
4
<PAGE> 13
forth in the Agreement and Plan of Merger, Certificates of Merger and related
documents attached hereto as Exhibit J (the "Merger Documents"), effective as of
the time set forth in the Merger Documents (the "Merger Time"). As used in this
Agreement, the term "Company" means (i) Subsidiary at all times up to and
including the Merger Time and (ii) Parent and Subsidiary taken as a whole at all
times after the Merger Time.
1.9. Determination of December 31, 1998 Stockholders' Equity Amount
and November 30, 1998 Pre-Tax Profit Amount. Attached hereto as Exhibit K is a
copy of the audited balance sheet of the Company as of September 30, 1998 and
the related audited statements of income and cash flows for the year ended
September 30, 1998, and footnotes at and for the year ended September 30, 1998,
and the accompanying report of R.W. Frickel Company, P.C. (the "Auditor") with
respect thereto (the "Audited 1998 Financial Statements").
(a) As promptly as is reasonably practicable, and in any event
by January 25, 1999, Parent shall deliver to the Purchasers and the
Selling Stockholders:
(i) the unaudited balance sheet of the Company as of
November 30, 1998 (the "November 30, 1998 Balance Sheet") and
the related statement of income for the twelve-month period
from December 1, 1997 through November 30, 1998 (the "November
30, 1998 Income Statement" and, together with the November 30,
1998 Balance Sheet, the "November 30, 1998 Unaudited Financial
Statements");
(ii) a certificate of the chief financial officer of
the Company to the effect that (subject to (x) normal year-end
audit adjustments with respect to periods and as of dates
subsequent to September 30, 1998 consistent with prior
periods, the effects of which, individually and in the
aggregate, would not reasonably be expected to have a material
adverse effect on to the financial position or results of
operations of the Company and (y) the fact that the November
30, 1998 Unaudited Financial Statements do not contain all of
the footnote disclosures required by GAAP (as defined below))
the November 30, 1998 Unaudited Financial Statements fairly
present in all material respects the Company's financial
position at November 30, 1998 and its results of operations
for the two-month period then ended, in each case in
accordance with GAAP; and
(iii) a certificate of the Auditor setting forth the
amounts (and, in reasonable detail, the calculation) of the
amount of the Company's Pre-Tax Profit for the twelve-month
period ended November 30, 1998, determined from the November
30, 1998 Income Statement in accordance with Exhibit L (as so
determined in accordance with Exhibit L and without adjustment
pursuant to Section 1.11, if applicable, the "November 30,
1998 Pre-Tax Profit Amount"). "Pre-Tax Profit" means, for any
period, the net income of the Company determined in accordance
with generally accepted accounting principles applied on a
basis consistent with the Audited 1998 Financial Statements
("GAAP"), as adjusted in accordance with the adjustment
procedures set forth on Exhibit L hereto.
5
<PAGE> 14
(b) As promptly as is reasonably practicable, and in any event
by February 26, 1999, Parent shall deliver to the Purchasers and the
Selling Stockholders:
(i) the unaudited balance sheet of the Company as of
December 31, 1998 (the "December 31, 1998 Balance Sheet") and
the related statement of income for the twelve-month period
from January 1, 1998 through December 31, 1998 (the "December
31, 1998 Income Statement" and, together with the December 31,
1998 Balance Sheet, the "December 31, 1998 Unaudited Financial
Statements");
(ii) a certificate of the chief financial officer of
the Company to the effect that (subject to (x) normal year-end
audit adjustments with respect to periods and as of dates
subsequent to September 30, 1998 consistent with prior
periods, the effects of which, individually and in the
aggregate, would not reasonably be expected to have a material
adverse effect on to the financial position or results of
operations of the Company and (y) the fact that the December
31, 1998 Unaudited Financial Statements do not contain all of
the footnote disclosures required by GAAP) the December 31,
1998 Unaudited Financial Statements fairly present in all
material respects the Company's financial position at December
31, 1998 and its results of operations for the three-month
period then ended, in each case in accordance with GAAP; and
(iii) a certificate of the Auditor setting forth the
amounts (and, in reasonable detail, the calculation) of: (i)
the amount of the Company's Stockholders' Equity as of
December 31, 1998, determined from the December 31, 1998
Balance Sheet in accordance with Exhibit M (as so determined
in accordance with Exhibit M and without adjustment to reflect
restoration of any Deficiency Amount (as defined below), the
"December 31, 1998 Stockholders' Equity Amount"); and (ii) if
applicable, the amount of any Deficiency Amount pursuant to,
and determined as set forth in, Section 1.10. "Stockholders'
Equity" means, as of any date, the stockholders' equity of the
Company determined in accordance with GAAP, as adjusted in
accordance with the adjustment procedures set forth on Exhibit
M hereto.
1.10. Assurance of December 31, 1998 Stockholders' Equity Amount. In
the event that the December 31, 1998 Stockholders' Equity Amount calculated in
accordance with Exhibit M is less than $6,000,000, the Selling Stockholders
severally agree to restore the amount by which the December 31, 1998
Stockholders' Equity Amount is less than $6,000,000 (the "Deficiency Amount").
Any such Deficiency Amount shall be so restored by the respective Selling
Stockholders, severally, pro rata in proportion to their respective First
Tranche Percentages, by payment to the Company or by (to the extent then accrued
but not already paid) the Company's cancellation, to which the Selling
Stockholders hereby agree, of any amounts of bonus compensation or stockholders'
distributions otherwise payable to such Selling Stockholders, and any such
required payment by the Selling Stockholders shall be paid (if applicable) by
the several Selling Stockholders within five business days after the date of
delivery to the Selling Stockholders of the certificate from the Auditor setting
forth the December 31, 1998 Stockholders' Equity Amount. Parent shall
immediately notify the
6
<PAGE> 15
Purchasers and the Selling Stockholders when the entire Deficiency Amount has
been so restored.
1.11. Possible Adjustment for November 30, 1998 Pre-Tax Profit
Amount
(a) Twenty percent (20%) of the funds received at the Closing
by Parent as agent for the Selling Stockholders pursuant to Section
1.7(a) will be retained by Parent at and after the Closing until
disbursed in accordance with the provisions of this Section 1.11. (Such
funds retained by Parent are referred to as the "Escrowed Funds".)
(b) If the Company's November 30, 1998 Pre-Tax Profit Amount
is less than $3,400,000, then, within five business days after the date
of delivery of the certificate of the Auditor pursuant to Section
1.9(a)(iii), Parent shall disburse the Escrowed Funds as follows: (i)
to the Purchasers, severally, pro rata in accordance with their
respective Purchaser Percentages, an amount equal to twenty percent
(20%) of the product of (x) the remainder of (A) $3,400,000 minus (B)
the Company's November 30, 1998 Pre-Tax Profit Amount multiplied by (y)
5.6; and (ii) to the Selling Stockholders, severally, pro rata in
accordance with their respective First Tranche Percentages, an amount
equal to the balance of the Escrowed Funds remaining after the
disbursement to Purchaser under clause (c)(i) of this Section 1.11, if
any. If the amount calculated pursuant to clause (i) of the preceding
sentence exceeds the amount of the Escrowed Funds, then: (A) Parent
shall so notify the Selling Stockholders and the Selling Stockholders
shall immediately pay to Parent, severally, their respective pro rata
First Tranche Percentages of the amount of such excess; and (B) Parent
shall immediately pay to the Purchasers, pro rata in accordance with
their respective Purchaser Percentages, the amounts so received by it
from the Selling Stockholders. The amounts disbursed to the Purchasers
pursuant to clause (c)(i) of the first sentence of this Section 1.11
and pursuant to the second sentence of this Section 1.11, as
applicable, shall be deemed adjustments (decreases) to the First
Tranche Stock Purchase Price.
(c) If the Company's November 30, 1998 Pre-Tax Profit Amount
is greater than $3,800,000, then, within five business days after the
date of delivery of the certificate of the Auditor pursuant to Section
1.9(a)(iii): (i) the Purchasers shall, severally, pro rata in
accordance with their respective Purchaser Percentages pay to Parent as
agent for the Selling Stockholders by wire transfer in the same manner
as the payments made pursuant to Section 1.7(a), the aggregate cash sum
equal to twenty percent (20%) of the product of (x) the remainder of
(A) the Company's November 30, 1998 Pre-Tax Profit Amount minus (B)
$3,800,000 multiplied by (y) 5.6; and (ii) Parent shall disburse the
Escrowed Funds to the Selling Stockholders, severally, pro rata in
accordance with their respective First Tranche Percentages. The amount
paid to the Selling Stockholders by Purchasers pursuant to clause
(d)(i) of this Section 1.11 shall be deemed an adjustment (increase) to
the First Tranche Stock Purchase Price.
(d) If the Company's November 30, 1998 Pre-Tax Profit Amount
is greater than or equal to $3,400,000 and less than or equal to
$3,800,000, (i) no adjustment shall be made to the First Tranche Stock
Purchase Price and (ii) Parent shall disburse the
7
<PAGE> 16
Escrowed Funds to the Selling Stockholders, severally, pro rata in
accordance with their respective First Tranche Percentages.
1.12. Final S Corporation Distribution; Subordinated Stockholder
Notes.
(a) Prior to the Merger, Subsidiary declared and became liable
to pay to its stockholders of record as of the time immediately prior
to the Merger (the "S Corporation Stockholders") a dividend on its
outstanding shares of common stock equal in aggregate amount to the
amount by which the December 31, 1998 Stockholders' Equity Amount
calculated in accordance with Exhibit M exceeds $6,000,000 (the "Final
S Corporation Distribution"). After the Merger, Subsidiary remains
liable for payment of the Final S Corporation Distribution. The
December 31, 1998 Stockholders' Equity Amount, and therefore the actual
amount of the Final S Corporation Distribution, will be determined
after the Closing on the basis of the certificate of the Auditor to be
delivered pursuant to Section 1.9(b). At the Closing, Subsidiary will
distribute to the S Corporation Stockholders a portion of the Final S
Corporation Distribution equal in aggregate to $1,358,991 (the "Closing
Date Distribution"). Promptly after the determination of the Final S
Corporation Distribution amount, Subsidiary will distribute to the S
Corporation Stockholders the remaining amount of the S Corporation
Final Distribution over $1,358,991.
(b) Subsidiary has outstanding certain subordinated promissory
notes payable to the order of James D. Manning, Patrick T. Manning and
Joseph P. Harper, Sr., respectively (the "Subordinated Stockholder
Notes"). At the Closing, Subsidiary and the holders of the Subordinated
Stockholder Notes will enter into the subordination agreement (the
"Subordination Agreement") with respect to the Subordinated Stockholder
Notes as provided in the Note Purchase Agreements.
2. DETERMINATIONS, NOTICES AND PROCEDURES FOR PURCHASE AND SALE OF SECOND
TRANCHE OF PURCHASED STOCK
2.1. Trigger Event Notice and Option Exercise Notice. Any other
provisions of this Agreement to the contrary notwithstanding, the purchase and
sale of the Second Tranche of Purchased Stock shall not occur until and unless
either:
(a) both (x) within eighteen (18) months after the Closing
Date, Parent shall have delivered to the Purchasers and the Selling
Stockholders a notice in form and substance as attached hereto as
Exhibit N, duly completed and executed on behalf of Parent by its chief
financial officer (a "Trigger Event Notice") (and Parent hereby agrees
during such period to give a Trigger Event Notice within fifteen (15)
days after the date on which Parent first becomes able to do so), and
(y) Parent shall thereafter and before the sixteenth (16th) day after
the auditor's issuance of the Second Tranche Audit (as defined below)
have received a written notice from either (i) Purchasers with
aggregate Purchaser Percentages of greater than fifty percent (50%) or
(ii) Selling Stockholders with aggregate "Second Tranche Percentages"
(as set forth on Exhibit A) of greater than fifty percent (50%), in
either case advising Parent and all other Purchasers and Selling
Stockholders that the notifying parties thereby elect to exercise their
option to cause the
8
<PAGE> 17
purchase and sale of all of the Second Tranche of Purchased Stock (a
"Trigger Option Exercise Notice") and stating that such notice is a
Trigger Option Exercise Notice pursuant to this Section 2.1 of this
Agreement; or
(b) prior to the earlier of (i) the date that is eighteen (18)
months after the Closing Date and (ii) the date of delivery to Parent
of a Trigger Event Notice, Parent shall have received a written notice
from Purchasers with aggregate Purchaser Percentages of greater than
fifty percent (50%) advising Parent and all other Purchasers and
Selling Stockholders that the notifying Purchasers thereby elect to
exercise their option to cause the purchase and sale of all of the
Second Tranche of Purchased Stock (a "Pre-Trigger Option Exercise
Notice") and stating that such notice is a Pre-Trigger Option Exercise
Notice pursuant to Section 2.1 of this Agreement.
As used herein, "Selling Stockholder Percentage" (i) shall mean as to any
Selling Stockholder, such Selling Stockholder's First Tranche Percentage at all
times prior to a Trigger Option Exercise Notice and prior to a Pre-Trigger
Option Exercise Notice, and (ii) thereafter shall mean the percentage equal to
one-half of the sum of (A) such Selling Stockholder's First Tranche Percentage
plus (B) such Selling Stockholder's Second Tranche Percentage.
2.2. Purchase and Sale of Second Tranche of Purchased Stock After
Trigger Option Exercise Notice.
(a) Within thirty (30) days after a Trigger Option Exercise
Notice, each Purchaser shall deliver to Parent, as agent for the
Selling Stockholders, by wire transfer in the same manner as the
payments made pursuant to Section 1.7(a) or by wire transfer as
otherwise requested in writing by Parent, an amount equal to the
product of FOUR MILLION DOLLARS ($4,000,000) (the "Second Tranche
Payment") multiplied by such Purchaser's Purchaser Percentage. Parent
shall immediately notify the Purchasers and the Selling Stockholders
when all such payments have been received (the "Second Tranche Payment
Notice"). Immediately upon, and effective as of the date of such Second
Tranche Payment Notice, Parent shall (i) cause to be paid by the
Purchasers, severally, pro rata in proportion to their respective
Purchaser Percentages, to the Selling Stockholders, severally, pro rata
in proportion to their respective Second Tranche Percentages, the
Second Tranche Payment less the amount of any expenses to be borne by
the Selling Stockholders as provided in Section 8.5 and (ii) cause to
be transferred from the Selling Stockholders, severally, pro rata in
proportion to their respective Second Tranche Percentages, to the
several Purchasers, severally, pro rata in proportion to their
respective Purchaser Percentages, a number of shares of Escrowed Stock
equal to the Minimum Number of the Second Tranche of Purchased Stock.
Effective as of the date of such Second Tranche Payment Notice, the
Purchasers shall become the holders of record of their respective
shares of such Minimum Number of the Second Tranche of Purchased Stock
and Parent shall promptly issue and deliver, or cause to be issued and
delivered, to the Purchasers certificates representing such shares. The
Selling Stockholders shall remain the holders of record of their
respective shares of the remaining Escrowed Stock until disposition
thereof by the Escrow Agent as provided below.
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<PAGE> 18
(b) Promptly and in any event within sixty (60) days after the
end of the first four consecutive fiscal quarters of the Company
commencing after the end of the calendar month in which a Trigger
Option Exercise Notice is received by Parent and in any event within
fifteen days after the auditor's issuance of the Second Tranche Audit
(as defined below), Parent shall deliver to the Selling Stockholders
and the Purchasers a certificate of the Auditor or another independent
accounting firm selected by the board of directors of Parent setting
forth: (i) the amount (and the calculation thereof in reasonable
detail) of the EBITDA (as defined and calculated in accordance with
Exhibit O) of Parent and its consolidated subsidiaries for the twelve
months covered by the Second Tranche Audit (the "EBITDA Amount"); (ii)
the amount and calculation of the Per Share Amount (as defined below);
and (iii) the amount and calculation of the number of shares of Parent
Common Stock that are to be purchased and sold in the Second Tranche of
Purchased Stock (the "Final Number"). The "Per Share Amount" shall be
the dollar amount equal to the quotient of (x) the product of the
EBITDA Amount multiplied by 3.2 divided by (y) 650,100. The "Final
Number" shall equal FOUR MILLION DOLLARS ($4,000,000) divided by the
Per Share Amount; provided, however, that the Final Number shall not be
less than the Minimum Number nor greater than the Maximum Number. The
term "Second Tranche Audit" shall mean the audited consolidated balance
sheet of the Company as of, and the related audited statements of
income and cash flows for the twelve-month period ending on, the last
day of the first four consecutive fiscal quarter period of the Company
commencing after the end of the calendar month in which a Trigger
Exercise Notice is received by Parent, the footnotes at and for the
year so ended, and the accompanying report of the Auditor or such other
independent accounting firm selected by the board of directors of
Parent.
(c) If the Final Number calculated pursuant to Section 2.2(b)
is greater than the Minimum Number, Parent shall promptly cause to be
transferred for the accounts of the Selling Stockholders, severally,
pro rata in proportion to their respective Second Tranche Percentages,
to the Purchasers, pro rata in proportion to their respective Purchaser
Percentages, a number of shares of Escrowed Stock equal to the
remainder of (i) the Final Number minus (ii) the Minimum Number.
Effective as of the date of such transfer of such shares to the
Purchasers, the Purchasers shall become the holders of record of such
shares so transferred to them and Parent shall promptly issue and
deliver to the Purchasers certificates representing such shares.
(d) If the Final Number calculated pursuant to Section 2.2(b)
is less than the Maximum Number, Parent shall promptly deliver to the
Selling Stockholders, severally, pro rata in proportion to their
respective Second Tranche Percentages, all Escrowed Shares other than
those transferred to the Purchasers pursuant to Section 2.2(c) above,
and the Escrow Agreement shall terminate.
(e) No fractional shares shall be issued or transferred.
Parent shall cause all calculations to be rounded to the nearest whole
share or to the nearest whole cent, as applicable, and all rounding
decisions by Parent shall be final and binding on all parties.
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<PAGE> 19
2.3. Conditions to Purchasers Obligation After Trigger Option
Exercise Notice by Selling Stockholders.
(a) The Purchasers' obligations to purchase the Second Tranche
of Purchased Stock upon delivery of a Trigger Option Exercise Notice by
Selling Stockholders shall be subject to the conditions that, as of the
date of the Second Tranche Payment ("Second Tranche Payment Date"): (i)
there shall not exist any material adverse change from the Closing Date
in the financial condition, assets, liabilities (contingent or
otherwise) or business of the Company taken as a whole; (ii) no
defaults shall exist on the Senior Indebtedness (as defined in the Note
Purchase Agreements) or the Notes; (iii) each of Parent and Subsidiary
shall be duly organized, validly existing and in good standing under
the laws of the state of its incorporation; and (iv) each of the
Selling Stockholders delivering the Trigger Option Exercise Notice also
shall have delivered to the Purchasers on the Second Tranche Payment
Date a certificate to the effect that such Selling Stockholder (x) has
no knowledge that the conditions set forth in Section 2.3(a)(i) through
(iii) have not been satisfied and (y) has good and marketable title to
his shares of the Second Tranche of Purchased Stock, free and clear of
all Liens.
(b) For purposes of Section 2.3(a)(i), it is understood that
each of the following items would be considered a "material adverse
change" as of the Second Tranche Payment Date:
(i) if either of Joseph P. Harper, Sr. or Patrick T.
Manning were either (A) no longer employed by the Company (or
had given written notice of his intent to terminate his
employment with the Company) or (B) not involved in a full
time executive capacity in the operations of the Company; or
(ii) if the Company's consolidated stockholders'
equity were less than $4,000,000.
2.4. Purchase and Sale of Second Tranche of Purchased Stock After
Pre-Trigger Option Exercise Notice. Within thirty (30) days after a Pre-Trigger
Option Exercise Notice, each Purchaser shall deliver to Parent, as agent for the
Selling Stockholders, by wire transfer in the same manner as the payments made
pursuant to Section 1.7(a) or by wire transfer as otherwise requested in writing
by Parent, an amount equal to the Second Tranche Payment multiplied by such
Purchaser's Purchaser Percentage. Parent shall give the Second Tranche Payment
Notice when all such payments have been received. Immediately upon, and
effective as of the date of such Second Tranche Payment Notice, Parent shall (i)
cause to be paid by the Purchasers, severally, pro rata in proportion to their
respective Purchaser Percentages, to the Selling Stockholders, severally, pro
rata in proportion to their respective Second Tranche Percentages, the Second
Tranche Payment and (ii) cause to be transferred from the Selling Stockholders,
severally, pro rata in proportion to their respective Second Tranche
Percentages, to the several Purchasers, pro rata in proportion to their
respective Purchaser Percentages, a number of shares of Escrowed Stock equal to
the Minimum Number of the Second Tranche of Purchased Stock. Effective as of the
date of such Second Tranche Payment Notice, the Purchasers shall become the
holders of record of their respective shares of such Minimum Number of the
Second Tranche of Purchased Stock and Parent shall promptly issue and deliver,
or cause to be issued and delivered, to the Purchasers certificates representing
such shares. Parent shall promptly issue and
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<PAGE> 20
deliver, or cause to be issued and delivered, to the Selling Stockholders
certificates representing the shares not delivered to the Purchasers pursuant to
the preceding sentence, and the Escrow Agreement shall terminate.
3. REPRESENTATIONS AND WARRANTIES OF SELLING STOCKHOLDERS.
The Selling Stockholders, jointly and severally, make the
representations and warranties set forth in this Section 3 to the Purchasers at
and as of the Closing.
3.1. Due Organization. Each of Parent and Subsidiary is a
corporation duly organized, validly existing and in good standing under the laws
of the state or jurisdiction of its incorporation, and has all requisite
corporate power and authority to own or lease its properties and assets and
conduct its business as now conducted. Each of Parent and Subsidiary is duly
authorized and qualified to carry on its business as a foreign corporation in
the places and in the manner as now conducted except where the failure to be so
authorized or qualified would not have a material adverse effect on the
business, assets, condition (financial or other), properties or results of
operations of the Company taken as a whole (a "Material Adverse Effect"). Copies
of the Articles or Certificate of Incorporation, Bylaws, stock records and
minute books of Parent and Subsidiary, with all amendments thereto on the date
hereof, have been furnished or made available to the Purchasers or their
representatives, and such copies are correct and complete.
3.2. Authorization. Each of the Selling Stockholders has all
necessary power, authority and capacity to enter into this Agreement, the Escrow
Agreement and the Stockholders Agreement, and the other documents and
instruments to be delivered by him pursuant to this Agreement, the Escrow
Agreement and the Stockholders Agreement, and, as applicable, to consummate the
sale of such Selling Stockholder's shares of the Purchased Stock and the other
transactions contemplated hereby and thereby to be consummated by him. The
execution and delivery by Parent and Subsidiary, as the case may be, of this
Agreement the Note Purchase Agreements, the Stockholders Agreement, the Escrow
Agreement, the Employment Agreements and all instruments, documents and
agreements contemplated hereby and thereby to be executed by or on behalf of
Parent and Subsidiary, as the case may be, have been or will be at the Closing
duly and validly authorized by all necessary corporate action on the part of
Parent and Subsidiary, as the case may be. This Agreement, the Note Purchase
Agreements, the Stockholders Agreement, the Escrow Agreement, the Employment
Agreements and all other instruments, documents and agreements contemplated
hereby and thereby to be executed and delivered by Parent and Subsidiary, as the
case may be, or the Selling Stockholders have been or will be at the Closing
duly and validly executed and delivered by each of Parent and Subsidiary, as the
case may be, and the Selling Stockholders, as applicable, and constitute (or
will constitute) the valid and binding obligation of each of Parent and
Subsidiary, as the case may be, and the Selling Stockholders, as applicable,
subject to applicable bankruptcy, reorganization, insolvency and similar laws
from time to time in effect and subject to general principles of equity and
judicial discretion.
3.3. No Conflicts; Approvals. Neither the execution, delivery and
performance of this Agreement, the Note Purchase Agreements, the Stockholders
Agreement, the Escrow
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<PAGE> 21
Agreement or the Employment Agreements by the Selling Stockholders, Parent or
Subsidiary, as the case may be, nor the consummation of the sale of the
Purchased Stock and the Notes, nor the consummation of the other transactions
contemplated hereby and thereby, will (a) conflict with or result in a breach of
any provision of the Articles of Incorporation or Certificate of Incorporation,
as applicable, or Bylaws of Parent or Subsidiary, as the case may be, (b) result
in any conflict with, breach of, or default (or give rise to any right to
termination, cancellation or acceleration or loss of any right or benefit) under
or require any consent or approval which has not been obtained with respect to
any of the terms, conditions or provisions of any material contract or agreement
to which the Selling Stockholders or Parent or Subsidiary, as the case may be,
are a party or by which any of their respective properties or assets may be
bound (except for those consents or approvals set forth on Schedule 3.3) or
result in the creation or imposition of any Lien upon any of the assets or
properties of Parent or Subsidiary, as the case may be, or result in the
cancellation, modification, revocation or suspension of any of the Permits (as
defined below), or (c) violate any order, law, rule or regulation applicable to
the Selling Stockholders or Parent or Subsidiary, as the case may be, or by
which any of their respective properties or assets may be bound. No action,
consent, authorization, waiver or approval by, or filing or registration by the
Selling Stockholders or Parent or Subsidiary with, any federal, state,
municipal, foreign or other court or governmental body or agency, or any other
regulatory body, is required in connection with the execution, delivery or
performance by the Selling Stockholders or Parent or Subsidiary, as the case may
be, of this Agreement, the Note Purchase Agreements, the Stockholders Agreement,
the Escrow Agreement or the Employment Agreements or the consummation of the
sale of the Purchased Stock and the Notes and the other transactions
contemplated hereby and thereby.
3.4. Capital Stock of the Company. The authorized capital stock of
Parent consists of 1,000,000 shares of Parent Common Stock, of which 650,100
shares of Parent Common Stock are issued and outstanding and owned by the
several Selling Stockholders and five other persons as set forth on Exhibit A,
and 10,000 shares of preferred stock, par value $0.01 per share, of which no
shares are issued or outstanding. The authorized capital stock of Subsidiary
consists of 10,000 shares of common stock par value $10.00 per share
("Subsidiary Common Stock"), of which one share is issued and outstanding and
owned beneficially and of record by Parent. Such share of Subsidiary Common
Stock has been duly authorized and is validly issued, fully paid and
nonassessable. There are no other outstanding shares of capital stock of Parent
or Subsidiary. Neither Parent nor Subsidiary have outstanding any securities
convertible into or exchangeable for any share of capital stock, any rights to
subscribe for or to purchase or any options for the purchase of, or any
agreements providing for the issuance (contingent or otherwise) of, or any
calls, commitments or claims of any other character relating to the issuance of,
any capital stock, or any stock or securities convertible into or exchangeable
for any capital stock. All of the issued and outstanding shares of the Parent
Common Stock have been duly authorized and are validly issued, fully paid and
nonassessable (other than as disclosed on Schedule 3.4), and are owned
beneficially and of record by the Selling Stockholders and other individuals as
set forth on Exhibit A. The Selling Stockholders have, as of the Closing Date
and prior to the sale thereof pursuant to this Agreement, good and marketable
title to all shares of Purchased Stock, free and clear of all Liens. All issued
and outstanding shares of Parent Common Stock were offered, issued, sold and
delivered by Parent in compliance with (or pursuant to exemptions from) all
applicable state and federal laws
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<PAGE> 22
governing the offer and sale of securities. None of such shares was issued in
violation of the preemptive rights of any stockholder.
3.5. Subsidiaries. Except as disclosed on Schedule 3.5, the Company
does not hold or own, directly or indirectly any shares of capital stock of any
corporation; any membership interests in any limited liability company, any
partnership interests in any limited or general partnership, any participations
in any joint venture, or any other equity interests in any other entity.
3.6. Transactions in Company Stock. Except as set forth on Schedule
3.6, since October 1, 1994 the Company has not acquired, directly or indirectly,
any shares of its capital stock and has no obligation (contingent or otherwise)
to purchase, redeem or otherwise acquire or retire any of its capital stock or
any interests therein, or to register such shares under the Securities Act (as
defined below), or to pay any dividend or make any distribution in respect
thereof.
3.7. Predecessors.
(a) Since October 1, 1994 until the Merger Time, the Company
has existed solely as Sterling Construction Company, a Michigan
corporation. The Company since October 1, 1994 has never been a
subsidiary or division of another corporation nor been a part of an
acquisition which was later rescinded. The Company and the Selling
Stockholders have never owned any equity interest in any Purchaser and
since October 1, 1994 there has been no sale or spin-off of significant
assets of the Company or any predecessor other than in the ordinary
course of business.
(b) Merger Corp. did not conduct any business or operations
prior to the Merger Time and had no assets, liabilities or obligations
of any nature other than those incident to its formation and the
Merger. On the date hereof, Merger Corp. was merged with and into
Subsidiary, pursuant to which the separate existence of Merger Corp.
ceased.
3.8. Financial Statements.
(a) The Selling Stockholders have furnished or made available
to the Purchasers true and complete copies of: (i) 1998 Audited
Financial Statements and the audited balance sheets of the Company as
of September 30, 1997, September 30, 1996, September 30, 1995,
September 30, 1994 and September 30, 1993 and the related audited
statements of earnings and changes in stockholders' equity and cash
flows of the Company for the fiscal years ended September 30, 1997,
September 30, 1996, September 30, 1995, September 30, 1994 and
September 30, 1993 (collectively, the "Audited Financial Statements");
and (ii) the unaudited or audited (as the case may be) balance sheet of
the Company (the "Pre-Signing Balance Sheet") as of the last day of the
most recent calendar month ended at least 30 days prior to the date of
this Agreement for which financial statements have been prepared by the
Company (the "Pre-Signing Balance Sheet Date") and the related
statements of earnings and changes in Stockholders' equity and cash
flows of the Company for the period from October 1, 1997 through the
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<PAGE> 23
Pre-Signing Balance Sheet Date (the foregoing financial statements
being collectively referred to as the "Current Year Financial
Statements").
(b) The Company's Audited Financial Statements and Current
Year Financial Statements are, and its November 30, 1998 Income
Statement and November 30, 1998 Balance Sheet, when delivered pursuant
to this Agreement will be, in all material respects accurate, complete
and in accordance with the books and records of the Company and
present, or when delivered pursuant to this Agreement will present,
fairly in all material respects, the financial position of the Company
as of their respective dates and the results of its operations for the
periods then ended, in conformity with GAAP, consistently applied
(subject, in the case of the unaudited financial statements, to (i)
normal year-end and audit adjustments, the effects of which,
individually or in the aggregate, will not be materially adverse, and
(ii) the fact that they do not contain all of the footnote disclosures
required by GAAP).
3.9. Balance Sheet Liabilities and Obligations. Except as set forth
on Schedule 3.9, there are no material liabilities or obligations of the Company
of any kind, character and description, whether accrued, absolute, secured or
unsecured, contingent or otherwise, except for those reflected on the
Pre-Signing Balance Sheet and those incurred after the Pre-Signing Balance Sheet
Date in the ordinary course of business, that are required to be reflected on a
balance sheet of the Company prepared in accordance with GAAP.
3.10. Accounts and Notes Receivable. Except to the extent reflected
on Schedule 3.10, all accounts and notes receivable, payable to or for the
benefit of the Company reflected on the Pre-Signing Balance Sheet arose from the
sale of products and services in the ordinary course of business or reflect
advances to employees or affiliates and are legal, valid and binding claims of
the Company and the reserves with respect thereto reflected on the Pre-Signing
Balance Sheet were reasonable and adequate in accordance with GAAP as of the
date of issuance of the Pre-Signing Balance Sheet.
3.11. Permits. Schedule 3.11 sets forth an accurate list of all
material permits (excluding permits for particular construction projects or
other jobs for customers), authorizations, consents, registrations, licenses,
franchises and certificates (collectively, the "Permits") held by the Company
or, if applicable, by its employees that are used to conduct the business of the
Company. Such Permits (i) are valid, in good standing and in full force and
effect, (ii) are not subject to any pending or threatened administrative or
judicial proceeding to revoke, cancel, suspend or declare such Permits invalid
in any respect, and (iii) are in all material respects adequate for the
operation of the business of the Company as it is presently being conducted and
has been proposed by the Company to be conducted. None of the operations of the
Company are being conducted in a manner that violates in any material respect
any of the terms or conditions under which any Permit was granted. Neither the
execution and delivery by the Selling Stockholders or Parent or Subsidiary, as
the case may be, of this Agreement, the Note Purchase Agreements, the
Stockholders Agreement, the Escrow Agreement or the Employment Agreements, nor
the consummation of the sale of the Purchased Stock or the Notes and the other
transactions contemplated hereby and thereby, will require transfer or
reissuance of, or cause a default, termination or suspension under, or alter or
impair any rights under, such Permits.
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<PAGE> 24
3.12. Real and Personal Property. Except as set forth on Schedule 3.12,
the Company does not and has not at any time since October 1, 1994 owned or
leased any real property (other than property previously (but not currently)
leased on a temporary basis for particular construction projects or other jobs
for customers), and true, correct and complete copies of all current lease
agreements of the Company relating to real property leased by the Company
("Leased Real Property") have been furnished or made available to the Purchasers
(the "Real Property Leases"). The Real Property Leases are in full force and
effect and constitute valid, legal and binding agreements of the parties (and
their successors) thereto. All tangible assets used by the Company in the
operation of its business are either owned by the Company or leased under
agreements that have been furnished or made available to the Purchasers, or, in
the case of certain tools and immaterial tangible assets, are owned and used by
the relevant employees. Subject to normal maintenance, repair, reconditioning
and replacement, except as set forth on Schedule 3.12, all of the vehicles,
machinery and equipment of the Company are in reasonably good working order and
condition, ordinary wear and tear excepted. True, correct and complete copies of
the most recent real estate title report and each title insurance policy held by
the Company relating to the real property owned by the Company ("Owned Real
Property") have been furnished or made available to the Purchasers.
(a) Owned Real Property and Leased Real Property
(i) The Owned Real Property and the Leased Real
Property constitutes all of the real property necessary for
the Company to operate its business as it is currently being
conducted other than property to be leased on a temporary
basis for particular construction projects or other jobs for
customers.
(ii) None of the Owned Real Property is subject to
any right or option of any Person to purchase, lease or
otherwise obtain title to such property, except in connection
with the mortgage liens reflected on Schedule 3.15. No Person
other than the Company has any right to use, occupy or lease
all or any portion of the Owned Real Property.
(b) Real Property Leases - No Default: Neither the Company
nor, to the Company's knowledge, any of the other parties to the Real
Property Leases, is in material default under any of the Real Property
Leases, and no material amount due under the Real Property Leases
remains unpaid, no material controversy, claim, dispute or disagreement
exists between the parties to the Real Property Leases, and to the
Company's knowledge no event has occurred which with the passage of
time or giving of notice, or both would constitute a material default
thereunder.
(c) Restrictive Covenants. To the Company's knowledge, there
is no violation of a condition or agreement contained in any covenant,
easement or any similar agreement affecting the Owned Real Property or
the Leased Real Property. The covenants, easements or rights-of-way
affecting the Owned Real Property or the Leased Real Property do not
with respect to each Owned Real Property or Leased Real Property
materially impair the Company's ability to use any such Owned Real
Property or Leased Real Property in the operation of its business as
currently conducted. The Company has access to public roads, streets or
the like or valid perpetual easements over private streets,
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<PAGE> 25
roads or other private property for such ingress to and egress from the
Owned Real Property and the Leased Real Property, except as would not
materially impair the ability to use any such Owned Real Property or
Leased Real Property in the operation of its business as currently
conducted.
(d) Eminent Domain: There is no pending or, to the Company's
knowledge, threatened condemnation of any part of the Owned Real
Property by any governmental authority and to the Company's knowledge
their is no pending or threatened condemnation of any part of the
Leased Real Property by any governmental authority.
(e) Utilities: The Company has not received any notice from
any utility company or municipality of any fact or condition which
could result in the discontinuation of currently available or otherwise
necessary sewer, water, electric, gas, telephone or other utilities or
services for the Owned Real Property or Leased Real Property. The Owned
Real Property has adequate water, sewer, sanitary sewer and storm drain
facilities and community services for its current use. All public
utilities necessary or convenient to the use, occupancy, disposition
and enjoyment of the Owned Real Property (as currently used and
occupied) are located in the public right-of-way abutting the Owned
Real Property and all such utilities are connected so as to serve the
Owned Real Property without passing over other property or are within
nonterminable easements.
(f) No Commissions: All brokerage commissions and other
compensation and fees payable by reason of the Real Property Leases or
the Owned Real Property, have been paid in full except to the extent
that such may result from the extension or renewal of any Real Property
leases.
(g) Improvements: To the Company's knowledge, all improvements
on the Owned Real Property and the Leased Real Property (for which the
Company is responsible) conform in all material respects to all
applicable federal, state and local laws, zoning, land use and building
ordinances and health and safety ordinances (including, without
limitation, the Americans with Disabilities Act), and neither the
Company nor any of its affiliates, has received any notice of any
violation of any such laws or ordinances which violation has not been
cured. The Owned Real Property and the Leased Real Property are zoned
for the various purposes for which the real estate and improvements
have been used in connection with the normal operation of the business.
To the Company's knowledge, there is no material latent or patent
structural, mechanical or other significant defect, soil condition or
deficiency in the improvements located on the Owned Real Property or
Leased Real Property (for which the Company is responsible).
(h) Insurance: There are no outstanding requirements or
recommendations by any insurance company which has issued to the
Company a policy covering the Owned Real Property or Leased Real
Property, or as to the Owned Real Property by any board of fire
underwriters or other body exercising similar functions, requiring or
recommending any repairs or work to be done on such property.
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<PAGE> 26
3.13. Material Contracts and Commitments. Except to the extent set
forth on Schedule 3.13, the Company (i) has performed all obligations required
to be performed by it under, and has complied in all material respects with all
written and oral contracts, commitments and similar agreements or arrangements
that as of the date of this Agreement are material to the Company taken as a
whole to which the Company is a party or by which it or any of its properties
may be bound (including, but not limited to, municipal contracts, joint venture
or partnership agreements, contracts with any labor organizations, loan
agreements, indemnity or guaranty agreements, bonds, mortgages, options to
purchase land, liens, pledges or other security agreements) (collectively, the
"Contracts"); and (ii) is not in material default under any such Contract and no
notice of default or delinquency has been received, nor has any event occurred
which, with due notice or lapse of time or both, would constitute such a
default. To the knowledge of the Company, no other party to any Contract is in
default in respect thereof, and no event has occurred which, with due notice or
lapse of time or both, would constitute such a default. Schedule 3.13 sets forth
an accurate list of all Contracts, excluding oral contracts for materials and
contracts with subcontractors made in the ordinary course of business, which as
of the date of this Agreement (i) commit the Company for a commitment involving
in any one case $50,000 or more or (ii) by their terms do not terminate and
cannot be terminated within six (6) months, and the Company has furnished or
made available to the Purchasers copies of all Contracts listed on Schedule
3.13. Each of the Contracts listed on Schedule 3.13 is a valid and binding
obligation of the Company and is in full force and effect and enforceable
against the parties thereto in accordance with its terms and, except as set
forth on Schedule 3.13, will continue in such force and effect following the
Closing Date and requires no consent of any party to the execution of this
Agreement, the Note Purchase Agreements, the Stockholders Agreement, the Escrow
Agreement or the Employment Agreements or the consummation of the transactions
contemplated hereby or thereby.
3.14. Labor. The Company is not bound by or subject to (and none of
its assets or properties is bound by or subject to) any arrangement with any
labor union. No employees of the Company are represented by a labor union or
covered by any collective bargaining agreement nor is any organizational
campaign to establish such representation in progress. There is no pending or
threatened labor dispute involving the Company and any group of its employees
nor has the Company experienced any labor interruptions since October 1, 1994.
The Company is in compliance in all material respects with all laws, regulations
and orders relating to the employment of labor, including all such laws,
regulations and orders relating to wages, hours, collective bargaining,
discrimination, civil rights, safety and health, workers' compensation and the
collection and payment of withholding and/or social security taxes and any
similar employment tax. There has been no "mass layoff" or "plant closing" as
defined by the Worker Adjustment and Retraining Notification Act or any similar
state or local "plant closing" law with respect to the current or former
employees of the Company.
3.15. Title to Owned Real Property. The Seller has good and
indefeasible fee simple title to the Owned Real Property and owns all of the
improvements located thereon, free and clear of all Liens except as indicated on
the title reports and title insurance policies furnished or made available to
Purchaser pursuant to Section 3.12 and except for:
(a) the mortgage lien reflected on Schedule 3.15;
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(b) liens for current taxes and assessments not delinquent;
and
(c) easements for utilities serving the property only.
3.16. Insurance. Schedule 3.16 sets forth an accurate list of all
insurance policies, fidelity bonds or other insurance service contracts (the
"Insurance") in force with respect to the Company or its properties, assets,
employees, officers, directors and business. The Insurance carried by the
Company with respect to its properties, assets, employees, officers, directors
and business is in amounts consistent with past practice and, to the knowledge
of the Selling Stockholders, in accordance with industry standards and as
required by legal requirements and the Contracts. Such Insurance is currently in
full force and effect, is sufficient for all applicable requirements of law and
will not be affected by or terminated or lapsed by reason of the consummation of
the transactions contemplated by this Agreement, the Note Purchase Agreements,
the Stockholders Agreement, the Escrow Agreement or the Employment Agreements.
All premiums due and payable under all Insurance have been paid. Except as set
forth on Schedule 3.16, the Company is not in default under any provisions of
any such Insurance, such Insurance has never been canceled and, since October 1,
1994, no insurer has ever refused to issue any Insurance requested to be issued
by the Company. There are no claims by the Company pending under any of such
Insurance as to which coverage has been questioned, denied or disputed by the
underwriters of such Insurance.
3.17. Compensation. Schedule 3.17 sets forth the names of all
officers, directors and key employees of the Company who received total
compensation for the fiscal year ended September 30, 1998 in excess of $75,000
and their current rates of compensation.
3.18. Employee Benefit Plans.
(a) Schedule 3.18 sets forth an accurate list of all employee
benefit or welfare plans, including without limitation any "employee
welfare benefit plans" and "employee pension benefit plans" as defined
in the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), benefits under any collective bargaining agreement or
employment contracts, pension, profit-sharing, bonus, stock option,
incentive, deferred compensation, dependent care, medical
reimbursement, hospitalization, medical, or life insurance, severance
benefits or any other plan, arrangement, or program and any employment
agreement containing "golden parachute" provisions, and a description
of such plans, programs or arrangements, that are currently maintained,
or contributed to, or required to be maintained or contributed to, by
the Company or any entity that together with the Company is treated as
a single employer (collectively, "Controlled Group Member") under
Section 414(b), (c), (m) or (o) of the Internal Revenue Code of 1986,
as amended (the "Code"), for the benefit of any current or former
employees, officers or directors of the Company or any of its
predecessors (collectively, the "Plans"). To the knowledge of the
Selling Stockholders all Plans listed on Schedule 3.18 are in
substantial compliance in all material respects with all applicable
provisions of ERISA, the Code and the regulations issued thereunder, as
well as with all other applicable federal, state and local statutes,
ordinances and regulations. The Selling Stockholders have previously
provided Purchaser with copies of or access to all such Plans and any
trusts, insurance contracts, investment management agreements or any
other funding arrangement related
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<PAGE> 28
thereto, annual reports (Form 5500) and all schedules related thereto
filed for the last three years (if required to be filed), and the most
recent summary plan description for each Plan, arrangement, or program
and classifications of employees covered thereby that are in effect on
the date hereof as to which a summary plan description is required.
With respect to any Plan listed on Schedule 3.18, individually and in
the aggregate, to the knowledge of the Selling Stockholders, no event
has occurred, and no set of circumstances have occurred in connection
with which the Company is reasonably likely to be subject to any
liability that could have a Material Adverse Effect.
(b) None of the Plans is a "single-employer plan" as defined
in Section 4001(a)(15) of ERISA ("Pension Plan"). Neither the Company
nor any Controlled Group Member has any outstanding liability under
Section 4062 of ERISA to the Pension Benefit Guaranty Corporation or to
a trustee appointed under Section 4042 of ERISA with respect to any
Pension Plan, and no events have occurred and no circumstances exist
that could reasonably be expected to result in any such liability to
the Company or any Controlled Group Member.
(c) Each Plan that is intended to qualify under Section 401(a)
of the Code and the trust maintained pursuant thereto is intended to be
so qualified and exempt from federal income taxation under Section
501(a) of the Code, and to the knowledge of the Selling Stockholders,
nothing has occurred with respect to the operation of any such Plan
that could reasonably result in the loss of such qualification or tax
exemption or the imposition of any material liability, penalty or tax
under ERISA or the Code.
(d) All contributions (including all employer contributions
and employee salary reduction contributions) required to have been made
under any of the Plans or by law (without regard to any waivers granted
under Section 412 of the Code) to any funds or trusts established
thereunder or in connection therewith have been made by the due date
thereof (including any valid extension), and all contributions for any
period ending on or before the Closing Date which are not yet due will
have been paid or accrued.
(e) There are no pending actions, claims or lawsuits which
have been asserted or instituted against the Plans, the assets of any
of the trusts under the Plans or the Plan sponsor or the Plan
administrator, or against any fiduciary of the Plans with respect to
the operation of the Plans (other than routine benefit claims), nor do
the Selling Stockholders have any knowledge of facts which could
reasonably form the basis for any such claim or lawsuit.
(f) The Plans have been maintained, in all material respects,
in accordance with their terms and with all provisions of ERISA and the
Code (including rules and regulations thereunder) and other applicable
federal and state laws and regulations, and neither the Company nor, to
the knowledge of the Selling Stockholders, any "party in interest" or
"disqualified person" with respect to the Plans has engaged in a
"prohibited transaction" within the meaning of Section 406 of ERISA or
4975 of the Code. To the knowledge of the Selling Stockholders, no
fiduciary has any liability for breach of fiduciary duty or any other
failure to act or comply in connection with the administration or
investment of the assets of any Plan.
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<PAGE> 29
(g) None of the Plans provide retiree life or retiree health
benefits except as may be required under Section 4980B of the Code or
Sections 601 - 608 of ERISA and at the expense of the participant or
the participant's beneficiary.
(h) Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will, (i)
result in any payment becoming due to any employee (current, former or
retired) of the Company, (ii) increase any benefits otherwise payable
under any Plan, (iii) result in the acceleration of the time of payment
or vesting of any benefits under any Plan or (iv) constitute a "change
in control" or similar event under any Plan or fail to be deductible by
reason of Section 280G of the Code.
(i) No stock or other security issued by the Company or any
affiliate forms or has formed a material part of the assets of any
Plan.
3.19. No Multiemployer Plans. Neither the Company nor any Controlled
Group Member has ever sponsored or contributed to, or had an obligation to
contribute to, a Multiemployer Plan as such term is defined in Section
4001(a)(3) of ERISA.
3.20. Conformity with Law; Governmental Claims. The Company is not
in default under any statute or regulation or under any order of any court or
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality having jurisdiction over any of them, which
default would have a Material Adverse Effect; and except to the extent set forth
in Schedule 3.31, there are no material claims, actions, suits, investigations
or proceedings pending or threatened against the Company, at law or in equity,
by any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it and no
notice of any claim, action, suit or proceeding, whether pending or threatened,
has been received. The Company has conducted and is conducting its business in
substantial compliance in all material respects with the requirements,
standards, criteria and conditions set forth in applicable federal, state and
local statutes, ordinances, permits, licenses, orders, approvals, variances,
rules and regulations and is not in violation in any material respect of any of
the foregoing.
3.21. Taxes and Tax Returns. The Subsidiary has and has had at all
times since September 30, 1994 through the Closing a valid election in effect
under Section 1362 of the Code and any comparable provision of state or local
law for all taxable years through and including the Closing Date (the "S
Election"). The S Election is respected under the income Tax laws of every state
or local jurisdiction in which the Company does business. Tax Returns of the
Company that are required (so as to avoid delinquency) to be filed on or before
the Closing Date have been (or will have been by the Closing Date) timely filed
(subject to any extensions that have been obtained) with the appropriate
governmental authorities. All Taxes of any kind whatsoever (whether payable
directly or via withholding) that are shown on the Tax Returns described in the
preceding sentence as due from the Company have been (or will have been by the
Closing Date) properly paid or deposited. All such Tax Returns were true,
correct and complete in all material respects as of the time of such filing. Any
liability for taxes owed by the Company and not yet due and payable, or which
are being contested in good faith, has been provided for on the financial
statements of the Company in accordance with
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GAAP. Except as set forth on Schedule 3.21, the Company has not, to the
knowledge of any Selling Stockholders, received any notice of deficiency or
assessment in connection with any Tax Returns, and there are not any pending Tax
examinations of, or Tax claims asserted against, the Company. The Company has
not extended, or waived the application of, any statute of limitations of any
jurisdiction regarding the assessment or collection of any Taxes. There are no
requests for rulings or determinations in respect of any taxes pending between
the Company and the Internal Revenue Service or any other Tax authority. The
Company has not filed a consent under Section 341(f) of the Code concerning
collapsible corporations. The Company has not made any payments, is not
obligated to make any payments, and is not a party to any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Section 280G of the Code. There is no lien for Taxes (other
than any lien for current Taxes not yet delinquent) on or with respect to any
assets of the Company. The Company is not and has not been a party to any Tax
allocation or sharing agreement. None of the Selling Stockholders is a "foreign
person" for purposes of U.S. income taxation. Except as set forth on Schedule
3.21, the Company has never been a member of an affiliated group within the
meaning of Section 1504(a) of the Code. The Company has made all deposits
required by law to be made with respect to employees' withholding and other
employment Taxes. The Company has withheld and paid all material Taxes required
to be withheld in connection with any amounts paid or owing to any employee,
creditor, independent contractor or other third party. For purposes of this
Agreement, "Taxes" shall mean any and all federal, state, local, foreign and
other taxes, levies, fees, imposts, duties and charges of whatever kind
(including any interest, penalties or additions to the tax imposed in connection
therewith or with respect thereto), whether or not imposed on the Company,
including, without limitation, taxes imposed on, or measured by, income,
franchise, profits or gross receipts, and also value added, sales, use, service,
real property, capital stock, license, payroll, withholding, employment, social
security, workers' compensation, unemployment compensation, utility, severance,
production, excise, stamp, occupation, premium, windfall profits, transfer and
gains taxes and customs duties; and "Tax Returns" shall mean returns, reports,
information statements and other documentation (including any additional or
supporting material) filed or maintained, or required to be filed or maintained,
in connection with the calculation, determination, assessment or collection of
any Tax and shall include any amended returns required as a result of
examination adjustments made by the Internal Revenue Service or other Tax
authority.
3.22. Intellectual Property. All material patents, patent
applications, copyrights, trademarks, trade names, service marks and other
intellectual property which are used in the business of the Company are listed
on Schedule 3.22. Schedule 3.22 also lists, where applicable, the state and
federal registration numbers relating to such intellectual property and the
class of services to which such intellectual property relates. Except as set
forth in Schedule 3.22, (i) there are no claims or proceedings pending or
threatened against the Company asserting that the use of any of such
intellectual property infringes the rights of any other person and (ii) the
Company has adequate rights to use all material patents, patent applications,
inventions, know-how, technical information and other intellectual property used
in the conduct of their respective businesses.
3.23. Governmental Contracts. The Company is not a party to any
governmental contract subject to price redetermination or renegotiation.
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3.24. Absence of Changes. Since the Pre-Signing Balance Sheet Date,
except as set forth in Schedule 3.24 or except as otherwise expressly
contemplated hereby, there has not been:
(a) any changes in the financial condition, assets,
liabilities (contingent or otherwise), or business of the Company taken
as a whole that could reasonably be expected to have a Material Adverse
Effect;
(b) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties, assets or
business of the Company, taken as a whole;
(c) any change in the authorized, issued or outstanding
capital stock of the Company, except for stock purchases by employees
of the Company pursuant to the Company's existing employee stock
purchase program;
(d) any declaration, setting aside or payment of any dividend
or distribution in respect of the capital stock or any direct or
indirect redemption, purchase or other acquisition of any of the
capital stock of the Company, except for the Final S Corporation
Distribution;
(e) any increase in the compensation, bonus, benefits, sales
commissions or fee arrangements payable or to become payable by the
Company to any of its respective officers, directors, the Selling
Stockholders, employees, consultants or agents, except in the normal
course of business consistent with past practices;
(f) any work interruption or any similar event or condition
materially adversely affecting the business of the Company taken as a
whole;
(g) any sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of the Company to any
person, including, without limitation, the Selling Stockholders or any
affiliates thereof;
(h) any cancellation, or agreement to cancel, any material
indebtedness or other material obligation owing to the Company,
including without limitation any indebtedness or obligation of the
Selling Stockholders or any affiliates thereof;
(i) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any assets,
property or rights of the Company or requiring consent of any party to
the transfer and assignment of any such assets, property or rights;
(j) any purchase or acquisition, or agreement, plan or
arrangement to purchase or acquire, any material property, rights or
assets other than in the normal course of business consistent with past
practices;
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(k) any material breach, or (other than in the normal course
of business or as expressly contemplated by this Agreement) any
amendment or termination, of any Contract or Permit of the Company;
(l) any change in any method of accounting or accounting
practice of the Company;
(m) any loss of the employment, services or benefits of any
key employee of the Company;
(n) any material defaults on any material obligation of the
Company;
(o) any write down of the value of any inventory or any write
off as uncollectible of any of the Company's accounts receivable or any
Portion thereof, in any such case not reflected in the Pre-Signing
Balance Sheet; or
(p) any agreement by the Company or the Selling Stockholders
(whether or not in writing) to effect any of the changes set forth in
clauses (a) through (o) above.
3.25. Powers of Attorney. No person, corporation, firm or other
entity holds a general or special power of attorney from the Company.
3.26. Brokers and Finders. Except as set forth on Schedule 3.26,
none of the Selling Stockholders or the Company has employed any broker, agent
or finder or incurred any liability for any brokerage fees, commissions or
finders' fees in cash for the sale of the Purchased Stock, the Notes, or the
consummation of the other transactions contemplated by the Agreement or the Note
Purchase Agreements. Neither the Company nor any of its officers, directors, or
employees on behalf of the Company has incurred any liabilities for any
financial advisory fees, brokerage fees, commissions or finders' fees that
remain unpaid in connection with any transaction or proposed transaction other
than the transactions contemplated hereby.
3.27. Environmental Matters. Except as disclosed on Schedule 3.27,
neither Parent nor Subsidiary has disposed of, or arranged for the disposal of,
hazardous wastes, hazardous substances, petroleum, petroleum products, or
infectious or medical waste, as those terms are defined by the Resource
Conservation and Recovery Act of 1976, as amended ("RCRA"), the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), or any comparable state laws, rules or regulations ("Hazardous
Substances"). Except as disclosed on Schedule 3.27, there has been no
generation, storage or treatment of solid wastes or Hazardous Substances by
Parent or Subsidiary at any site or other facility in material violation of any
applicable law, rule, regulation, order, judgment or permit or that would
require any material ongoing or future removal, remedial or other response
action under any applicable law. Based upon all of the facts known to the
Selling Stockholders, including but not limited to all of the facts set forth in
Schedule 3.27 with respect to any and all real property owned, operated or
leased by Parent or Subsidiary, the Selling Stockholders after due inquiry do
not believe and have no reasonable basis to believe that any or all of Parent or
Subsidiary or the owner or operator of such properties could reasonably be
expected to incur any material remediation or other liability with respect to
such properties under any law, rule, regulation, order, judgment or permit
relating to human health,
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natural resources or the environment (collectively "Environmental Laws").
Neither Parent nor Subsidiary has received any notice of any violation of, or
potential liability under, any Environmental Law, and the Selling Stockholders
have no knowledge after due inquiry that there has been any spill, discharge,
leak, emission, injection, escape, emptying, dumping or release of any kind onto
any property owned, operated or leased by Parent or Subsidiary or into the
environment surrounding any such property of any Hazardous Substances such as
would result in any material violation of, or require any material removal,
remediation or other response action under, any applicable Environmental Law.
Parent and Subsidiary have been and are in compliance with all applicable
Environmental Laws and have obtained, and have been and are in compliance with
all permits, licenses, franchises, certificates, registrations, consents, and
authorizations required under all applicable Environmental Laws ("Environmental
Permits"), including such required for particular construction projects or other
jobs for customers. Neither the execution and delivery by the Selling
Stockholders, Parent or Subsidiary of this Agreement or the Note Purchase
Agreements, nor the consummation of the sale of the Purchased Stock, the Notes
and the other transactions contemplated hereby and thereby, will require
transfer or reissuance of, or cause a default under, or alter or impair any
rights under, such Environmental Permits. There are no claims, actions, suits or
other proceedings involving Environmental Laws pending, or to the knowledge of
the Selling Stockholders after due inquiry, threatened against Parent or
Subsidiary. Neither Parent nor Subsidiary has entered into any agreements
relating to any removal, remedial or other response action required under
Environmental Laws or relating to any claims arising under any Environmental
Law.
3.28. No Underground Storage Tanks. None of the real property owned,
operated or leased by Parent or Subsidiary has nor has in the past had (to the
knowledge of the Selling Stockholders after due inquiry) any underground storage
tanks located thereon containing Hazardous Substances.
3.29. Relations with Government. Neither the Selling Stockholders
nor the Company have given, offered or agreed to offer anything of value to any
governmental official, political party or candidate for government office nor,
to the Selling Stockholders' knowledge, have they otherwise taken any action, in
each case, that would cause the Company to be in violation of the Foreign
Corrupt Practices Act of 1977, as amended, or any law of similar effect.
3.30. Accounting Records. The books of account and other accounting
records of the Company are complete and correct in all material respects, and
have been maintained in accordance with the Company's normal business practices.
3.31. Litigation and Claims. Except as set forth on Schedule 3.31,
there are no actions, suits, claims or other proceedings pending or, to the
knowledge of the Selling Stockholders, threatened against the Company or any of
its employees, officers or directors or involving any of its assets, properties
or rights at law or in equity before any foreign, federal, state, municipal, or
other governmental court, department, commission, board, bureau, agency,
governmental authority, or other instrumentality or person or any board of
arbitration or similar entity (a "Proceeding").
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3.32. Related Party Transactions. Except as set forth on Schedule
3.32, neither the Selling Stockholders nor any member of their immediate
families are a party to any contract, agreement, understanding, or business
arrangement with the Company. Except for the Plans and except as set forth on
Schedule 3.32, no director, officer or employee (nor any member of any such
person's immediate family) of the Company is a party to any written contract or
agreement with the Company. Except as set forth on Schedule 3.32, the Company
does not employ as an employee or engage as a consultant any family member of
any of the directors or officers of the Company or of the Selling Stockholders.
Except as set forth on Schedule 3.32, during the past three years none of the
directors or officers of the Company or the Selling Stockholders, or any family
member of any of such persons, has been a director or officer of, or has had any
direct or indirect interest in, any person which during such period has been a
supplier, customer or sales agent of the Company or has competed with or been
engaged in any business of the kind being conducted by the Company. Except as
set forth on Schedule 3.32, no person who, directly or indirectly, controls, is
controlled by or under common control with the Company owns or has any rights in
or to any of the assets, properties or rights used by the Company in the
ordinary course of its business.
3.33. Management Incentive Plans. Included in Exhibit H are copies
of written consents of directors of Parent and Subsidiary, executed prior to the
execution of this Agreement, that set forth resolutions, together with the
related agreements of all other parties, (a) terminating prior to the date
hereof all options, warrants, calls, conversion rights and commitments pursuant
to which any person or entity, including without limitation the Selling
Stockholders, would otherwise have had any right or potential right to acquire
any shares of capital stock of the Company and (b) implementing, conditioned
upon and effective as of the Closing, the Management Incentive Plans. Such
resolutions have not been revoked or superseded, and neither Parent nor
Subsidiary has issued or granted shares of capital stock or any options,
warrants, calls, conversion rights or commitments pursuant to which any person
or entity, including without limitation the Selling Stockholders, have any right
or potential right to acquire any shares of capital stock of Company prior to
the Closing or the termination of this Agreement in accordance with its terms.
4. REPRESENTATIONS AND WARRANTEES OF PURCHASERS.
Each of the several Purchasers, severally and not jointly, makes the
following representations and warranties to the Selling Stockholders at and as
of the Closing.
4.1. Due Organization. Such Purchaser is duly organized, validly
existing and in good standing under the laws of the state or jurisdiction of its
organization and is duly authorized, qualified and licensed under all applicable
laws, regulations, ordinances and orders of public authorities to carry on its
business in the places and in the manner as now conducted except where the
failure to be so authorized, qualified or licensed would not have a material
adverse affect on its business.
4.2. Authorization. Such Purchaser has the power and authority to
execute and deliver this Agreement, the Note Purchase Agreements, the
Stockholders Agreement and the other documents and instrument to be delivered
pursuant to this Agreement and to consummate the purchase of the Purchased Stock
and Notes and to consummate the other transactions
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contemplated hereby and thereby to be consummated by it. The execution and
delivery by Purchaser of this Agreement, the Note Purchase Agreements, the
Stockholders Agreement and all other instruments, documents and agreements
contemplated hereby executed and delivered by or on behalf of such Purchaser at
the Closing, and the consummation by such Purchaser of the purchase of the
Purchased Stock and the other transactions contemplated hereby and thereby, have
been duly and validly authorized by all necessary action on the part of such
Purchaser. This Agreement, the Note Purchase Agreements, the Stockholders
Agreement, and all other instruments, documents and agreements contemplated
hereby and thereby to be executed and delivered by or on behalf of such
Purchaser at the Closing have been duly and validly executed and delivered by
such Purchaser and constitutes (or will constitute) the valid and binding
obligations of such Purchaser enforceable in accordance with its respective
terms, subject to applicable bankruptcy, reorganization, insolvency and similar
laws from time to time in effect and subject to general principles of equity and
judicial discretion.
4.3. No Conflicts; Approvals. Neither the execution, delivery and
performance of this Agreement, the Note Purchase Agreements or the Stockholders
Agreement, nor the consummation of the purchase of the Purchased Stock, the Note
Purchase Agreements and the other transactions contemplated hereby and thereby
by such Purchaser will (i) conflict with or result in a breach of any provision
of the constituent or governing documents of such Purchaser, (ii) result in any
conflict with, breach of, or default (or give rise to any right to termination,
cancellation or acceleration or loss of any right or benefit) under or require
any consent or approval which has not been obtained with respect to any of the
terms, conditions or provisions of any indenture, contract, agreement or
instrument to which such Purchaser is a party or by which any of its properties
or assets may be bound or (iii) violate any order, law, rule or regulation
applicable to such Purchaser or by which any of its properties or assets may be
bound. No action, consent, authorization, waiver or approval by, or filing or
registration by such Purchaser with, any federal, state, municipal, foreign or
other court or governmental body or agency, or any other regulatory body, is
required in connection with the execution and delivery by such Purchaser of this
Agreement, the Note Purchase Agreements or the Stockholders Agreement or the
consummation by such Purchaser of the purchase of the Purchased Stock and the
Notes and the consummation of the other transactions contemplated hereby and
thereby.
4.4. Brokers and Finders. None of such Purchaser or any of its
officers, directors, partners, managers, agents or employees has employed any
broker, agent or finder (other than Menai Capital LLC, all fees and expenses of
which shall be paid by Purchasers) or incurred any liability for any brokerage
fees, commissions or finders' fees in connection with the sale of the Purchased
Stock and the other transactions contemplated by the Agreement.
4.5. Investment Representations.
(a) Such Purchaser understands that the offer and sale of the
Purchased Stock and the Notes (collectively, the "Securities") will not
be registered under the Securities Act of 1933, as amended (the
"Securities Act"), or any state securities laws, on the grounds that
the offer and sale of the Securities are exempt from registration under
Section 4(2) of the Securities Act and applicable state securities
laws, and that the reliance of the Selling Stockholders and the Company
on such exemptions are predicated
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<PAGE> 36
in part on such Purchaser's representations, warranties and
confirmations set forth in this Section 4.5.
(b) Such Purchaser represents and warrants that, upon
consummation of the Closing, the Securities will be acquired by such
Purchaser for its own account, not as a nominee or agent, and without a
view to resale or other distribution within the meaning of the
Securities Act.
(c) Such Purchaser represents and warrants that such Purchaser
has sufficient knowledge and expertise in financial and business
matters such that Purchaser is fully capable of evaluating the merits
and risks of such Purchaser's purchase of the Securities upon
consummation of the Closing, and that such Purchaser is an "accredited
investor", as such term is defined in Rule 501 under the Securities
Act.
(d) Such Purchaser confirms that the Selling Stockholders have
given such Purchaser the full and unrestricted opportunity to
investigate the business, properties and assets of the Company. Such
Purchaser also confirms that the Selling Stockholders have given such
Purchaser the full and unrestricted opportunity to ask questions of and
receive answers from the Selling Stockholders and other employees of
the Company concerning such Purchaser's purchase of the Securities.
Such Purchaser represents and warrants that (i) the full and
unrestricted opportunity to investigate the business, properties and
assets of the Company, (ii) the full and unrestricted opportunity to
ask questions of and receive answers from the Selling Stockholders and
other employees of the Company concerning such Purchaser's purchase of
the Securities and (iii) the representations and warranties of the
Selling Stockholders set forth in Section 3, the Company's financial
statements and the schedules, reports and other information furnished
or made available by the Selling Stockholders to such Purchaser
pursuant to or in connection with this Agreement are, taken together,
sufficient to enable such Purchaser, in light of the experience and
expertise of the principals and advisors of such Purchaser, to make a
fully informed investment decision regarding its purchase of the
Securities and its consummation of the other transactions contemplated
hereby.
5. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLING STOCKHOLDERS AND THE
COMPANY.
The obligations of the Selling Stockholders and the Company hereunder
are subject to the fulfillment, at or prior to the Closing Date, of each of the
following conditions, any of which may be waived in writing by the Selling
Stockholders.
5.1. Representations and Warranties; Performance of Obligations.
The representations and warranties of the Purchasers set forth in this Agreement
shall be accurate as of the Closing Date in all respects. All of the terms,
covenants and conditions of this Agreement to be complied with and performed by
the Purchasers on or before the Closing Date shall have been duly complied with
and performed in all material respects. A certificate to the foregoing effect
dated the Closing Date and signed by the an authorized officer of each Purchaser
shall have been delivered to the Selling Stockholders.
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<PAGE> 37
5.2. No Litigation. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened by
any person not a party to this Agreement to restrain or prohibit the purchase
and sale of the Purchased Stock or the Notes or the consummation of the other
transactions contemplated by this Agreement.
5.3. Closing Documents. The Selling Stockholders and the Company
shall have been tendered delivery of each of the payments and documents to be
delivered to them at the Closing pursuant to Section 1.7 hereof.
5.4. Opinion of Counsel. The Selling Stockholders and the Company
shall have received an opinion of counsel for Oakhurst Technology, Inc., dated
the Closing Date, substantially to the effect that:
(a) such Purchaser is duly organized and validly existing in
good standing under the laws of its jurisdiction of organization;
(b) such Purchaser has the requisite power and authority to
enter into this Agreement, the Note Purchase Agreements, the
Stockholders Agreement and each of the other documents to be delivered
by such Purchaser pursuant to Section 1.7 hereof and to perform its
obligations hereunder and thereunder; this Agreement, the Note Purchase
Agreements, the Stockholders Agreement and each of the other documents
delivered by such Purchaser pursuant to Section 1.7 each has been duly
authorized, executed and delivered by Purchaser and constitutes a valid
and binding agreement of each Purchaser enforceable in accordance with
its terms, subject to applicable bankruptcy, reorganization, insolvency
and similar laws from time to time in effect and subject to general
principles of equity and judicial discretion;
(c) to the knowledge of such counsel, no notice to, consent,
authorization, approval or order of any court or governmental agency or
body is required in connection with the execution, delivery or
performance of this Agreement, such Purchaser's Note Purchase Agreement
or the Stockholders Agreement by such Purchaser; and
(d) the execution and delivery of this Agreement, such
Purchaser's Note Purchase Agreement and the Stockholders Agreement and
the performance by such Purchaser of its obligations hereunder and
thereunder will not violate or result in a breach or constitute a
default under any of the terms or provisions of such Purchaser's
constituent or organizational, documents, or, to the knowledge of such
counsel, any material agreement, lease, license, permit or other
contract to which such Purchaser is a party or by which it may be
bound.
Such opinions may be subject to normal and customary assumptions,
qualifications, limitations and exceptions.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASERS.
The obligations of the Purchasers hereunder are subject to the
fulfillment, at or prior to the Closing Date, of each of the following
conditions, any of which may be waived in writing by Purchasers.
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<PAGE> 38
6.1. Representations and Warranties. The representations and
warranties of the Selling Stockholders set forth in this Agreement shall be
accurate as of the Closing Date in all respects. All of the terms, covenants and
conditions of this Agreement to be complied with and performed by the Selling
Stockholders, Parent and Subsidiary on or before the Closing Date shall have
been duly complied with and performed in all material respects. Certificates to
the foregoing effect dated the Closing Date and signed by the Selling
Stockholders, and by an authorized officer of each of Parent and Subsidiary
shall have been delivered to the Purchasers.
6.2. No Litigation. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened by
any person not a party to this Agreement to restrain or prohibit the purchase
and sale of the Purchased Stock or the Notes or the consummation of the other
transactions contemplated by this Agreement.
6.3. Closing Documents. The Purchasers shall have been tendered
delivery of each of the payments and documents to be delivered to the Purchasers
at the Closing pursuant to Section 1.6 hereof.
6.4. Opinion of Counsel. The Purchasers shall have received an
opinion of counsel to Parent, Subsidiary and the Selling Stockholders, dated the
Closing Date, substantially to the effect that:
(a) each of Parent and Subsidiary has been duly organized and
is validly existing in good standing under the laws of its state of
organization;
(b) each of Parent and Subsidiary is duly authorized,
qualified or licensed to do business as a foreign corporation in the
places where such is required, except where the failure to be so
authorized, qualified or licensed would not have a Material Adverse
Effect;
(c) the authorized and outstanding capital stock of each of
Parent and Subsidiary is as set forth in Section 3.4 of this Agreement,
and each outstanding share of Parent Common Stock and Subsidiary Common
Stock has been duly authorized and validly issued, and is fully paid
and nonassessable;
(d) each of Parent and Subsidiary has the requisite corporate
power and authority to enter into this Agreement, the Note Purchase
Agreements, the Stockholders Agreement, the Escrow Agreement, the
Employment Agreements and each of the other documents to be delivered
by such party pursuant to Section 1.6 hereof, as applicable, and to
perform its obligations hereunder and thereunder, as applicable; this
Agreement, the Note Purchase Agreements, the Stockholders Agreement,
the Escrow Agreement, the Employment Agreements and each of the other
documents to be delivered by Parent and Subsidiary pursuant to Section
1.6 hereof has been duly authorized, executed and delivered by each
such Party, as applicable; assuming the legal capacity and competency
of the Selling Stockholders and assuming that this Agreement and the
other agreements delivered by the Selling Stockholders referred to in
Section 1.6 have been duly authorized, executed and delivered by the
Selling Stockholders, this Agreement, the Note Purchase Agreements, the
Stockholders Agreement, the Escrow Agreement, the
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<PAGE> 39
Employment Agreements and each of the other documents delivered by
Parent and Subsidiary and the Selling Stockholders, as applicable, each
constitutes a valid and binding agreement of Parent and Subsidiary or
the Selling Stockholders, as the case may be, enforceable in accordance
with its terms subject to applicable bankruptcy, reorganization,
insolvency and similar laws from time to time in effect and subject to
general principles of equity and judicial discretion;
(e) to the knowledge of such counsel, no notice to, consent,
authorization, approval or order of any court or governmental agency or
body is required in connection with the execution, delivery or
performance of this Agreement, the Note Purchase Agreements, the
Stockholders Agreement, the Escrow Agreement, or the Employment
Agreements by Parent, Subsidiary or the Selling Stockholders;
(f) the execution and delivery of this Agreement, the Note
Purchase Agreements, the Stockholders Agreement, the Escrow Agreement,
the Employment Agreements and the performance by Parent and Subsidiary
and the Selling Stockholders of their obligations hereunder and
thereunder will not violate or result in a breach or constitute a
default under any of the terms or provisions of the Certificate or
Articles of Incorporation or Bylaws of Parent, Subsidiary or, to the
knowledge of such counsel, any material Contract or Permit, to which
Parent or Subsidiary is a party or by which it may be bound and which
is listed on Schedule 3.11 or Schedule 3.13.
(g) the Merger, the formation of Merger Corp. and Merger
Corp.'s subsequent merger out of existence were made in accordance with
(i) the Delaware General Corporation Law, and (ii) as to such merger,
the Michigan Business Corporation Act.
Such opinion may be subject to normal and customary assumptions,
qualifications, limitations and exceptions.
6.5. Good Standing Certificates. Selling Stockholders shall have
delivered to Purchaser certificates, dated as of a date not more than 5 days
prior to the Closing Date, (a) duly issued by the Secretary of State of Delaware
and the appropriate authority of the State of Michigan as to (i) the good
standing of Parent and Subsidiary, as applicable, and (ii) the merger of
Subsidiary with and into Texas - Sterling Construction, Inc.; and (b) duly
issued by the appropriate governmental authority in each state in which Parent
or Subsidiary is authorized to do business, showing Parent and Subsidiary, as
applicable, to be in good standing and authorized to do business and that all
state franchise and/or income tax returns and taxes required to have been filed
or paid by Parent and Subsidiary for all periods prior to the Closing Date have
been filed and paid.
6.6. Employee Notes. All of the promissory notes payable to
Subsidiary for the purchase of, and secured by pledges of, shares of Subsidiary
common stock heretofore purchased by employees of Subsidiary shall have been
paid in full.
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7. INDEMNIFICATION.
7.1. Survival of Representations and Warranties. The
representations and warranties of the Selling Stockholders and the Company in
this Agreement and in the Note Purchase Agreements and other documents and
instruments delivered by the Selling Stockholders and the Company pursuant to
this Agreement will survive until January 31, 2000, except that the
representations and warranties in Section 3.4 (Capital Stock of the Company),
Section 3.5 (Subsidiaries), Section 3.27 (Environmental Matters) and 3.6
(Transactions in Company Stock) shall survive forever, the representations and
warranties under Sections 3.18 (Employee Benefit Plans), Section 3.19 (No
Multiemployer Plans) and Section 3.21 (Taxes and Tax Returns) shall survive for
a period equal to the applicable statute of limitations; provided, however,
that, if a Trigger Option Exercise Notice or a Pre-Trigger Option Exercise
Notice is delivered, then the survival period with respect to any representation
or warranty of the Selling Stockholders that would otherwise previously have
expired shall be extended through and including the date of the Purchasers'
payment of the Second Tranche Payment. The representations and warranties of the
Purchasers in this Agreement and in the Note Purchase Agreements and other
documents and instruments delivered by the Purchasers pursuant to this Agreement
will survive until January 31, 2000, except that the representations and
warranties in Section 4.5 (Investment Representations) shall survive for a
period of six years; provided, however, that if a Trigger Option Exercise Notice
or a Pre-Trigger Option Exercise Notice is delivered, then the survival period
with respect to any representation or warranty of the Purchasers that would
otherwise have expired will be extended through and including the date of the
Purchasers' payment (or required payment) of the Second Tranche Payment. The
liabilities of the parties under their respective representations and warranties
will expire as of the expiration of the applicable survival period (the
"Expiration Date"); provided, however, that such expiration will not extend to
any representation or warranty, the breach of which shall have been specifically
asserted in writing before such Expiration Date, until the asserted breach has
been resolved. The covenants and agreements in this Agreement and in the Note
Purchase Agreements and other instruments and documents delivered pursuant to
this Agreement that by their terms are to be performed in whole or in part after
the Closing Date will survive the Closing Date and continue in full force and
effect without limitation.
7.2. Indemnification by the Selling Stockholders. The Selling
Stockholders covenant and agree that they will jointly and severally, on the
terms and subject to the conditions and limitations set forth in this Agreement,
indemnify, defend, protect and hold harmless the Purchasers and each Purchaser's
officers, directors, principals, members, affiliates, agents, successors and
assigns (the Purchasers and all such persons or other entities are collectively
referred to as the "Purchasers' Indemnified Persons") at all times from and
after the date of this Agreement from and against all claims, losses, damages,
actions, suits, proceedings, demands, assessments, adjustments, interest, fines,
penalties, costs and expenses, including specifically, but without limitation,
reasonable attorneys', consultants', experts' and accountants' fees and expenses
incurred in the investigation of such claims (collectively, "Damages"), incurred
by Purchasers' Indemnified Persons resulting from (a) any breach of the
representations and warranties of the Selling Stockholders or the Company set
forth herein or on the schedules or certificates delivered by or on behalf of
the Selling Stockholders or the Company in connection herewith, provided that
such Purchasers' Indemnified Persons assert in writing entitlement to indemnity
prior to the Expiration Date applicable with respect to such
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<PAGE> 41
representations and warranties, or (b) any nonfulfillment of any agreement on
the part of the Selling Stockholders or the Company under this Agreement;
provided, however, that the Selling Stockholders shall have no liability or
obligation whatsoever under the Notes or the Note Purchase Agreements, as all
such obligations shall be solely the corporate obligations of Parent.
7.3. Indemnification by Each Purchaser. Each Purchaser severally
covenants and agrees that it will indemnify, defend, protect and hold harmless,
the Company, the Selling Stockholders and respective officers, directors,
affiliates, agents, successors and assigns (the Selling Stockholders and such
persons or other entities are collectively referred to as "Sellers' Indemnified
Persons") at all times from and after the date of this Agreement from and
against all Damages resulting from any breach of the representations and
warranties of such Purchaser set forth herein or on the schedules or
certificates delivered in connection herewith, provided that such Sellers
Indemnified Persons assert entitlement to indemnity prior to the Expiration Date
applicable with respect to such representations and warranties, and any
nonfulfillment of any agreement on the part of such Purchaser under this
Agreement.
7.4. Third Person Claims. Promptly after any of Purchasers'
Indemnified Persons or Sellers' Indemnified Persons, as the case may be
(hereinafter the "Indemnified Party"), has received notice of or has knowledge
of any claim by a person not a party to this Agreement ("Third Person") or the
commencement of any action or proceeding by a Third Person, the Indemnified
Party shall, as a condition precedent to a claim with respect thereto being made
against the party obligated to provide indemnification pursuant to Section 7.2
or 7.3 hereof (hereinafter the "Indemnifying Party"), give the Indemnifying
Party written notice of such claim or the commencement of such action or
proceeding. Such notice shall state the nature and the basis of such claim and
to the extent practicable a reasonable estimate of the potential amount thereof.
The Indemnifying Party shall have right to defend and settle, at its own expense
and by its own counsel, any such matter so long as the Indemnifying Party
pursues the same in good faith and diligently. If the Indemnifying Party
undertakes to defend or settle, it shall promptly notify the Indemnified Party
of its intention to do so, and the Indemnified Party shall cooperate with the
Indemnifying Party and its counsel in the defense thereof and in any settlement
thereof. Such cooperation shall include, but shall not be limited to, furnishing
the Indemnifying Party with any books, records or information reasonably
requested by the Indemnifying Party that are in the Indemnified Party's
possession or control. Notwithstanding the foregoing, the Indemnified Party
shall have the right to participate in any matter through counsel of its own
choosing at its own expense (unless there is a conflict of interest that
prevents counsel for the Indemnifying Party from representing Indemnified Party,
in which case the Indemnifying Party will reimburse the Indemnified Party for
the expenses of its counsel); provided that the Indemnifying Party's counsel
shall always be lead counsel and shall determine all litigation and settlement
steps, strategy and the like, and provided further that, unless otherwise
provided, the Indemnifying Party shall not be liable for the costs of more than
one counsel for all Indemnified Parties in any action or proceeding. After the
Indemnifying Party has notified the Indemnified Party of its intention to
undertake to defend or settle any such asserted liability, and for so long as
the Indemnifying Party diligently pursues such defense, the Indemnifying Party
shall not be liable for any additional legal expenses incurred by the
Indemnified Party in connection with any defense or settlement of such asserted
liability, except to the extent such participation is requested by the
Indemnifying Party or there
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exists a conflict of interest as described above, in which event the Indemnified
Party shall be reimbursed, promptly as such expenses are incurred, by the
Indemnifying Party for reasonable additional legal expenses, out-of-pocket
expenses and allocable share of employee compensation incurred in connection
with such participation for any employee whose participation is so requested.
The Indemnifying Party will not settle any such Third Person claim without the
written consent of the Indemnified Party, which consent shall not be
unreasonably withheld. If the Indemnifying Party does not undertake to defend
such matter to which the Indemnified Party is entitled to indemnification
hereunder, or fails diligently to pursue such defense, the Indemnified Party may
undertake such defense through counsel of its choice, at the cost and expense of
the Indemnifying Party, and the Indemnified Party may settle such matter, and
the Indemnifying Party will reimburse, promptly as such expenses are incurred,
the Indemnified Party for the amount paid in such settlement and any other
liabilities or expenses incurred by the Indemnified Party in connection
therewith, provided, however, that the Indemnified Party will not settle any
Third Person claim without the written consent of the Indemnifying Party, which
consent shall not be unreasonably withheld.
7.5. Limitation of the Selling Stockholders' Liability.
(a) Notwithstanding anything to the contrary contained in this
Agreement, after the Closing Date, the aggregate liability of each of
the Selling Stockholders for any and all Damages, individually or in
the aggregate with all other Damages covered by this Agreement, for
which indemnification is required by such Selling Stockholders pursuant
to Section 7.2 shall be limited to the aggregate net proceeds received
by such Selling Stockholder from the sale of shares of the First
Tranche of Purchased Stock and, if applicable, the Second Tranche of
Purchased Stock hereunder.
(b) Notwithstanding anything to the contrary contained in this
Agreement, after the Closing Date, the Purchasers' Indemnified Persons
are entitled to indemnification pursuant to Section 7.2 of this
Agreement only to the extent that the amount of all Damages, in the
aggregate with all other Damages covered by this Agreement, exceeds
$150,000 (it being understood that once such amount is exceeded, only
the aggregate amount of all such Damages in excess of $150,000 shall be
payable by the Selling Stockholders), except that (i) the limitation
set forth in this Section 7.5(b) shall not apply to or otherwise limit
payment of any amounts to be paid pursuant to Section 1.10, Section
1.11 or Section 2 of this Agreement or under the Notes or the Note
Purchase Agreements, (ii) any such amounts paid pursuant to Section
1.10, Section 1.11 or Section 2 or under the Notes or the Note Purchase
Agreements shall be disregarded in calculating the amount of any
Damages for any purposes under this Section 7, and (iii) the
limitations of Section 7.7 shall not apply with respect to any claim or
cause of action arising from the Selling Stockholders' nonfulfillment
of any agreement on the part of the Selling Stockholders under Section
1.10, Section 1.11 or Section 2 or under the Notes or the Note Purchase
Agreements of this Agreement.
7.6. Limitation of the Purchasers' Liability. Notwithstanding
anything to the contrary contained in this Agreement, after the Closing Date,
the aggregate liability of each of the Purchasers for any and all Damages,
individually or in the aggregate with all other Damages covered by this
Agreement, for which indemnification is required by the Purchasers
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<PAGE> 43
pursuant to Section 7.3: (a) shall be limited to an amount equal to the
aggregate amount of the First Tranche Stock Purchase Price paid by such
Purchaser hereunder; and (b) shall be limited to the amount of Damages for which
indemnification is required from such Purchaser pursuant to Section 7.3. No
Purchaser shall have any liability or obligation in respect of the
indemnification obligation of any other Purchaser.
7.7. Limitation on Claims. After the Closing Date, in the absence
of actual fraud, the indemnification rights provided in this Section 7 shall be
the sole and exclusive remedy available to Purchasers' Indemnified Persons and
Sellers' Indemnified Persons for any misrepresentation, breach of warranty,
failure to fulfill any covenant or agreement contained herein or other breach
hereof or default hereunder; provided however that the provisions of this
Section 7.7 shall not apply to obligations and agreements under Section 1.10,
Section 1.11 or Section 2 of this Agreement or under the Note or the Note
Purchase Agreements.
7.8. Inconsistent Provisions. The provisions of this Section 7
shall govern and control over any inconsistent provisions of this Agreement.
7.9. Method of Payment. Except as otherwise expressly provided
herein, all payments for Damages under this Section 7 shall be paid in cash
immediately as incurred.
8. MISCELLANEOUS.
8.1. Cooperation. The Selling Stockholders, Parent and Subsidiary
and each Purchaser shall each deliver or cause to be delivered to the other on
the Closing Date, and at such other times and places thereafter as shall be
reasonably agreed to, such additional instruments as the other may reasonably
request for the purpose of consummating the transactions contemplated by this
Agreement. After the Closing Date, the Selling Stockholders and the Company will
cooperate with each Purchaser, and each Purchaser will cooperate with the
Selling Stockholders and the Company, in furnishing information, evidence,
testimony and other assistance in connection with any actions, proceedings,
arrangements or disputes of any nature with respect to matters pertaining to all
periods at or prior to the Closing Date. Such cooperation shall be without
charge.
8.2. Successors and Assigns. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) without the
written consent of the other parties hereto and shall be binding upon and shall
inure solely and exclusively to the benefit of the parties hereto, their
successors, heirs, personal representatives and permitted assigns.
8.3. Entire Agreement. This Agreement (which shall for all purposes
hereof be deemed to include the Schedules and Exhibits hereto) and, when
delivered, the documents and instruments delivered pursuant hereto constitute
the entire agreement and understanding among the Selling Stockholders, Parent
and Subsidiary and the Purchasers and supersede any prior agreement and
understanding relating to the subject matter of this Agreement. This Agreement
may be modified or amended only by a written instrument executed by the Selling
Stockholders, Parent and Subsidiary and the Purchasers.
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8.4. Counterparts. This Agreement may be executed simultaneously in
one or more counterparts, each of which shall be deemed an original and all of
which together shall constitute one and the same instrument.
8.5. Expenses.
(a) Whether or not the transactions herein contemplated shall
be consummated, the Purchasers will pay the fees, expenses and
disbursements of the Purchasers and their agents, representatives,
accountants and counsel incurred in connection with the subject matter
of this Agreement or any amendments hereto and the Note Purchase
Agreements (except as otherwise specified therein) and other documents
to be delivered pursuant to Sections 1.6, 1.7, 6 and 7, or any
amendments thereto, and all costs and expenses related to the
Purchasers' due diligence investigation.
(b) Whether or not the transactions herein contemplated shall
be consummated, the Company will pay the fees, expenses and
disbursements of its auditors in connection with the preparation of the
audited financial statements required by Section 2.1 and all other
fees, expenses and disbursements incurred (including, but not limited
to, legal and accounting fees and expenses) in connection with the
subject matter of this Agreement or any amendments hereto and the Note
Purchase Agreements and other documents to be delivered pursuant to
Sections 1.6, 1.7, 6 and 7, or any amendments thereto; provided,
however, that:
(i) upon consummation of the purchase and sale of the
First Tranche of Purchased Stock at the Closing, the Selling
Stockholders shall reimburse Parent's expenses in an aggregate
amount equal to one and one-quarter percent (1.25%) of the
purchase price of the First Tranche of Purchased Stock;
(ii) upon consummation of the purchase and sale of
the Second Tranche of Purchased Stock after a Trigger Option
Exercise Notice is delivered by Purchasers, the Selling
Stockholders shall reimburse Parent's expenses in an aggregate
amount equal to one and one-quarter percent (1.25%) of the
purchase price of the Second Tranche of Purchased Stock; and
(iii) Parent is hereby authorized, and agrees, to
deduct all amounts to be reimbursed by the Selling
Stockholders pursuant to clause (i) and/or clause (ii) above,
pro rata in accordance with their respective Selling
Stockholder Percentages, from the amounts otherwise to be
distributed by Parent to such Selling Stockholders.
8.6. Notices. All notices or communications required or permitted
hereunder shall be in writing and may be given (i) by depositing the same in
United States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, (ii) by a reputable
overnight courier service, (iii) by electronically confirmed facsimile or (iv)
by delivering the same in person to an officer or agent of such party. Notices
shall be deemed to have been given (a) if sent by United States mail, on the
fourth day following mailing, (b) if sent by overnight courier, on the day
following delivery by the
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<PAGE> 45
sending party to the courier service and (c) if sent by facsimile, on the day
the facsimile is confirmed as having been received. Notices shall be addressed
as follows:
(a) If to any Purchaser, to its address set forth on Exhibit A
and to:
Menai Capital LLC
100 First Stamford Place
Suite 600
Stamford, Connecticut 06902
Attention: Robert M. Davies
Managing Director
Telephone: (203) 325-8935
Telecopy: (203) 325-8948
with a copy (which shall not constitute notice) to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019
Attention: Christopher E. Manno, Esq.
Telephone: (212) 728-8000
Telecopy: (212) 728-8111
(b) If to any Selling Stockholder or the Company, to such
Selling Stockholder's address set forth on Exhibit A and to:
James D. Manning, Chief Executive Officer
Patrick T. Manning, President
Joseph Harper, Chief Financial Officer
Texas-Sterling Construction, Inc.
16630 Imperial Valley Drive
Suite 242
Houston, Texas 77060
Telephone: (281) 999-7895
Telecopy: (281) 999-4605
with copy (which shall not constitute notice) to:
Mayor, Day, Caldwell & Keeton, L.L.P.
700 Louisiana, Suite 1900
Houston, Texas 77002
Attention: Geoffrey K. Walker, Esq.
Telephone: (713) 225-7023
Telecopy: (713) 225-7047
8.7. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas, without regard to
its conflict of law principles.
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8.8. Exercise of Rights and Remedies. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
or in any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach of default
occurring before or after that waiver.
8.9. Reformation and Severability. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
8.10. Attorney's Fees. Should it become necessary for any party to
bring an action or cross-action against any other party to resolve any claim or
controversy arising under this Agreement, the prevailing party shall be entitled
to recover from the other party its reasonable attorneys' fees and expenses,
including fees incurred in connection with enforcing any decision of a court or
arbitration panel, in addition to the costs of any such action. For purposes of
this section, the "prevailing party" shall be determined by the court or
arbitration panel, taking into consideration all aspects of the litigation the
court may deem appropriate, including but not limited to matters of liability
and extent of damages both as claimed before trial and proven during trial; the
court or arbitration panel may determine that different parties prevailed on
different aspects of the litigation and allocate the responsibility to pay fees
and costs reasonably as a result thereof.
8.11. Interpretation; Definitions. Descriptive headings are for
convenience only and shall not control or affect the meaning or construction of
any provision of this Agreement. Except as may be otherwise specified in this
Agreement: (a) the singular includes the plural and the plural includes the
singular; (b) "or" and "any" are not exclusive and "include" and "including" are
not limiting; (c) a reference to any agreement or contract includes supplements
and amendments; (d) a reference to a law includes any amendment or modification
to such law and any rules or regulations thereunder; (e) a reference to a
"person" includes any individual or entity of any kind and its successors and
assigns; (f) a reference to generally accepted accounting principles refers to
United States generally accepted accounting principles as mandated (or permitted
and elected by the Company) as of the date hereof; and (g) a reference in this
Agreement to a Section, Exhibit or Schedule refers to the Section, Exhibit or
Schedule of this Agreement. A table indicating the location within this
Agreement of the provisions containing the definitions of certain capitalized
terms used herein is set forth in the Table of Contents. Any matter disclosed in
any Schedule or other disclosure furnished or made available in connection with
this Agreement shall be deemed to be disclosed in each other Schedule or other
disclosure furnished or made available in connection with this Agreement where
such disclosure may be relevant.
[SIGNATURE PAGES FOLLOW]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
PARENT: STERLING CONSTRUCTION COMPANY
a Delaware corporation
By: /s/ PATRICK T. MANNING
------------------------------------
SUBSIDIARY: STERLING CONSTRUCTION COMPANY
a Michigan corporation
By: /s/ Patrick T. Manning
------------------------------------
SELLING STOCKHOLDERS:
/s/ James D. Manning
-----------------------------------------
JAMES D. MANNING
/s/ Joseph P. Harper, Sr.
-----------------------------------------
JOSEPH P. HARPER, SR.
/s/ Terry D. Williamson
-----------------------------------------
TERRY D. WILLIAMSON
/s/ Anthony F. Colombo
-----------------------------------------
ANTHONY F. COLOMBO
/s/ Kevin J. Manning
-----------------------------------------
KEVIN J. MANNING
/s/ Richard Lively
-----------------------------------------
RICHARD LIVELY
<PAGE> 48
PURCHASERS: OAKHURST TECHNOLOGY, INC.
a Delaware corporation
/s/ Robert M. Davies
-----------------------------------------
ROBERT M. DAVIES
[OTHER PURCHASERS]
<PAGE> 49
Exhibit A
Selling Stockholders, Purchasers
Stock Holdings and Note Holdings
<PAGE> 50
Exhibit B
Escrow Agreement
<PAGE> 51
Exhibit C
Note Purchase Agreements
<PAGE> 52
Exhibit D
Stockholders Agreement
<PAGE> 53
Exhibit E
Patrick Manning Employment Agreement
<PAGE> 54
Exhibit F
Joseph Harper Employment Agreement
<PAGE> 55
Exhibit G
James Manning Employment Agreement
<PAGE> 56
Exhibit H
Management Incentive Plans
<PAGE> 57
Exhibit I
Advisory Services Agreement
<PAGE> 58
Exhibit J
Merger Documents
<PAGE> 59
Exhibit K
Audited 1998 Financial Statements
<PAGE> 60
Exhibit L
Calculation of Pre-Tax Profit Amount
The "Pre-Tax Profit Amount" shall be Net Income for the twelve months ended
11/30/98 prepared in accordance with GAAP
Plus: Extraordinary Items, if any, to the extent such items reduced such Net
Income.
Minus: Extraordinary Items, if any, to the extent such items increased such
Net Income.
Plus: Non-recurring transaction, legal and consulting expenses, including,
but not limited to, corporate costs and fees paid to each of
PricewaterhouseCoopers, LLC, Mayor, Day, Caldwell & Keeton, L.L.P., and
R.W. Frickel, P.C.
Plus: Excess Compensation expense
(i) All amounts paid during or accrued for the twelve-month period ended
November 30, 1998 to Patrick T. Manning, James D. Manning and Joseph P.
Harper in excess of (a) regular payroll compensation as set forth in
the attached Base Payroll Compensation Schedule; and (b) bonus payments
of $200,000 in the aggregate.
(ii) All amounts paid during or accrued for the twelve-month period ended
November 30, 1998 to stockholders other than Patrick T. Manning, James
D. Manning, and Joseph P. Harper in excess or regular payroll
compensation as set forth in the attached Base Payroll Compensation
Schedule.
<PAGE> 61
Attachment to Exhibit L
Base Payroll Compensation Schedule
<TABLE>
<CAPTION>
BASE PAYROLL
------------
<S> <C>
(i)(a)
James D. Manning $ 150,800.00
Patrick T. Manning 145,600.00
Joseph P. Harper, Sr. 145,600.00
(ii)
Anthony F. Columbo $ 93,400.00
Joseph P. Harper, Jr. 64,833.00
Richard Lively 89,607.72
Brian R. Manning 85,000.00
Jeffrey J. Manning 98,001.00
Kevin J. Manning 59,000.00
Terry D. Williamson 154,708.50
</TABLE>
<PAGE> 62
Exhibit M
Calculation of Stockholders' Equity Amount
The "Stockholders' Equity Amount" shall be stockholders' equity as of 12/31/98
prepared in accordance with GAAP
Plus: All non-recurring corporate transaction, legal and consulting expenses
paid or accrued through December 31, 1998
<PAGE> 63
Exhibit N
Form of Trigger Event Notice
The undersigned, Chief Financial Officer of Sterling Construction
Company, a Delaware corporation (the "Company"), does hereby certify on behalf
of the Company as follows:
(a) The Company or a wholly-owned subsidiary has been
identified as low bidder on state highway projects for the Texas
Department of Transportation with an aggregate bid amount of at least
$____________1 as set forth in Schedule N-1 hereto; and
(b) The estimated Aggregate Margin2 for the projects
identified on Schedule N-1 is _____%.3 The calculation of such
estimated Aggregate Margin is set forth on Schedule N-2. A reasonably
detailed analysis of the calculation of such estimated Aggregate
Margin, including an analysis of each project included in Schedule N-1,
accompanies this Notice.
IN WITNESS WHEREOF, I have set forth my hand this ___ day of _________,
19__.
By:
----------------------------------
Name:
----------------------------------
Title: Chief Financial Officer
- ----------------------
1 Such amount shall be at least $15,000,000.
2 Estimated "Aggregate Margin" shall be calculated by subtracting the
estimated aggregate cost from the aggregate bid amount and dividing
such remainder by the aggregate bid amount.
3 Such number shall be at least 12.0%.
<PAGE> 64
SCHEDULE N-1
<TABLE>
<CAPTION>
Description of Project Bid Amount Estimated Cost
- ---------------------- ---------- --------------
<S> <C> <C>
$ $
---------- ---------
Total $ $
========== =========
</TABLE>
<PAGE> 65
SCHEDULE N-2
[$ ]. minus [$ ].
(Aggregate Amount of All Bids) minus (Aggregate estimated cost)
- --------------------------------------------------------------------------------
[$ ]
(Aggregate Amount of all Bids)
= multiplied by 100
--------------
= %
---------------
(Margin Percentage)
<PAGE> 66
Exhibit O
Calculation of EBITDA
"EBITDA" shall be net income determined in accordance with GAAP for Parent and
its consolidated subsidiaries for the first four consecutive fiscal quarters
commencing after the end of the calendar month in which a Trigger Option
Exercise Notice was received by Parent.
Plus: Interest expense for the period
Plus: Depreciation and amortization expense for the period
Plus: Federal and state income tax expense incurred for the period
Plus: Extraordinary Items (to the extent negative), if any, for the period
Plus: Any and all fees paid to Menai Capital, LLC, and any fees paid to
Directors
Minus: Extraordinary Items (to the extent positive), if any
<PAGE> 67
Schedule 3.3
Required Consents and Approvals
1. Comerica Bank-Texas
<PAGE> 68
Schedule 3.5
Subsidiaries
The Company participates in a joint venture known as BRH-Garver,
Inc./Texas-Sterling Construction, Inc. Joint Venture, formed on July 20, 1995,
for the purpose of operating and managing an underground construction project in
Harris County, Texas. The Company has a 50% participation percentage in the
profits, losses and indemnity of the Joint Venture, accounted for using the
equity method of accounting.
Subsidiary is a wholly-owned subsidiary of Parent.
<PAGE> 69
Schedule 3.6
Transactions in Company Stock
Under the Buy/Sell Agreement, the Company has a contingent obligation to
purchase shares upon the death, disability or termination of a stockholder. No
such obligations are currently outstanding.
<PAGE> 70
Schedule 3.9
Balance Sheet Liabilities and Obligations
1. Corporate Finance fees and out-of-pocket expenses of
PricewaterhouseCoopers Securities LLC.
2. Fees and expenses of Mayor, Day, Caldwell & Keeton, L.L.P., in
connection with the transactions contemplated by this Agreement.
3. Other expenses incurred by the Company in connection with the
transactions contemplated by this Agreement.
4. Contingent Final S Corporation Distribution.
<PAGE> 71
Schedule 3.10
Accounts and Notes Receivable
None.
<PAGE> 72
Schedule 3.11
Permits
1. The Company holds an exclusive license to market and perform pipe
replacement using the IMPIPE process throughout Texas (excluding
Houston).
2. Texas Sales Tax Permit.
3. Overweight and overwidth moving permits issued by the Texas Department
of Transportation.
<PAGE> 73
Schedule 3.12
Real and Personal Property
The Company owns real property, as reflected in the real estate title insurance
policy attached hereto.
1. 2800 Fernbush, Houston, Texas 77073
2. Essman property - 5 acre lot located in Harris County, Texas.
The following leases are attached hereto and incorporated herein.
1. Month-to-month rental arrangement with Greenbriar Atrium Office
Building, for office space located at 16630 Imperial Valley Drive,
Suite 242, Houston, Texas 77060. Rental follows "Holding Over" terms of
1991 lease.
3. Month-to-month rental arrangement with Gwendolyn Weiner, dba Ridgmar
Oil & Gas Building, for office space located at 2601 Ridgmar Plaza,
Suite 203, Fort Worth, Texas. Rental follows "Holding Over" terms of
1997 lease.
4. Lease with John Jenkins for land used as temporary construction site
office, located at 2717 Dowling, Houston, Texas.
5. Lease with E&S Interior Construction for land used as temporary
construction site office, located on Underwood Street, Pasadena, Texas.
6. Lease with Ms. Jewell McNab for land used as temporary construction
site office, located at 2707 Navigation Boulevard, Houston, Texas.
7. Lease with Shields Supply for land used as temporary construction site
office, located at the intersection of Sabine and Center Streets,
Houston, Texas.
8. Lease with Stan Titlow for land used as temporary construction site
office, located at 7511 Meadowyork, Houston, Texas.
9. Lease with John Rydman for land used as temporary construction site
office, located at the intersection of Hadley and Smith Streets,
Houston, Texas.
10. Lease with Gary Swartz for land used as temporary construction site
office, located at 5104 South Willow, Houston, Texas.
<PAGE> 74
Schedule 3.13
Material Contracts and Commitments
1. Construction contracts in progress as of September 30, 1998:
<TABLE>
<CAPTION>
ESTIMATED COST
JOB NO. PROJECT TO COMPLETE
<S> <C> <C>
9630 City of Houston, Project N-0611A-01-3 $1,003,254
Dowling, McGowan & Collingsworth
9706 County of Harris 423,320
East Boulevard
9713 City of Dallas 318,949
Cedar Creek Sanitary Sewer
9721 City of Houston, Project 4250-78 174,547
Northside II
9726 Texas Department of Transportation 2,889,986
Mykawa Road
9728 County of Harris 166,354
Jones Road
9730 City of Houston, Project No. 10329-2 101,176
Preston 42" Watermain
9735 City of Houston, Project No. N-0611-23-3 957,570
Bissonnet
9739 City of Houston, Project No. N-0678-01-3 1,584,275
North MacGregor
9740 City of Galveston 233,207
10th Street and Jones Drive., Relief Sewer and Lift Station
9743 Harris County Flood Control, Job No. 98/0172-C 667,532
Brays Bayou
9802 Metropolitan Transit Authority 1,089,179
Gessner Road
9804 City of Houston, Project No. M-0227-01-3 66,867
9806 City of Houston, Project No. N-0458-02-3 4,942,932
East Little York
9807 City of Houston, Project No. S-0900-29-3 2,587,733
Surface Water Transmission
9810 City of Houston, Project No. R-1036-13-3 4,191,896
SW District Rehabilitation
9811 City of Houston, Project No. N-584A-01-3 4,537,541
West Belfort
9812 City of Houston, Project No. N-0672-01-3 3,934,610
Hidalgo
9814 Insituform Technologies - Southwest Rehabilitation 470,673
9815 City of Fort Worth, M-106R, Unit 5 653,749
</TABLE>
<PAGE> 75
Schedule 3.13
Material Contracts and Commitments
<TABLE>
<CAPTION>
ESTIMATED COST
JOB NO. PROJECT TO COMPLETE
<S> <C> <C>
9816 Metropolitan Transit Authority 5,543,795
Louisiana Segment 3
9817 Harris County Flood Control, Job No. 98/0712 1,212,934
Brays Bayou Channel Repairs
9819 City of Fort Worth 235,394
SS Main 36SR, Part 8, Unit 2
9820 City of Fort Worth - Sanitary Sewer Main 420,478
# 36SR, Part 9, Unit 1
9821 Fort Bend Count LID No. 10 163,973
Riverpark Detention Tracts, Phase Two
9822 City of Plano 263,352
Upper Pittman Creek II
9823 City of Baytown 188,000
9824 New Orleans 80,000
9825 City of Houston 5,960,000
9826 Coody 30,000
9827 Courtland Storm 39,000
9828 Gulf Coast Water Authority 2,765,000
</TABLE>
2. Loan agreement with Comerica Bank-Texas.
3. Mortgage loan agreement with Comerica Bank-Texas.
4. Engagement letter with Price Waterhouse LLP (and its successor
PricewaterhouseCoopers Securities LLC).
5. Engagement letter with Mayor, Day, Caldwell & Keeton, L.L.P.
6. The leases on Schedule 3.12.
7. Sam Clark Employment Agreement.
8. In addition, as of the date hereof, the Company has been identified as
low bidder, but has not executed a contract, in respect of the
following projects:
<TABLE>
<CAPTION>
ESTIMATED COST TO
PROJECT TO COMPLETE
<S> <C> <C>
9829 City of Garland 1,643,000
State of Texas 225,000
Harris County 83,177
</TABLE>
<PAGE> 76
Schedule 3.15
Real Property Liens
Mortgage lien on the real property identified as the first item on Schedule 3.12
in favor of Comerica Bank-Texas.
<PAGE> 77
Schedule 3.16
Insurance
<TABLE>
<CAPTION>
Type of Policy Carrier Policy No. Expiration
- -------------- ------- ---------- ----------
<S> <C> <C> <C>
OCP4 CNA Insurance Companies B981001122 10/29/99
Builder's Risk5 CNA Insurance Companies B981001073 10/15/99
Railroad Protective6 CNA Insurance Companies B981001066 10/15/99
OCP CNA Insurance Companies L1078877929 09/03/99
OCP CNA Insurance Companies L1742205523 09/02/99
OCP CNA Insurance Companies L178861990 07/31/99
OCP CNA Insurance Companies L178846910 06/23/99
Railroad Protective CNA Insurance Companies L178846907 06/23/99
Pollution Liability Reliance Insurance Company NTP251644502 06/18/99
OCP CNA Insurance Companies L182027751 06/09/99
OCP CNA Insurance Companies L182031394 05/11/99
OCP CNA Insurance Companies B980500328 05/01/99
OCP CNA Insurance Companies B980400268 04/22/99
OCP CNA Insurance Companies L181994250 03/29/99
OCP CNA Insurance Companies L181992174 03/17/99
Automobile CNA Insurance Companies L163316910 03/01/99
Umbrella CNA Insurance Companies L167492527 03/01/99
Package CNA Insurance Companies L163316924 03/01/99
Workers' Compensation CNA Insurance Companies WCL163316907 03/01/99
OCP CNA Insurance Companies L181983250 02/25/99
OCP CNA Insurance Companies L181980834 02/19/99
OCP CNA Insurance Companies L181977383 02/03/99
OCP CNA Insurance Companies L181974239 01/07/99
OCP CNA Insurance Companies L174272959 01/05/99
Railroad Protective CNA Insurance Companies L181976279 12/11/98
Commercial, General Liability Transcontinental Insurance Company L163316924 03/01/99
Automobile American Casualty Co. of Reading, PA L163316910 03/01/99
Excess Liability American Casualty Co. of Reading, PA L167492527 03/01/99
Workers' Compensation Transcontinental Insurance Company WCL163316907 03/01/99
</TABLE>
- -------------------------
4 OCP is an Owners' Contractors' Protective Liability Policy. This type of
policy is a separate General Liability policy written in the name of a
project owner but paid for by the Company. OCPs are written when required
by a contract.
5 Builder's Risk policies are written when required by contract. This type of
policy provides property coverage for the project owner and the premium is
paid by the Company.
6 Railroad Protective policies are similar to OCPs, written in the name of
the railroad company when work is done within 50 feet of a railroad. This
coverage is required by contract when applicable and the premium is paid by
the Company.
<PAGE> 78
2. OFFICERS' LIFE INSURANCE
(Beneficiary is the Company):
<TABLE>
<CAPTION>
Insured Carrier Policy No. Face Amount
- ------- ------- ---------- -----------
<S> <C> <C> <C>
Joseph P. Harper American General Life A10135734L 500,000
Joseph P. Harper American General Life A10131998L 1,000,000
Patrick T. Manning American General Life A10128967L 1,000,000
Patrick T. Manning American General Life A10135733L 500,000
James D. Manning Chubb Life America 297884A 400,000
James D. Manning Confederation Life Insurance Company 05749895 400,000
Paul Revere Insurance Group
Patrick T. Manning Security Life of Denver 1542212 500,000
Joseph P. Harper Security Life of Denver 1542213 500,000
Patrick T. Manning Aetna G6503315 150,000
Terry D. Williamson Equitable 48-203-997 350,000
Richard Lively Equitable 48-203-965 150,000
Joseph P. Harper, Jr. Equitable 48-203-954 150,000
Brian R. Manning Equitable 48-203-963 150,000
Kevin J. Manning Equitable 48-203-976 150,000
Jeffrey J. Manning Equitable 48-203-979 350,000
Anthony F. Columbo Equitable 48-203-986 350,000
</TABLE>
<PAGE> 79
Schedule 3.17
Base Payroll Compensation Schedule
<TABLE>
<CAPTION>
EMPLOYEE BASE COMPENSATION
<S> <C>
James D. Manning $ 150,800.00
Patrick T. Manning $ 145,600.00
Joseph P. Harper, Sr. $ 145,600.00
Terry D. Williamson $ 87,708.50
Jeffrey J. Manning $ 65,001.00
Richard Lively $ 64,607.72
Anthony F. Columbo $ 60,400.00
Brian R. Manning $ 52,000.00
Kevin J. Manning $ 42,000.00
Joseph P. Harper, Jr. $ 40,833.00
</TABLE>
Note: Current rates of compensation reflect annualized base salaries, exclusive
of benefits, bonuses or other compensation.
<PAGE> 80
Schedule 3.18
Plans
1. PROFIT SHARING PLAN
Sterling Construction Company Restated Employees' Retirement Profit
Sharing Plan and Trust. Effective October 1, 1989.
2. HEALTH INSURANCE
The health insurance plan offered to full-time employees of
Texas-Sterling Construction, Inc. is a self-funded Benefit Trust
administered by a third party specialist, Entrust, Inc. A re-insurance
(stop loss) policy paid for by the fund reduces the total risk exposure
as shown below. The trust fund itself is funded by the Company and
employee contributions, deposited to an account at NationsBank;
distributions for covered expenses are then made by Entrust, Inc. on
behalf of the plan.
The plan covers medical care needs of participants typical of a fully
insured plan and includes a PPO network to help contain costs. As of
October 1998, 56 employees are participants in the plan; of those, 14
have elected dependent coverage.
PLAN: Texas-Sterling Employee Benefit Plan Trust
TRUSTEE: Joseph P. Harper, Sr.
ADMINISTRATOR: Entrust, Inc.
PLAN YEAR: June 1 to May 31
STOP LOSS AGGREGATE: $127,737
POLICY PREMIUM: $ 77,448
MAXIMUM EXPOSURE: $205,185
3. BONUS PLANS
Effective as of the Closing Date, the Management Incentive Plans will
take effect.
<PAGE> 81
Schedule 3.21
Taxes and Tax Returns
Subsidiary has been notified that it is to be subject to a Texas sales tax
audit.
<PAGE> 82
Schedule 3.22
Intellectual Property
Tradenames Used by the Company
Texas-Sterling Construction, Inc.
Sterling Construction Company
Patents, Trademarks, Service Marks, Copyrights and Trade Secrets
See Item 1 of Schedule 3.11.
<PAGE> 83
Schedule 3.24
Absence of Changes
1. Payment of bonuses already accrued in Pre-Signing Balance Sheet.
2. Issuance of new shares on October 1, 1998 and corresponding notes of
purchasers.
3. Repayment of outstanding employee notes at the Closing pursuant to
Section 6.6 hereof.
4. Declaration of the Final S Corporation Distribution and payment of the
Closing Date Distribution pursuant to Section 1.12 hereof.
5. The Employment Agreements.
6. The Management Incentive Plans.
7. Payments of costs and expenses of the transactions contemplated by this
Agreement and other matters expressly contemplated by this Agreement.
<PAGE> 84
Schedule 3.26
Brokers and Finders
The Company engaged Price Waterhouse LLP (and its successor
PricewaterhouseCoopers Securities LLC) as exclusive financial advisor in
connection with this transaction.
<PAGE> 85
Schedule 3.27
Environmental Matters
Solely for purposes of Section 3.27 of the Agreement, there is possible
contamination of gasoline and diesel fuel at certain limited areas located at
the approximately one (1) acre former site of Company's shop, located at 14450
Rochelle, Houston, Texas. The cost of remediation of such contamination, if any
were found to exist, would not exceed $25,000.
<PAGE> 86
Schedule 3.31
Litigation and Claims
CURRENT LITIGATION
<TABLE>
<CAPTION>
Maximum Exposure
(taking into account
expected insurance
Plaintiff/Description Incident Date Claim coverage)
- --------------------- ------------- ----- --------------------
<S> <C> <C> <C>
Southwestern Bell Telephone 09/25/96 $153,000 $ 1,000
Damaged phone conduit
Southwestern Bell Telephone 07/07/97 $ 7,700 $ 1,000
Damaged phone conduit
Southwestern Bell Telephone Various 1998 $23,500 $ 1,000
Damaged phone conduit
Enterprise Leasing 11/01/96 $115,000 $115,000
Collection attempt on an alleged guaranty
of Texas-Sterling of vehicle acquisition
expenditures; Texas-Sterling contends
fraudulent use of guaranty by agent of
Enterprise
M. Skoller January 1997 $15,000 $ 1,000
Alleged foundation damage to residence
adjacent to job site
CS Chong July 1998 $1,200 $ 1,200
Attempt to collect on payroll check upon
which stop payment had been ordered
</TABLE>
POSSIBLE LITIGATION
<TABLE>
<CAPTION>
Maximum Exposure
(taking into account
expected insurance
Claimant/Description Incident Date Claim coverage)
- -------------------- ------------- ----- --------------------
<S> <C> <C> <C>
Texas Utilities 06/12/96 $41,825 $ 1,000
Damage to electric lines and facilities
Estate of C. Hernandez 03/20/98 Unknown $ 1,000
Wrongful death of employee; will have to
prove gross negligence
</TABLE>
<PAGE> 87
Schedule 3.32
Related Party Transactions
1. WOODLANDS EQUIPMENT COMPANY. The Company buys equipment on a rental
purchase arrangement from Woodlands Equipment, a company owned by James
D. Manning, Patrick T. Manning and Joseph P. Harper. For the year ended
September 30, 1998, the Company paid equipment rental charges of
$295,558 to Woodlands Equipment Company. As of September 30, 1998, the
Company purchased all equipment previously rented from Woodlands
Equipment, with a note payable to Woodlands Equipment Company in the
amount of $243,777 for purchased equipment.
2. SPRING EQUIPMENT CO., INC. The Company rents equipment on a monthly
basis from Spring Equipment Co., Inc., a company 50%-owned by James D.
Manning, Patrick T. Manning and Joseph P. Harper, Sr. and 50%-owned by
the current owners of Bill Baker & Co., a subcontractor for the
Company. For the year ended September 30, 1998, the Company paid
equipment rental charges of $280,000 to Spring Equipment Co., Inc.
3. STERLING PROPERTIES. Prior to May 1998, the Company rented maintenance
facilities from Sterling Properties, a company owned by James D.
Manning, Patrick T. Manning, Joseph P. Harper, Sr. and the estate of
Richard Manning. For the year ended September 30, 1998, the Company
paid rental charges of $7,000 to Sterling Properties.
4. NOTE PAYABLE TO JAMES D. MANNING. The balance of $720,000 remains on
notes issued October 1996 for funds used by the Company to replace
working capital subsequent to a Sub-S distribution. The notes require
annual principal payments, with final payment due in September 2001,
and quarterly interest payments at Prime plus 2%.
5. NOTE PAYABLE TO PATRICK T. MANNING. The balance of $72,000 remains on
notes issued October 1996 for funds used by the Company to replace
working capital subsequent to a Sub-S distribution. The notes require
annual principal payments, with final payment due in September 2001,
and quarterly interest payments at Prime plus 2%.
6. NOTE PAYABLE TO JOSEPH P. HARPER. The balance of $72,000 remains on
notes issued October 1996 for funds used by the Company to replace
working capital subsequent to a Sub-S distribution. The notes require
annual principal payments, with final payment due in September 2001,
and quarterly interest payments at Prime plus 2%.
7. THE FINAL S CORPORATION DISTRIBUTION.
<PAGE> 1
================================================================================
EXHIBIT 10.26
STERLING CONSTRUCTION COMPANY,
a Michigan corporation
and
STERLING CONSTRUCTION COMPANY,
a Delaware corporation
------------------------------
NOTE PURCHASE AGREEMENT
------------------------------
8% Convertible Senior Subordinated Notes due 2005
Dated as of January 19, 1999
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. ISSUANCE OF NOTES..............................................................................................1
1.1. Authorization; Exchange of Notes for Shares; Etc.....................................................1
1.2. Purchase and Sale of Notes; the Closing..............................................................1
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................................................................2
2.1. Other Agreements.....................................................................................2
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER................................................................2
4. CONDITIONS OF CLOSING..........................................................................................2
4.1. Proceedings..........................................................................................2
4.2. Representations and Warranties; No Default...........................................................3
4.3. Opinion of Counsel...................................................................................3
4.4. Legality.............................................................................................3
4.5. Payment of Fees......................................................................................3
4.6. Sale of Notes to Other Purchasers....................................................................3
4.7. Subordination Agreement..............................................................................3
5. PURCHASE OF NOTES..............................................................................................4
5.1. Purchase of Notes....................................................................................4
5.2. Use of Proceeds......................................................................................4
5.3. Principal Payment....................................................................................4
5.4. Interest on Notes....................................................................................4
5.5. Funds for Payments...................................................................................5
6. FINANCIAL STATEMENTS, INFORMATION, ETC.........................................................................5
7. COVENANTS......................................................................................................7
7.1. Payment of Principal, Interest and Premium, Etc......................................................7
7.2. To Keep Books; Payment of Taxes; Maintenance of Properties; Etc......................................7
7.3. Limitation on Restricted Payments, Etc...............................................................7
7.4. Consolidation, Merger or Disposition of Assets as an Entirety........................................8
7.5. Financial Covenants..................................................................................9
7.6. Restrictions on Additional Indebtedness..............................................................9
8. DEFINITIONS....................................................................................................9
8.1. Definitions..........................................................................................9
8.2. Accounting Terms....................................................................................15
9. EVENTS OF DEFAULT; REMEDIES...................................................................................16
9.1. Events of Default; Acceleration of Maturity and Rescission..........................................16
9.2. Suits for Enforcement...............................................................................18
9.3. Remedies Cumulative.................................................................................18
9.4. Remedies Not Waived.................................................................................18
10. EXCHANGE OF NOTES; ANTIDILUTION PROVISIONS...................................................................18
10.1. Exchange of Notes..................................................................................18
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C>
10.2. Antidilution Provisions; Accrued Interest and Fractional Shares; Mechanics of Exchange;
No Impairment; Etc...........................................................................19
11. SUBORDINATION OF NOTES.......................................................................................25
11.1. General............................................................................................25
11.2. Distribution on Dissolution, Liquidation and Reorganization; Subrogation...........................25
11.3. Obligation of Holders of the Notes.................................................................27
11.4. No Payment in Event of Default on Senior Indebtedness..............................................27
11.5. Payments Permitted.................................................................................28
11.6. Obligation to Deliver Payments to the Holder of the Senior Indebtedness............................28
11.7. Modification of Terms of Senior Indebtedness.......................................................28
11.8. Modification of Terms of Notes or Note Purchase Agreement..........................................29
11.9. Restrictions on Transfer of Notes..................................................................29
12. REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; RESTRICTIVE LEGENDS; TRANSFER RESTRICTIONS.....................29
13. LOST, ETC., NOTES............................................................................................30
14. AMENDMENT AND WAIVER.........................................................................................31
15. HOME OFFICE PAYMENT..........................................................................................32
16. LIABILITIES OF THE PURCHASER.................................................................................32
17. CERTAIN TAXES................................................................................................33
18. MISCELLANEOUS................................................................................................33
18.1. Expenses...........................................................................................33
18.2. Reliance on and Survival of Representations........................................................33
18.3. Successors and Assigns.............................................................................34
18.4. Communications.....................................................................................34
18.5. Consent to Jurisdiction; Service of Process; Waiver of Jury Trial..................................34
18.6. Indemnification....................................................................................35
18.7. Governing Law......................................................................................36
18.8. Headings...........................................................................................36
18.9. Counterparts.......................................................................................36
</TABLE>
SCHEDULE I -- Names and Addresses of Purchasers
SCHEDULE II -- Financial Covenants
EXHIBIT A -- FORM OF NOTE
EXHIBIT B -- FORM OF SUBORDINATION AGREEMENT
(ii)
<PAGE> 4
STERLING CONSTRUCTION COMPANY
16630 Imperial Valley Drive
Suite 242
Houston, TX 77060
NOTE PURCHASE AGREEMENT
As of January 19, 1999
TO THE PURCHASER WHOSE NAME
APPEARS IN THE ACCEPTANCE
FORM AT THE END HEREOF
Ladies and Gentlemen:
STERLING CONSTRUCTION COMPANY, a Delaware corporation ("PARENT"), and
STERLING CONSTRUCTION COMPANY, a Michigan corporation doing business in Texas as
Texas-Sterling Construction, Inc. and a wholly owned subsidiary of Parent
("TEXAS-STERLING" and, together with Parent, the "COMPANY") hereby agree with
you as follows:
1. ISSUANCE OF NOTES.
1.1. AUTHORIZATION; EXCHANGE OF NOTES FOR SHARES; ETC.
Texas-Sterling has duly authorized the issue and sale of $4,000,000
aggregate principal amount of its 8% Convertible Senior Subordinated Notes due
2005 (the "NOTES"), each such Note to be substantially in the form of Exhibit A
attached hereto. As used herein, the term "NOTES" means all notes originally
issued pursuant to this Agreement and the other agreements referred to in
Section 2.1 and all notes delivered in substitution or exchange for any such
notes and, where applicable, includes the singular number as well as the plural.
Certain capitalized and other terms used in this Agreement are defined in
Section 8.
As provided in Section 10.1, the Notes are exchangeable for shares of
the Common Stock, par value $.01 per share, of Parent (the "SHARES") at an
initial Exchange Price of $30.7645 per share.
1.2. PURCHASE AND SALE OF NOTES; THE CLOSING.
Subject to the terms and conditions hereof, Texas-Sterling hereby
agrees to sell to you, and you agree to purchase from Texas-Sterling, the
aggregate principal amount of Notes as set forth opposite your name in Schedule
I attached hereto, at a purchase price equal to 100% of the principal amount of
each Note being purchased by you. The closing of the purchase shall be
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held at 10:00 A.M., on January 19, 1999 or on such later Business Day as may be
agreed to by you and the Company (the "CLOSING DATE"), at the offices of Mayor,
Day, Caldwell & Keeton, L.L.P., 700 Louisiana, 19th Floor, Houston, TX.
On the Closing Date, Texas-Sterling will deliver to you one or more
Notes, dated the Closing Date and registered in your name or in the name of one
or more of your nominees, in any denominations (in a minimum amount of $10,000)
and in the aggregate principal amount to be purchased by you, all as you may
specify by timely notice to Texas-Sterling (or, in the absence of such notice,
one Note registered in your name), in each case against your delivery to
Texas-Sterling of immediately available funds in the amount of the purchase
price of such Notes, such delivery to be by wire transfer to Citibank, N.A., ABA
#: 021000089, Account #: 37230205 for the account of Willkie Farr & Gallagher on
behalf of Texas-Sterling.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The representations and warranties contained in Section 3 of the Stock
Purchase Agreement are hereby included by reference and remade herein by the
Company to you, mutatis mutandis.
2.1. OTHER AGREEMENTS.
Concurrently with the execution and delivery of this Agreement, the
Company is entering into Note Purchase Agreements identical to this Agreement
(except as to the identity of the purchasers and the aggregate principal amount
and series of Notes to be purchased) with the other purchasers named in Schedule
I. The sales to you and said other purchasers are to be separate and several
sales.
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The representations and warranties contained in Section 4 of the Stock
Purchase Agreement are hereby included by reference and remade herein by you to
the Company, mutatis mutandis.
4. CONDITIONS OF CLOSING.
Your obligation to purchase and pay for the Notes to be purchased by
you hereunder is subject to the satisfaction on or before the Closing Date of
the following conditions:
4.1. PROCEEDINGS.
All corporate and other proceedings taken or to be taken in connection
with the transactions contemplated hereby and
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all documents and papers incident thereto shall be satisfactory in form and
substance to you, and you and your counsel shall have received all such
counterpart originals or certified or other copies of such documents and papers
as you may reasonably request related thereto.
4.2. REPRESENTATIONS AND WARRANTIES; NO DEFAULT.
The representations and warranties contained in Section 2 shall
(except as expressly affected by the transactions contemplated hereby) be true
on and as of the Closing Date as if made on and as of the Closing Date; the
Company shall have performed all agreements to be performed by it under this
Agreement on or before the Closing Date; and there shall exist on the Closing
Date no Default or Event of Default.
4.3. OPINION OF COUNSEL.
You shall have received from Mayor, Day, Caldwell & Keeton, L.L.P. an
opinion as to the matters set forth in Section 6.4 of the Stock Purchase
Agreement, dated the Closing Date and addressed to you. The Company hereby
instructs its counsel to deliver such opinion to you.
4.4. LEGALITY.
On the Closing Date, the Notes to be purchased by you hereunder shall
be a legal investment for you under the laws of each jurisdiction to which you
may be subject (without resort, unless you so choose, to any so-called basket or
leeway provision of said laws), and you shall have received such certificates or
other evidence as you may reasonably request demonstrating the legality of such
purchase under such laws.
4.5. PAYMENT OF FEES.
The Company shall have paid the fees and disbursements of your
counsel, not to exceed $50,000.
4.6. SALE OF NOTES TO OTHER PURCHASERS.
Texas-Sterling shall sell to the other purchasers referred to in
Section 2.1 the Notes respectively to be purchased by them pursuant to the other
agreements referred to in said Section.
4.7. SUBORDINATION AGREEMENT.
You shall have received fully executed counterparts of the
Subordination Agreement attached as Exhibit B hereto from each of James D.
Manning, Patrick T. Manning, Joseph P. Harper,
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Sr. and Texas-Sterling, and such Subordination Agreement shall be in full force
and effect.
5. PURCHASE OF NOTES.
5.1. PURCHASE OF NOTES.
Each of Parent and Texas-Sterling will not, and will not permit any of
its Subsidiaries to, acquire directly or indirectly by purchase or prepayment or
otherwise any of the outstanding Notes except by way of payment in accordance
with the provisions of the Notes and of this Agreement.
5.2. USE OF PROCEEDS.
The proceeds from the Notes shall be used by the Company to facilitate
the growth of the business with the primary intent being for the development of
the State Highway Business.
5.3. PRINCIPAL PAYMENT.
Subject to any other terms of this Agreement, the principal balance of
the Notes shall be paid in one installment on December 31, 2005, together with
all unpaid interest accrued thereon.
5.4. INTEREST ON NOTES.
A. Interest Rates. Except as otherwise provided in Section 5.4(B), the
Notes shall bear interest from the date hereof at a rate of 8% per annum.
Texas-Sterling will pay interest on the Notes quarterly in arrears in cash on
the last day of March, June, September and December in each year, commencing on
March 31, 1999 (each quarter is hereinafter referred to as an "INTEREST
PERIOD").
B. Default Rates of Interest. Notwithstanding the foregoing, interest
on the Notes, at all times after the occurrence of and during the continuance of
an Event of Default, and interest on all payments of interest that are not paid
when due, shall accrue at a rate per annum equal at all such times to 10%.
C. Payment of Interest. So long as any of the Notes remain
outstanding, interest on the Notes shall be due and payable without notice or
demand on the last Business Day of the applicable Interest Period (the "INTEREST
PAYMENT DATE").
(i) Calculation of Interest. Interest on the Notes shall be
calculated on the basis of a 360 day year and the actual number of days elapsed.
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(ii) Lawful Interest. It being the intent of the holder of the
Notes and the Company that the rate of interest and all other charges to the
Company be lawful, if for any reason the payment of any interest, fees or
charges as required by this Agreement would exceed the limit established by
applicable law, then the obligation to pay interest or charges shall
automatically be reduced to such limit and, if any amounts in excess of such
limits shall have been paid, then such amounts shall be refunded to the Company
so that under no circumstances shall interest or charges required hereunder
exceed the maximum rate, if any, allowed by law.
5.5. FUNDS FOR PAYMENTS.
(i) Payments. All payments of principal, interest, closing fees
and any other amounts due hereunder shall be made to the holder of each Note or,
in the case of Section 4.5, to your counsel, in immediately available funds.
(ii) No Offset, etc. All payments by the Company under this
Agreement shall be made without setoff or counterclaim and free and clear of and
without deduction for any taxes, levies, imposts, duties, charges, fees,
deductions, withholdings, compulsory loans, restrictions or conditions of any
nature now or hereafter imposed or levied by any jurisdiction or any political
subdivision thereof or taxing or other authority therein unless the Company is
compelled by law to make such deduction or withholding. If any such obligation
is imposed upon the Company with respect to any amount payable by it hereunder,
the Company will pay to the holder of each Note, on the date on which such
amount is due and payable hereunder, such additional amount in Dollars as shall
be necessary to enable the holder of such Note to receive the same net amount
which it would have received on such due date had no such obligation been
imposed upon the Company. The Company will deliver promptly to the holder of
each Note certificates or other valid vouchers for all taxes or other charges
deducted from or paid with respect to payments made by the Company hereunder.
6. FINANCIAL STATEMENTS, INFORMATION, ETC.
The Company will furnish to you, so long as you and the other
purchasers listed on Schedule I shall continue to hold any Notes:
A. promptly upon their becoming available and in any event within 90
days after the end of each fiscal year of Parent ending after the date
hereof, copies of a consolidated balance sheet of Parent and its
Subsidiaries as of the end of such fiscal year and the related consolidated
statements of operations, cash flows and changes in stockholders' equity of
Parent and its Subsidiaries for such fiscal year, all in reasonable detail
and stating in
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comparative form the respective consolidated figures as of the end of and
for the previous fiscal year and all accompanied by an audit report of
independent public accountants of recognized national standing selected by
Parent, which report shall state that such financial statements have been
prepared in accordance with GAAP; and
B. promptly upon their becoming available and in any event within 45
days after the end of each fiscal quarter (other than the last fiscal
quarter) in each fiscal year of Parent, copies of an unaudited consolidated
balance sheet of Parent and its Subsidiaries as of the last day of such
fiscal quarter and the related unaudited consolidated statements of
operations, cash flows and changes in stockholders' equity of Parent and
its Subsidiaries for such fiscal quarter and the period from the beginning
of the then current fiscal year to the end of such fiscal quarter, all in
reasonable detail and stating in comparative form the consolidated figures
for the corresponding date and period in the previous fiscal year, and all
certified by a Senior Financial Officer to present fairly in all material
respects the information contained therein, in each case in accordance with
GAAP; and
C. concurrently with each delivery of financial statements or reports
required to be furnished pursuant to Subsections A and B above, a
certificate of a Senior Financial Officer stating that, based upon such
examination or investigation and review of this Agreement as in the opinion
of the signer is necessary to enable the signer to express an informed
opinion with respect thereto, no Default or Event of Default has occurred
during such period, or, if any Default or Event of Default shall have
occurred, specifying all of the same and the nature and period of existence
thereof and what action the Company has taken, is taking or proposes to
take with respect thereto; and
D. promptly upon their becoming available,
(1) copies of all other financial statements sent or made
available by Parent or a Subsidiary to its equity or other security
holders (other than Parent or another Subsidiary), and
(2) copies of all press releases and other statements made
available generally by Parent or any Subsidiary to the public relating
to financial matters or to other Material developments in the business
of Parent or any Subsidiary.
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7. COVENANTS.
Each of Parent and Texas-Sterling covenant and agree that so long as
any of the Notes shall be outstanding:
7.1. PAYMENT OF PRINCIPAL, INTEREST AND PREMIUM, ETC.
Texas-Sterling will duly and punctually pay the principal of, interest
and premium, if any, on, the Notes in accordance with the terms of the Notes and
this Agreement, and Parent hereby irrevocably and unconditionally guarantees
such payments by Texas-Sterling.
7.2. TO KEEP BOOKS; PAYMENT OF TAXES; MAINTENANCE OF PROPERTIES; ETC.
Each of Parent and Texas-Sterling will, and will cause each of its
Subsidiaries to,
A. keep proper books of record and account, and keep appropriate
reserves, all in accordance with GAAP;
B. pay and discharge or cause to be paid and discharged all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits or upon any of its real property, or upon any part
thereof, when due and so long as the same can be paid without interest or
penalty, as well as all lawful claims for labor, materials and supplies
which, if unpaid, could by law become a Lien upon its property, provided
that neither Parent nor any Subsidiary shall be required to pay any such
tax, assessment, charge, levy or claim if the amount, applicability or
validity thereof shall be contested on a timely basis in good faith by
appropriate proceedings (so long as the enforcement of any Lien arising out
of such nonpayment shall be stayed during any proceedings) and if
appropriate reserves, to the extent required by GAAP, shall have been made
therefor; and
C. maintain and keep, or cause to be maintained and kept, its material
properties in accordance with standard industry practices, provided that
nothing in this Subsection shall prevent Parent or any Subsidiary from
discontinuing the operation and the maintenance of any such properties if
such discontinuance is, in the opinion of Parent, in the best interest of
Parent and its Subsidiaries taken as a whole.
7.3. LIMITATION ON RESTRICTED PAYMENTS, ETC.
A. Each of Parent and Texas-Sterling, as the case may be, will not,
and will not permit any of its Subsidiaries to, directly or indirectly, (i)
declare or pay any dividend
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or make any distribution on or in respect of, or make any distribution to
the holders of, Capital Stock of Parent, (ii) purchase, redeem or otherwise
acquire or retire for value any Capital Stock of Parent or Texas-Sterling,
(iii) declare or pay any dividend or make any distribution on or in respect
of, or make any distribution to holders of, Capital Stock of any Subsidiary
(other than with respect to any such Capital Stock held by Parent or any
Wholly Owned Subsidiary of Parent) or purchase, redeem or otherwise acquire
or retire for value any Capital Stock of any Subsidiary (other than such
Capital Stock held by Parent or any Wholly Owned Subsidiary of Parent), or
(iv) purchase, repurchase, redeem, defease or otherwise acquire or retire
for value, prior to scheduled maturity, scheduled repayment or scheduled
sinking fund payment, any Subordinated Obligations (other than the
purchase, repurchase or other acquisition of Subordinated Obligations
purchased in anticipation of satisfying a sinking fund obligation,
principal installment or final maturity, in each case due within one year
of the date of acquisition (any such dividend, distribution, purchase,
redemption, repurchase, defeasance, or other acquisition or retirement
being herein referred to as a "RESTRICTED PAYMENT").
B. Notwithstanding Subsection A above, the parties agree that Parent
and Texas-Sterling, as the case may be, shall be permitted to (i) make the
distributions contemplated by Section 3.24(D) of the Stock Purchase
Agreement; (ii) for the avoidance of doubt, pay principal and interest on
the Stockholder Notes in the amounts and at the times set forth in such
Stockholder Notes; and (iii) purchase Shares pursuant to the Stockholders
Agreement.
7.4. CONSOLIDATION, MERGER OR DISPOSITION OF ASSETS AS AN ENTIRETY.
Neither Parent nor Texas-Sterling will, directly or indirectly, merge,
consolidate or amalgamate with any other Person or sell, lease, transfer or
otherwise dispose of all or substantially all of its assets (as an entirety) to
any Person, unless
A. Parent shall be the continuing or surviving corporation and
Texas-Sterling shall continue to be a Wholly Owned Subsidiary of Parent, or
the continuing, surviving or acquiring Person shall be a solvent
corporation, partnership or trust organized in the United States of America
and shall expressly assume in writing the due and punctual payment of the
principal, premium (if any) and interest on the Notes and all of the other
obligations of Parent and Texas-Sterling under this Agreement, and
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B. immediately after any such merger, consolidation, amalgamation,
sale, lease or other disposition and giving effect to any concurrent
transactions, no Default or Event of Default shall have occurred and be
continuing and each of Parent and Texas-Sterling shall have complied with
its obligations under Section 10.2 resulting from such transaction.
7.5. FINANCIAL COVENANTS.
Each of Parent and Texas-Sterling shall comply with the covenants set
forth on Schedule II.
7.6. RESTRICTIONS ON ADDITIONAL INDEBTEDNESS.
Parent, Texas-Sterling or their Subsidiaries will not create, assume
or incur or otherwise become or remain liable for any Debt (other than Permitted
Debt) if the outstanding aggregate principal amount of all such Debt of the
Company and its Subsidiaries (other than Permitted Debt) together exceeds
$10,000,000.
8. DEFINITIONS.
8.1. DEFINITIONS.
Except as otherwise specified or as the context may otherwise require,
the following terms shall have the respective meanings set forth below whenever
used in this Agreement and shall include the singular as well as the plural:
"AFFILIATE" of any specified Person means any other Person which
directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such Person. Notwithstanding the
foregoing, in no event shall you or any of your Affiliates or any other holder
of any Notes be deemed to be an Affiliate of Parent or Texas-Sterling solely by
reason of the ownership of the Notes or the Shares acquired upon the exchange of
the Notes.
"AGREEMENT" means this Note Purchase Agreement.
"AS EXCHANGED BASIS" means, when used in reference to Notes, whether
at the time of a determination of the number of Shares or otherwise, that number
of Shares for which such Notes may then be exchanged based upon the exchange
rights of the Notes as adjusted pursuant to Section 10.2.
"BOARD OF DIRECTORS" means the Board of Directors of Parent or any
committee of directors lawfully exercising the relevant powers of said Board or
Directors.
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"BUSINESS DAY" means any day other than a Saturday or Sunday or a day
on which commercial banks are required or authorized by law to be closed in New
York, New York.
"CAPITAL STOCK" means, with respect to any corporation, any and all
shares, interests, rights to purchase, warrants, options, participations or
other equivalents of or interests (however designated) in stock issued by that
corporation.
"CAPITALIZED LEASE OBLIGATIONS" means, with respect to any Person, all
outstanding obligations of such Person in respect of any rental obligation which
is required to be capitalized on the face of a balance sheet of such Person
under GAAP, taken at the capitalized amount thereof accounted for as
indebtedness (net of interest expense) in accordance with GAAP.
"CLOSING DATE" has the meaning specified in Section 1.2.
"COMPANY" has the meaning specified at the beginning of this
Agreement.
"CONSTITUENT PERSON" has the meaning set forth in Section 10.2.
"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; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"DEBT" of any person means, without duplication,
A. the principal of and premium, if any, in respect of (1)
indebtedness of such person for money borrowed and (2) indebtedness
evidenced by notes, debentures, bonds or other similar instruments for the
payment of which such person is responsible or liable;
B. all Capitalized Lease Obligations of such person;
C. all obligations of such person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such person
and all obligations of such person under any title retention agreement (but
in each case excluding trade accounts payable arising in the ordinary
course of business);
D. all obligations of such person for the reimbursement of any obligor
on any letter of credit, banker's acceptance or similar credit transaction
(other
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than obligations with respect to letters of credit securing obligations
(other than obligations described in clauses A through C above) entered
into in the ordinary course of business of such person to the extent such
letters of credit are not drawn upon or, if and to the extent drawn upon,
such drawing is reimbursed no later than the third Business Day following
receipt by such person of a demand for reimbursement following payment on
the letter of credit);
E. all obligations of such person with respect to the redemption,
repayment or other repurchase of any Redeemable Capital Stock or
Exchangeable Capital Stock (but excluding any accrued dividends);
F. all obligations of the type referred to in clauses A through E
above of other persons and all dividends of other persons for the payment
of which, in either case, such person is responsible or liable as obligor,
guarantor or otherwise, including any guarantees of such obligations and
dividends; and
G. all obligations of the type referred to in clauses A through F of
other persons secured by any Lien on any property or asset of such person
(whether or not such obligation is assumed by such person), the amount of
such obligation being deemed to be the lesser of the value of such property
or assets or the amount of the obligation so secured.
The amount of Debt of any person at any date shall be the outstanding balance at
such date of all unconditional obligations as described above and the maximum
liability, upon the occurrence of the contingency giving rise to the obligation,
of any contingent obligations referred to above at such date.
"DEFAULT" means an event which, with the lapse of time and/or the
giving of notice, would constitute an Event of Default.
"EVENT OF DEFAULT" has the meaning specified in Section 9.1.
"EXCHANGE PRICE" has the meaning specified in Section 10.1.
"EXCHANGEABLE CAPITAL STOCK" means any Capital Stock which is
exchangeable or convertible into another security (other than Capital Stock of
Parent or Texas-Sterling which is neither Exchangeable Capital Stock nor
Redeemable Capital Stock).
"GAAP" means generally accepted accounting principles from time to
time in the United States.
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"INDEMNIFIED LIABILITIES" has the meaning specified in Section 18.6.
"INDEMNITEE" or "INDEMNITEES" has the meaning specified in Section
18.6.
"INTEREST PAYMENT DATE" shall mean a date for payment of interest in
accordance with Section 5.4(C).
"INTEREST PERIOD" has the meaning specified in Section 5.4(A).
"LIEN" means any mortgage, pledge, security interest, conditional sale
or other title retention agreement or other similar lien.
"MAJORITY HOLDERS" shall mean, as of any date, the holders of Notes
holding at least seventy-five percent (75%) of the outstanding principal amount
of the Notes on such date.
"MATERIAL" means material in relation to the business, operations,
affairs, financial condition, assets, properties, or prospects of the Company
and its Subsidiaries taken as a whole.
"NET CASH PROCEEDS" with respect to any issuance or sale of Capital
Stock, means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"NON-PAYMENT DEFAULT" means, at any time when Parent or Texas-Sterling
has outstanding obligations constituting Senior Indebtedness, the occurrence or
existence of any event, circumstance, condition or state of facts that, by the
terms of such Senior Indebtedness or which with the giving of notice or the
passage of time, or both, permits one or more holders of such obligations (or a
trustee or agent on behalf of the holders thereof) to declare such obligations
immediately due and payable prior to the date on which they would otherwise
become due and payable, other than a Payment Default.
"NOTE REGISTER" has the meaning specified in Section 12.
"NOTES" has the meaning specified in Section 1.1.
"OBLIGATION" of any Person means any obligation of such Person to pay
principal, premium, interest (including interest accruing on or after the filing
of any petition in bankruptcy or
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for reorganization relating to Parent or Texas-Sterling, whether or not a claim
for such post-petition interest is allowed in such proceeding), penalties,
reimbursement or indemnification amounts, fees, expenses or other amounts.
"PARENT" has the meaning specified at the beginning of this Agreement.
"PAYMENT DEFAULT" means a default in the payment of any principal of
or premium, if any, interest or sinking fund on, or other payment Obligation of
Parent or Texas-Sterling constituting, Senior Indebtedness when due, whether at
maturity of any such payment or by declaration of acceleration, call for
redemption or otherwise.
"PERMITTED DEBT" means (i) the Notes; (ii) the Stockholder Notes and
(iii) any Debt between Parent and any Wholly Owned Subsidiary.
"PERSON" or "PERSON" means and includes an individual, a partnership,
a joint venture, a corporation, a limited liability company, a trust, an
association, a joint-stock company, an unincorporated organization and a
government or any department or agency thereof.
"QUALIFYING IPO" shall mean the closing of an initial public offering
for Parent's Shares with Net Cash Proceeds of at least $15 million and a
resultant market capitalization for Parent of at least $50 million.
"REDEEMABLE CAPITAL STOCK" means, any Capital Stock that by its terms
or otherwise is required to be redeemed on or prior to the first anniversary of
the Stated Maturity of the Notes or is redeemable at the option of the holder
thereof at any time on or prior to the first anniversary of the Stated Maturity
of the Notes; provided, however, that Shares subject to repurchase, or
repurchased, by Parent under the Stockholders Agreement shall not be deemed to
be Redeemable Capital Stock.
"RESTRICTED PAYMENT" has the meaning specified in Section 7.3(A).
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SENIOR FINANCIAL OFFICER" means the chief financial officer,
principal accounting officer, treasurer or controller of Parent or
Texas-Sterling, as the case may be.
"SENIOR INDEBTEDNESS" means the principal of (and premium, if any) and
interest (including all interest accruing subsequent to the commencement of any
bankruptcy or similar
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proceeding, whether or not a claim for post-petition interest is allowable as a
claim in any such proceeding) on, and all fees and other amounts payable and
obligations owing in connection with, the following, whether absolute or
contingent, secured or unsecured, due or to become due, outstanding on the date
of this Agreement or thereafter created, incurred or assumed: (A) all
indebtedness of Texas-Sterling (including obligations of Texas-Sterling arising
from its guarantee of the indebtedness of others) to banks, insurance companies
and other financial institutions evidenced by credit or loan agreements, notes
or other written obligations, (B) all other indebtedness of Texas-Sterling
(including obligations of Texas-Sterling arising from its guarantee of the
indebtedness of others) other than the Notes, (C) all Capitalized Lease
Obligations of Texas-Sterling or in respect of any lease or related document
(including a purchase agreement) which provides that Texas-Sterling is
contractually obligated to purchase or cause a third party to purchase the
leased property and thereby effectively guarantees a minimum residual value of
the leased property to the lessor and the obligations of Texas-Sterling under
such lease or related document to purchase or cause a third party to purchase
such leased property; (D) all obligations of Texas-Sterling issued or assumed as
the deferred purchase price of property (but excluding any portion thereof
constituting trade accounts payable arising in the ordinary course) and (E) all
obligations of Texas-Sterling for the reimbursement of any letter of credit or
any amendment, renewals, extensions, modifications and refundings; provided that
Senior Indebtedness shall not include (i) any such indebtedness or obligation if
the terms of such indebtedness or obligation (or the terms of the instrument
under which or pursuant to which, it is issued) expressly provide that such
indebtedness or obligation shall not be senior in right of payment to the Notes,
or expressly provide that such indebtedness or obligation is pari passu with or
junior to the Notes, (ii) the Stockholder Notes and (iii) accounts payable of
Texas-Sterling to trade creditors.
"SHARES" has the meaning specified in Section 1.1.
"STATE HIGHWAY BUSINESS" means state highway projects for the Texas
Department of Transportation.
"STATED MATURITY" when used with respect to any Note or any
installment of interest thereon, means the date specified in such Note as the
fixed date on which the principal of such Note or such installment of interest
is due and payable.
"STOCK PURCHASE AGREEMENT" means the Stock Purchase and Investment
Agreement, dated as of January 19, 1999, by and between the purchasers listed on
Exhibit A thereto, Parent, Texas-Sterling, and the stockholders of Parent listed
on Exhibit A thereto.
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"STOCKHOLDER NOTES" means (i) the Subordinated Promissory Note of
Texas-Sterling payable to the order of James D. Manning, dated October 1, 1996,
(ii) the Subordinated Promissory Note of Texas-Sterling payable to the order of
Patrick T. Manning, dated October 1, 1996, and (iii) the Subordinated Promissory
Note of Texas-Sterling payable to the order of Joseph P. Harper, Sr., dated
October 1, 1996.
"STOCKHOLDERS AGREEMENT" means the Stockholders Agreement, dated as of
January 19, 1999, among Parent, Texas-Sterling, the investors set forth from
time to time on Schedule I thereto, and the individuals set forth from time to
time on Schedule II thereto.
"SUBORDINATED OBLIGATION" means, at any date, any Debt of
Texas-Sterling which is subordinate or junior in right of payment to the Notes.
"SUBSIDIARY" of any Person means any corporation or other entity a
majority of the total combined voting power of all classes of Voting Stock of
which shall, at the time as of which any determination is being made, be owned
by such Person and/or one or more of its Subsidiaries. Except as otherwise
expressly indicated herein, references to Subsidiaries shall mean Subsidiaries
of Parent and Texas-Sterling.
"TEXAS-STERLING" has the meaning specified at the beginning of this
Agreement.
"TRANSACTION DOCUMENTS" means this Agreement and the Notes.
"VOTING STOCK" means, with respect to any Person, any shares of stock
or other equity interests of any class or classes of such Person whose holders
are entitled under ordinary circumstances (irrespective of whether at the time
stock or other equity interests of any other class or classes shall have or
might have voting power by reason of the happening of any contingency) to vote
for the election of a majority of the directors, managers, trustees or other
governing body of such Person.
"WHOLLY OWNED SUBSIDIARY" means a Subsidiary all the Capital Stock of
which (other than directors' qualifying shares) is owned by Parent or another
Wholly Owned Subsidiary.
8.2. ACCOUNTING TERMS.
All accounting terms used herein which are not expressly defined in
this Agreement have the meanings respectively given to them in accordance with
GAAP. Except as otherwise specifically provided herein, all computations made
<PAGE> 19
16
pursuant to this Agreement shall be made in accordance with GAAP and all balance
sheets and other financial statements with respect thereto shall be prepared in
accordance with GAAP consistently applied. Except as otherwise expressly
provided, any consolidated financial statement or financial computation shall be
done in accordance with GAAP; and, if at the time that any such statement or
computation is required to be made Parent shall not have any Subsidiaries, such
terms shall mean a financial statement or a financial computation, as the case
may be, with respect to Parent only.
9. EVENTS OF DEFAULT; REMEDIES.
9.1. EVENTS OF DEFAULT; ACCELERATION OF MATURITY AND RESCISSION.
If any of the following Events of Default (each an "Event of Default")
shall occur and be continuing for any reason whatsoever (and whether such
occurrence shall be voluntary or involuntary or come about or be effected by
operation of law or otherwise):
A. default shall be made in the due and punctual payment of any
principal of or premium, if any, on any Note when and as the same shall
become due and payable, whether at Stated Maturity, by acceleration, by
notice of prepayment or otherwise; or
B. default shall be made in the due and punctual payment of any
interest on any Note when and as the same shall become due and payable and
such default shall have continued for a period of 30 days; or
C. Parent, Texas-Sterling or any Subsidiary shall default beyond any
applicable grace period in any payment of principal of or premium or
interest on any Debt in excess of $50,000 in aggregate unpaid principal
amount (other than the Notes) or in the due performance or observance of
any provision contained in any agreement relating to such Debt the effect
of which is (1) to cause such Debt to become or be declared due and payable
prior to its stated maturity or (2) to require the repayment or repurchase
of such Debt prior to its stated maturity, provided that if such default
shall be remedied or cured by Parent or Texas-Sterling or waived by the
holders of such Debt prior to an acceleration under this Agreement, then
the Event of Default hereunder by reason thereof shall be deemed likewise
to have been thereupon remedied, cured or waived without further action
upon the part of any of the holders of the Notes; or
D. default or breach shall be made in the performance of any covenant
or warranty made by Parent or Texas-Sterling in this Agreement or any other
Transaction Document or in
<PAGE> 20
17
any certificate or other writing furnished pursuant hereto or thereto and
such default or breach shall have continued for a period of 30 days after
Parent or Texas-Sterling becomes aware of such default or breach; or
E. Parent or Texas-Sterling shall (1) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian,
trustee or liquidator of itself or of all or a substantial part of its
property, (2) admit in writing its inability to pay its debts as such debts
become due, (3) make a general assignment for the benefit of its creditors,
(4) commence a voluntary case under any law relating to bankruptcy,
insolvency or reorganization, (5) file a petition seeking to take advantage
of any other law providing for the relief of debtors, or (6) fail to
controvert in a timely or appropriate manner (but within 30 days in any
event), or acquiesce in writing to, any petition filed against it in an
involuntary case under any law relating to bankruptcy, insolvency or
reorganization; or
F. a proceeding or case shall be commenced against Parent or
Texas-Sterling, without the application or consent of Parent or
Texas-Sterling in any court of competent jurisdiction seeking (1) its
liquidation, reorganization, dissolution or winding up, or composition or
readjustment of its debts, (2) the appointment of a trustee, receiver,
custodian, liquidator, encumbrancer or the like of it or of all or any
substantial part of its assets or (3) similar relief in respect of it under
any law providing for the relief of debtors, and such proceeding or case
shall continue undismissed, or unstayed and in effect, for a period of 60
days; or an order for relief shall be entered in an involuntary case under
any law relating to bankruptcy, insolvency or reorganization against Parent
or Texas-Sterling;
then (i) upon the occurrence of any Event of Default described in Subsection E
or F, the unpaid principal amount of all Notes, together with the interest
accrued thereon, shall automatically become immediately due and payable, without
presentment, demand, or protest, all of which are hereby expressly waived by the
Company, or (ii) upon the occurrence and during the continuance of any other
Event of Default, the Majority Holders may, by written notice to the Company,
declare the unpaid principal amount of all Notes to be, and the same shall
forthwith become, due and payable, together with the interest accrued thereon,
without presentment, further demand, protest or other requirements of any kind,
all of which are hereby expressly waived by the Company.
The provisions of this Section are subject, however, to the condition
that, at any time after any Note shall have become declared due and payable, the
Majority Holders, by written notice to the Company, may rescind and annul any
such acceleration of
<PAGE> 21
18
Notes and its consequences; but no such action shall affect any subsequent
Default or Event of Default or impair any right consequent thereon.
The Company shall promptly give notice to each holder of Notes of the
occurrence of (i) any Default or Event of Default or (ii) any Payment Default or
Non-Payment Default.
9.2. SUITS FOR ENFORCEMENT.
If any Event of Default shall have occurred and be continuing and, in
the case of an Event of Default described in Subsections A, B, C, or D of
Section 9.1, the Majority Holders have accelerated the maturity of such Notes
pursuant to Section 9.1, the holder of any of the Notes may proceed to protect
and enforce its rights, either by suit in equity or by action at law, or both,
whether for the specific performance of any covenant or agreement contained in
this Agreement or in the other Transaction Documents or in aid of the exercise
of any power granted in this Agreement or in the other Transaction Documents, or
the holder of any Note may proceed to enforce the payment of all sums due upon
such Note or to enforce any other legal or equitable right of the holder of such
Note.
9.3. REMEDIES CUMULATIVE.
No remedy herein conferred upon you or the holder of any Note is
intended to be exclusive of any other remedy and each and every such remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise.
9.4. REMEDIES NOT WAIVED.
No course of dealing between Parent or Texas-Sterling and you or the
holder of any Note and no delay or failure in exercising any rights hereunder or
under any other Transaction Document in respect of such Note shall operate as a
waiver of any of your rights or the rights of any holder of such Note.
10. EXCHANGE OF NOTES; ANTIDILUTION PROVISIONS.
10.1. EXCHANGE OF NOTES.
Each Note will be exchanged, (i) in whole or in part, at any time at
the option of the holder thereof, or (ii) automatically upon the closing of a
Qualifying IPO for such number of whole Shares as is equal to the unpaid
principal amount being exchanged of such Note divided by the exchange price of
$30.7645 per share, subject to adjustment as described in Section 10.2 (the
"EXCHANGE PRICE"). Texas-Sterling will pay to the
<PAGE> 22
19
holder of each Note being so exchanged all accrued and unpaid interest on such
Note (or portion thereof being exchanged) to the date of such exchange.
10.2. ANTIDILUTION PROVISIONS; ACCRUED INTEREST AND FRACTIONAL SHARES;
MECHANICS OF EXCHANGE; NO IMPAIRMENT; ETC.
A. The Exchange Price is subject to adjustment from time to time as
follows:
(1) In case Parent shall (a) subdivide its outstanding Shares into a
greater number of shares or (b) combine its outstanding Shares into a
smaller number of shares, the Exchange Price in effect immediately prior to
such action shall be adjusted so that the holder of any security thereafter
surrendered for exchange shall be entitled to receive the number of Shares
which such holder would have received or been entitled to receive
immediately following such action had such security been exchanged
immediately prior thereto. An adjustment made pursuant to this clause (1)
shall become effective immediately.
(2) In case Parent shall pay a dividend or make a distribution on
Shares in Shares, on the day after the record date for the determination of
holders entitled to receive such dividend or distribution, the Exchange
Price shall be adjusted to a price, computed to the nearest cent, so that
the same shall be reduced to the product of:
(a) the Exchange Price in effect immediately prior to the record
date for the determination of holders entitled to receive such
dividend or distribution multiplied by a fraction, of which
(b) the numerator shall be the number of Shares outstanding at
the close of business on the date fixed for such determination, and of
which
(c) the denominator shall be the sum of such number of Shares and
the total number of Shares constituting such dividend or other
distribution.
Such adjustment shall become effective immediately, except as provided in
clause (6) below, on the day after the record date for the determination of
holders entitled to receive such dividend or distribution. For the purposes
of this clause (2), the number of Shares at any time outstanding shall not
include shares held in the treasury of Parent. Parent shall not pay any
dividend or make any distribution on Shares held in the treasury of Parent.
(3) In case Parent shall issue rights, warrants or options to all
holders of Shares entitling them (for a
<PAGE> 23
20
period expiring within 45 days after the record date therefor) to subscribe
for or purchase Shares at a price per share less than the Exchange Price
per share on the day after the record date for the determination of holders
entitled to receive such rights, warrants or options, the Exchange Price
shall be adjusted to a price, computed to the nearest cent, so that it
shall equal the price determined by multiplying:
(a) the Exchange Price in effect immediately prior to the date of
issuance of such rights, warrants or options by a fraction, of which
(b) the numerator shall be (i) the number of Shares outstanding
on the date of issuance of such rights, warrants or options
immediately prior to such issuance, plus (ii) the number of Shares
which the aggregate offering price of the total number of Shares so
offered for subscription or purchase would purchase at the Exchange
Price (determined by multiplying such total number of Shares by the
sum of the exercise price of such rights, warrants or options plus the
fair market value of any consideration paid to Parent for such rights,
warrants or options and dividing the product so obtained by the
Exchange Price), and of which
(c) the denominator shall be (i) the number of Shares outstanding
on the date of issuance of such rights, warrants or options,
immediately prior to such issuance, plus (ii) the number of additional
Shares which are so offered for subscription or purchase.
Such adjustment shall become effective immediately, except as provided in
clause (6) below, on the day after the record date for the determination of
holders entitled to receive such rights, warrants or options. For the
purposes of this clause (3), the number of Shares at any time outstanding
shall not include shares held in the treasury of Parent. Parent shall not
issue any rights, warrants or options in respect of Shares held in the
treasury of Parent.
(4) In case Parent shall issue Shares at a net price per share less
than the Exchange Price per share, the Exchange Price shall be reduced so
that it shall equal the price determined by multiplying:
(a) such Exchange Price in effect immediately prior thereto by a
fraction, of which
(b) the numerator shall be (i) the number of Shares outstanding
immediately prior to the issuance of such additional shares, plus (ii)
the number of Shares which the aggregate offering price of the total
number
<PAGE> 24
21
of Shares so offered would purchase at such Exchange Price, and of
which
(c) the denominator shall be the number of Shares that would be
outstanding immediately after the issuance of such additional shares.
Such adjustment shall become effective immediately after the issuance of
such Shares. An adjustment shall be made successively whenever such an
issuance is made. For the purposes of this clause (4), the number of Shares
at any time outstanding shall not include shares held in the treasury of
Parent. This clause (4) shall not apply to Shares issued to any Affiliate
under bona fide benefits plans adopted by the Board of Directors for the
benefit of Parent or Texas-Sterling's directors, employees, consultants and
advisers and approved by the holders of Shares if required by law.
(5) In case Parent shall distribute to all or substantially all
holders of Shares documents or instruments evidencing indebtedness, equity
securities (including equity interests in a Subsidiary) other than Shares,
or other assets (other than ordinary cash dividends out of earnings), or
shall distribute to all or substantially all holders of Shares rights,
warrants or options to subscribe to securities (other than those referred
to in clause (3) above), then in each such case Parent shall pay to the
holder of each Note such holder's pro rata share, on an As Exchanged Basis
in respect of such Note, of such distributions.
(6) In any case in which this Section 10.2 shall require that an
adjustment be made on the day after a record date, Parent may elect to
defer the effectiveness of such adjustment (but in no event until a date
later than the effective time of the event giving rise to such adjustment),
in which case Parent shall, with respect to any Note exchanged after such
record date and before such adjustment shall have become effective (a)
defer making any cash payment or issuing to the holder of such Note the
number of Shares and other capital stock of Parent issuable upon such
exchange in excess of the number of Shares and other capital stock of
Parent issuable thereupon only on the basis of the Exchange Price prior to
adjustment, and (b) not later than five Business Days after such adjustment
shall have become effective, pay to such holder the appropriate cash
payment and issue to such holder the additional Shares and other capital
stock of Parent issuable on such exchange.
(7) No adjustment in the Exchange Price shall be required in respect
of any dividend or distribution if holders of the Notes may participate
therein (on a basis and with notice that the Board of Directors determines
in good
<PAGE> 25
22
faith to be fair and appropriate) and receive the same consideration they
would have received if they had exchanged the Notes immediately prior to
the record date with respect to such dividend or distribution. In addition,
no adjustment in the Exchange Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the
Exchange Price, provided that any adjustment which by reason of this clause
(7) is not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section
10 shall be made to the nearest cent or to the nearest one-hundredth of a
share, as the case may be.
(8) Whenever the Exchange Price is adjusted as herein provided, Parent
shall promptly give each holder of Notes a notice of such adjustment
accompanied by a copy of a certificate signed by a Senior Financial Officer
setting forth the Exchange Price after such adjustment and setting forth in
reasonable detail the facts requiring such adjustment and the calculations
on which the adjustment is based.
(9) At its option, Parent may make such reduction in the Exchange
Price, in addition to those otherwise required by this Section 10.2, as the
Board of Directors deems advisable to avoid or diminish any income tax to
holders of Shares resulting from any dividend or distribution of stock (or
rights to acquire stock) or from any event treated as such for income tax
purposes; provided that any such reduction shall not be effective until
written evidence of the action of the Board of Directors authorizing such
reduction shall be filed with the secretary of Parent and notice thereof
shall have been given to each holder of Notes.
(10) Notwithstanding any other provision of this Section 10.2, no
adjustment to the Exchange Price shall reduce the Exchange Price below the
then par value per share of the Shares, and any such purported adjustment
shall instead reduce the Exchange Price to such par value. Parent hereby
covenants not to take any action (i) to increase the par value per share of
the Shares or (ii) that would or does result in any adjustment in the
Exchange Price that, if made without giving effect to the previous
sentence, would cause the Exchange Price to be less than the then par value
per share of the Shares.
B. If any transaction shall occur, including without limitation (1)
any recapitalization or reclassification of Shares (other than a change in par
value, or from no par value to par value, or as a result of a subdivision or
combination of Shares), (2) any consolidation, merger or amalgamation of Parent
with or into another person or any merger of another person into Parent (other
than a merger that does not result in a reclassification,
<PAGE> 26
23
conversion, exchange or cancellation of Shares), (3) any sale or transfer of all
or substantially all of the assets of Parent, or (4) any compulsory share
exchange, pursuant to any of which holders of Shares shall be entitled to
receive other securities, cash or other property, then appropriate provision
shall be made so that the holder of each Note then outstanding shall have the
right thereafter to convert such Note only into the kind and amount of the
securities, cash or other property that would have been receivable upon such
recapitalization, reclassification, consolidation, merger, amalgamation, sale,
transfer, or share exchange by a holder of the number of Shares issuable upon
exchange of such Note immediately prior to such recapitalization,
reclassification, consolidation, merger, amalgamation, sale, transfer or share
exchange, after giving effect to any adjustment in the Exchange Price in
accordance with this Section 10.2, assuming such holder of Shares is not a
company formed by such consolidation or amalgamation or resulting from such
merger or that acquires such assets or that acquires Parent 's shares, as the
case may be (the "CONSTITUENT PERSON"), and Parent shall not enter into any such
consolidation, merger, amalgamation or sale, unless the Constituent Person shall
make provisions in its certificate or articles of incorporation or other
constituent document to establish such right. Such certificate or articles of
incorporation or other constituent document shall provide for adjustments that,
for events subsequent to the effective date of such certificate or articles of
incorporation or other constituent documents, shall be as nearly equivalent as
may be practicable to the relevant adjustments provided for in this Section
10.2.
C. Interest shall cease to accrue on the Notes surrendered in exchange
for Shares pursuant to Section 10.1. No fractional Shares shall be issued upon
exchange of any Note. In lieu of any fractional shares to which the holder of
any Note would otherwise be entitled, Parent shall, after aggregation of all
fractional share interests held by each holder, pay cash equal to such remaining
fractional interest multiplied by the fair market value (determined in good
faith by the Board of Directors and described in a resolution of the Board of
Directors) of such share at the time of exchange.
D. Before any holder of a Note shall be entitled to exchange the same
for Shares pursuant to Section 10.1 and to receive certificates therefor, such
holder shall surrender such Note to be exchanged at the office of Texas-Sterling
where the Note Register is maintained pursuant to Section 12 or at the place of
payment named in such Note, and shall give written notice to Parent and
Texas-Sterling at such office or place of payment that such holder elects to
exchange the same. Such exchange pursuant to Section 10.1 shall be deemed to
have been made immediately prior to the close of business on the date of such
surrender and the person or persons entitled to receive the Shares issuable upon
such exchange shall be treated for all
<PAGE> 27
24
purposes as the record holder or holders of such Shares on such date. Parent
shall, within five Business Days after such surrender, issue and deliver at such
office or place of payment to the holder of such Note (or to any other person
specified in the notice delivered by such holder), a certificate or certificates
for the number of Shares to which such holder shall be entitled as aforesaid and
a check payable to such holder for any cash amounts payable as the result of an
exchange for fractional Shares. In case any Note shall be surrendered in
exchange for only a part of the unpaid principal amount thereof, Texas-Sterling
shall deliver within five Business Days at such office or place of payment a new
Note or Notes, as may be requested by such holder and payable to such holder, in
the same aggregate unpaid principal amount as the unpaid principal amount of the
Note so surrendered which is not being exchanged. Notwithstanding the foregoing,
Parent shall not be obligated to issue certificates evidencing the Shares
issuable upon exchange of any Notes unless such Note is either delivered to
Texas-Sterling or Texas-Sterling shall have received evidence pursuant to
Section 13 that such Note has been lost, stolen, destroyed or mutilated and an
indemnity satisfactory to Texas-Sterling pursuant to said Section. The issuance
of certificates of Shares issuable upon exchange of Notes shall be made without
charge to the exchanging holder for any documentary, stamp or similar tax
imposed in respect of the issuance thereof, provided that neither Parent nor
Texas-Sterling shall be required to pay any tax which may be payable with
respect to any transfer involved in the issue and delivery of any certificate in
a name other than that of the holder of the Notes being exchanged, and provided
further that neither Parent nor Texas-Sterling in any event shall be required to
pay any income taxes which may be incurred by any holder upon such exchange or
transfer.
E. Parent and Texas-Sterling will not, through any reorganization,
transfer of assets, consolidation, merger, amalgamation, dissolution, issue or
sale of securities or any other action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by Parent
or Texas-Sterling, but will at all times in good faith assist in the carrying
out of all of the provisions of this Section 10 and in the taking of all such
action as may be necessary or appropriate in order to protect the exchange
rights of the holders of the Notes against impairment.
F. Parent will at all times reserve and keep available, free from
preemptive rights, out of its authorized but unissued Shares, for the purpose of
effecting the exchange of Notes, the full number of Shares then issuable upon
the exchange of all outstanding Notes. Parent covenants that all Shares issued
upon exchange of Notes will upon issue be fully paid and nonassessable and,
except as provided in Subsection D above, Parent will pay all taxes and charges
with respect to the issue thereof.
<PAGE> 28
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11. SUBORDINATION OF NOTES.
11.1. GENERAL.
Notwithstanding any provision of this Agreement or the Notes to the
contrary, payments of the principal of and premium, if any, and interest on the
Notes shall be subordinate and junior in right of payment to the prior payment
in full of all Senior Indebtedness to the extent and in the manner provided in
this Section.
11.2. DISTRIBUTION ON DISSOLUTION, LIQUIDATION AND REORGANIZATION; SUBROGATION.
Upon any distribution of assets of Texas-Sterling upon any
dissolution, winding up, liquidation or reorganization of Texas-Sterling,
whether in bankruptcy, insolvency, reorganization or receivership proceeding or
upon an assignment for the benefit of creditors or any other marshaling of the
assets and liabilities of Texas-Sterling or otherwise (subject to the power of a
court of competent jurisdiction to make other equitable provision reflecting the
rights conferred in this Section 11 upon the Senior Indebtedness and the holders
thereof, with respect to the Notes and the holders thereof, by a lawful plan of
reorganization under applicable bankruptcy law),
A. the holders of all Senior Indebtedness shall be entitled to receive
payment in full of the principal thereof, premium, if any, and the interest
due thereon before the holders of the Notes are entitled to receive any
payment upon the principal of or premium, if any, or interest on the Notes;
B. any payment or distribution of assets of Texas-Sterling of any kind
or character, whether in cash, property or securities, to which the holders
of the Notes would be entitled except for the provisions of this Section 11
shall be paid by the liquidating trustee or agent or other person making
such payment or distribution, whether a trustee in bankruptcy, a receiver
or liquidating trustee or otherwise, directly to the holders of Senior
Indebtedness or their representative or representatives or to the trustee
or trustees under any indenture under which any instruments evidencing any
of such Senior Indebtedness may have been issued, ratably according to the
aggregate amounts remaining unpaid on account of the principal of, premium,
if any, and interest on the Senior Indebtedness held or represented by
each, to the extent necessary to make payments in full of all Senior
Indebtedness remaining unpaid, after giving effect to any concurrent
payment or distribution to the holders of such Senior Indebtedness; and
<PAGE> 29
26
C. in the event that, notwithstanding the foregoing, any payment or
distribution of assets of Texas-Sterling of any kind or character, whether
in cash, property or securities, shall be received by the holders of the
Notes before all Senior Indebtedness is paid in full, such payment or
distribution shall be held in trust for and paid over to the holders of
such Senior Indebtedness, or their representative or representatives or to
the trustee or trustees under any indenture under which any instruments
evidencing any of such Senior Indebtedness may have been issued, ratably as
aforesaid, for application to the payment of all Senior Indebtedness
remaining unpaid until all such Senior Indebtedness shall have been paid in
full, after giving effect to any concurrent payment or distribution to the
holders of such Senior Indebtedness.
Subject to the payment in full of all Senior Indebtedness, the holders
of the Notes shall be subrogated to the rights of the holders of Senior
Indebtedness to receive payments or distribution of cash, property or securities
of Texas-Sterling applicable to Senior Indebtedness until the principal of,
premium, if any, and interest on the Notes shall be paid in full and no such
payments or distributions to the holders of the Notes of cash, property or
securities otherwise distributable to the holders of Senior Indebtedness shall,
as between Texas-Sterling, its creditors other than the holders of Senior
Indebtedness and the holders of the Notes, be deemed to be a payment by
Texas-Sterling to or on account of the Notes. It is understood that the
provisions of this Section 11 are and are intended solely for the purpose of
defining the relative rights of the holders of the Notes, on the one hand, and
the holders of Senior Indebtedness on the other hand. Nothing contained in this
Section 11 or elsewhere in this Agreement or in the Notes is intended to or
shall impair, as between Texas-Sterling, its creditors other than the holders of
Senior Indebtedness and the holders of the Notes, as the case may be, the
obligations of Texas-Sterling, which are unconditional and absolute, to pay to
the holders of the Notes principal of, premium, if any, and interest on the
Notes as and when the same shall become due and payable in accordance with their
terms, or to affect the relative rights of the holders of the Notes and
creditors of Texas-Sterling other than the holders of Senior Indebtedness, nor
shall anything herein or in the Notes prevent holders of any Note from
exercising all remedies otherwise permitted by applicable law upon default under
this Agreement, subject to the rights, if any, under this Section 11 of the
holders of Senior Indebtedness in respect of cash, property or securities of
Texas-Sterling received upon the exercise of any such remedy.
If any holder of Notes does not file a proper claim or proof of debt
in the form required in any proceeding referred to above prior to 30 days before
the expiration of the time to file such claim in such proceeding, then the
holder of any Senior Indebtedness is hereby authorized, and has the right, to
file an
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27
appropriate claim or claims for or on behalf of such holder of Notes.
11.3. OBLIGATION OF HOLDERS OF THE NOTES.
Notwithstanding the provisions of the preceding section, or anything
else herein to the contrary, the holders of the Notes agree that in any
dissolution, insolvency, liquidation or other proceedings involving an
adjustment of the indebtedness of Texas-Sterling or application of the assets of
Texas-Sterling in the payment of its indebtedness, the holders of the Senior
Indebtedness shall have the right to vote the full amount of the Notes and to
collect and enforce the Notes by joining in any proceeding, by filing proof of
claims or otherwise and to receive, give acquittance for, and take any and all
legal proceedings for the recovery of any and all monies and properties of any
nature due or to become due on account of the Notes and to apply the same to the
Senior Indebtedness until the same has been repaid in full. The holders of the
Notes hereby grant and convey to the holders of the Senior Indebtedness the
right to take such action and this grant of a right shall be coupled with an
interest and shall end only when the Senior Indebtedness has been repaid in
full.
11.4. NO PAYMENT IN EVENT OF DEFAULT ON SENIOR INDEBTEDNESS.
In the event that any Payment Default shall have occurred and be
continuing, then no payment on account of any principal, premium (if any),
interest, or prepayment of the Notes shall be made unless and until such Payment
Default shall have been cured or waived in writing by the holder of the Senior
Indebtedness or shall have ceased to exist or all amounts then due and payable
in respect of Senior Indebtedness shall have been paid in full, or provision
shall have been made for such payment in cash or cash equivalents or otherwise
in a manner satisfactory to the holders of Senior Indebtedness.
In the event that any Non-Payment Default shall have occurred with
respect to any Senior Indebtedness and be continuing, then, upon the receipt by
the holder of the Notes of written notice of such Non-Payment Default from a
holder of such Senior Indebtedness or a representative thereof, no payment on
account of any principal, premium (if any) or interest in respect of the Notes
shall be made during the period (the "PAYMENT BLOCKAGE PERIOD") commencing on
the date of such receipt of such written notice and ending on the earlier of (i)
the date on which such Non-Payment Default shall have been cured or waived in
writing by the holder of the Senior Indebtedness or shall have ceased to exist
or any acceleration of the Senior Indebtedness to which such Non-Payment Default
relates shall have been rescinded or annulled in writing by the holder of the
Senior Indebtedness or such Senior Indebtedness shall have been paid in full and
(ii) the 180th day after the date of such receipt of such written
<PAGE> 31
28
notice. During any 360-day period the aggregate of all Payment Blockage Periods
shall not exceed 180 days and there shall be a period of at least 90 consecutive
days in each 360-day period when no Payment Blockage Period is in effect. For
all purposes of this paragraph, no Payment Default or Non-Payment Default that
existed or was continuing on the date of commencement of any Payment Blockage
Period shall be, or be made, the basis for the commencement of a subsequent
Payment Blockage Period by holders of Senior Indebtedness or their
representatives unless such Payment Default or Non-Payment Default shall have
been cured for a period of not less than 60 consecutive days.
If notwithstanding the foregoing Texas-Sterling shall make any payment
to the holder of any Note prohibited by the foregoing provisions of this
Section, such payment shall be paid over and delivered forthwith to the holder
of the Senior Indebtedness.
The provisions of this Section shall not apply to any payment with
respect to which Section 11.2 would be applied.
11.5. PAYMENTS PERMITTED.
Nothing contained in this Agreement or in any of the Notes shall
affect the obligation of Texas-Sterling to make, or prevent Texas-Sterling from
making, at any time, except as provided in Sections 11.2 and 11.4, payments of
interest on the Notes.
11.6. OBLIGATION TO DELIVER PAYMENTS TO THE HOLDER OF THE SENIOR INDEBTEDNESS.
In the event that the holder of any Note receives any payment which is
not permitted hereunder, the holder shall hold the same in trust for the benefit
of the holders of the Senior Indebtedness and shall forthwith, upon receipt,
deliver the same, in the form received to the holder of the Senior Indebtedness.
The holder of each Note hereby indemnifies and agrees to hold harmless the
holder of the Senior Indebtedness for any payment so received and not
immediately delivered to the holder of the Senior Indebtedness.
11.7. MODIFICATION OF TERMS OF SENIOR INDEBTEDNESS.
Any renewal or extension of the time of payment of any Senior
Indebtedness or the exercise by the holders of Senior Indebtedness of any of
their rights under any instrument creating or evidencing Senior Indebtedness,
including without limitation the waiver of defaults thereunder, may be made or
done all without notice to or assent from the holders of the Notes.
No compromise, alteration, amendment, modification, extension,
renewal or other change of, or waiver, consent or other action in respect of,
any liability or obligation under or in respect of, or of any of the terms,
covenants or conditions of any indenture or other instrument under which any
Senior Indebtedness or of such Senior Indebtedness, whether or not such release
is in accordance with the provisions of any applicable document, shall in any
way alter or affect any of the provisions of this Section 11 or of the Notes
relating to the subordination thereof.
11.8. MODIFICATION OF TERMS OF NOTES OR NOTE PURCHASE AGREEMENT.
No amendment, modification, extension, renewal or other change of, or
waiver, consent or
<PAGE> 32
29
other action in respect of any of the terms, covenants or conditions of the
Notes or this Agreement may be made without the prior written consent of the
holders of the Senior Indebtedness if such amendment, modification, extension,
renewal, change, waiver, consent or other action does any of the following: (a)
alters the rate of interest payable on the Notes; (b) alters the repayment terms
of the Notes; (c) requires the principal on the Notes be paid early; or (d)
requires collateral or security to be given to the holders of the Notes. It is
the express agreement of the parties hereto that any attempt to modify or amend
the Notes or this Agreement in violation of clauses (a)-(d) above without the
prior written consent of the holders of the Senior Indebtedness shall be void.
11.9. RESTRICTIONS ON TRANSFER OF NOTES.
Holders of Notes shall not assign, transfer or pledge all or any part
of any such Note without delivering to any such transferee or assignee a copy of
this Agreement and obtaining from them their written acknowledgment of the terms
and conditions hereof.
12. REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; RESTRICTIVE LEGENDS;
TRANSFER RESTRICTIONS.
Texas-Sterling will keep at Texas-Sterling's principal office, or at
such other office or agency in the United States as Texas-Sterling may from time
to time designate in writing to the holders of the Notes, a register (the "NOTE
REGISTER") in which, subject to such reasonable regulations as it may prescribe,
but at its expense (other than transfer taxes, if any), it will provide for the
registration and transfer of Notes.
Whenever a Note shall be surrendered either at such office of
Texas-Sterling or at the place of payment named in such Note, for transfer or
exchange, within five Business Days thereafter Texas-Sterling will execute and
deliver in exchange therefor a new Note or Notes, as may be requested by such
holder, in the aggregate unpaid principal amount as the series and unpaid
<PAGE> 33
30
principal amount of the Note so surrendered. Each such new Note shall be payable
to such Person as such holder may request. Each Note presented or surrendered
for registration of transfer or exchange shall be duly endorsed or accompanied
by a written instrument of transfer duly executed by the registered holder of
such Note or such holder's attorney duly authorized in writing. Any Note issued
in exchange for any other Note or upon transfer thereof shall carry the rights
to unpaid interest and interest to accrue which were carried by the Note so
exchanged or transferred, and neither gain nor loss of interest shall result
from any such transfer or exchange. Any transfer tax relating to such
transaction shall be paid by the holder requesting the exchange.
Texas-Sterling and any agent of Texas-Sterling may deem and treat the
Person in whose name any Note is registered as the owner and holder of such Note
for the purpose of receiving payment of the principal of and premium, if any,
and interest on such Note and for all other purposes whatsoever, whether or not
such Note be overdue and Texas-Sterling shall not be affected by notice to the
contrary.
The certificates evidencing the Notes shall bear at the time of
issuance a legend in substantially the following form:
"This security has not been registered under the Securities Act of
1933, as amended, or applicable state securities laws, and this
security may not be sold, transferred or otherwise disposed of in the
absence of such registration or an exemption therefrom under said Act
and laws and the respective rules and regulations thereunder. This
security and the transfer hereof are also subject to the provisions of
and restrictions contained in a Note Purchase Agreement which
Texas-Sterling will furnish to the holder of this security upon
request."
The certificates evidencing Shares issuable upon exchange of the Notes
shall bear at the time of issuance a legend in substantially the following form:
"This security has not been registered under the Securities Act of
1933, as amended, or applicable state securities laws, and this
security may not be sold, transferred or otherwise disposed of in the
absence of such registration or an exemption therefrom under said Act
and laws and the respective rules and regulations thereunder."
13. LOST, ETC., NOTES.
Upon receipt by Texas-Sterling of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation
<PAGE> 34
31
of any Note, and (in case of loss, theft or destruction) of indemnity
satisfactory to it, and upon surrender and cancellation of such Note, if
mutilated, within five Business Days thereafter Texas-Sterling will deliver in
lieu of such Note a new Note in a like unpaid principal amount, dated as of the
date to which interest has been paid thereon or dated the date of the lost,
stolen, destroyed or mutilated Note if no interest shall have been paid thereon.
14. AMENDMENT AND WAIVER.
A. Any provision of this Agreement or the other Transaction Documents
may, with the consent of Parent and Texas-Sterling, be amended or waived (either
generally or in a particular instance and either retroactively or
prospectively), by one or more substantially concurrent written instruments
signed by the Majority Holders, provided that
(1) no such amendment or waiver shall
(a) change the rate or time of payment of interest on any of the
Notes, change the number or the method of calculating the number of
Shares that may be purchased upon exchange of any Note or the Exchange
Price in respect of such Shares, without the consent of the holder of
each Note so affected,
(b) modify any of the provisions of this Agreement with respect
to the payment or prepayment or purchase of Notes, or change the
percentage of the principal amount of the Notes the holders of which
are required with respect to any such amendment or to effectuate any
such waiver, or to accelerate any Note or Notes, without the consent
of the holders of all of the Notes then outstanding, or
(c) be effective prior to the Closing Date without your consent,
and
(2) no such waiver shall extend to or affect any obligation not
expressly waived or impair any right consequent thereon.
B. Any amendment or waiver pursuant to Subsection A above shall apply
equally to all of the holders of the Notes and shall be binding upon them, upon
each future holder of any such Note and upon Parent and Texas-Sterling, in each
case whether or not a notation thereof shall have been placed on any Note.
C. Neither Parent nor Texas-Sterling will solicit, request or
negotiate for or with respect to any proposed waiver or amendment of any of the
provisions of this Agreement or the other Transaction Documents unless each
holder of a Note affected
<PAGE> 35
32
thereby shall be informed thereof by Parent or Texas-Sterling and shall be
afforded the opportunity of considering the same and shall be supplied by Parent
or Texas-Sterling with sufficient information to enable it to make an informed
decision with respect thereto. Executed or true and correct copies of any
amendment or waiver effected pursuant to the provisions of this Section shall be
delivered by Parent or Texas-Sterling to each holder of Notes forthwith
following the date on which the same shall have become effective. Neither
Parent, Texas-Sterling or any of their Affiliates will directly or indirectly
pay or cause to be paid any remuneration, whether by way of supplemental or
additional interest, fee or otherwise, to any holder of a Note as consideration
for or as an inducement to the entering into by such holder of any such
amendment or waiver unless such remuneration is concurrently paid ratably to the
holders of all of the Notes then outstanding.
D. For purposes of determining whether the holders of outstanding
Notes of the requisite percentage of unpaid principal amount at any time have
taken any action authorized by this Section or otherwise by this Agreement, any
Notes owned by Parent, any Subsidiary or any Affiliate of Parent shall be deemed
not outstanding.
15. HOME OFFICE PAYMENT.
Notwithstanding anything to the contrary in this Agreement or the
Transaction Documents, so long as you or any nominee designated by you shall be
the holder of any Note, Texas-Sterling shall pay all amounts which become due
and payable on such Note by wire or electronic funds transfer of immediately
available funds to you at your address set forth in Schedule I on the date any
such amounts become due, or at such other place in the United States and in such
other manner as you may designate by notice to Texas-Sterling, without
presentation or surrender of such Note. You agree that prior to the sale,
transfer or other disposition of any Note, you will make notation thereon of the
portion of the principal amount prepaid and the date to which interest has been
paid thereon, or surrender the same in exchange for a Note or Notes of the same
series aggregating the same principal amount as the unpaid principal amount of
the Note so surrendered. Texas-Sterling agrees that the provisions of this
Section shall inure to the benefit of any other institutional investor holder of
a Note (or nominee thereof) who shall have agreed to comply with the
requirements of this Section.
16. LIABILITIES OF THE PURCHASER.
Neither this Agreement nor any disposition of any of the Notes shall
be deemed to create any liability or obligation of you or any other holder of
any of the Notes to enforce any provision hereof or of any of the other
Transaction Documents for
<PAGE> 36
33
the benefit or on behalf of any other Person who may be the holder of any of the
Notes.
17. CERTAIN TAXES.
The Company agrees to pay all stamp, documentary or similar taxes
which may be payable in respect of the execution and delivery of this Agreement
or the other Transaction Documents (but not the transfer of any Note) or of any
amendment of, or waiver or consent under or with respect to, this Agreement or
any of the other Transaction Documents and will save you and all subsequent
holders harmless against any loss or liability resulting from nonpayment or
delay in payment of any such tax. The obligations of the Company under this
Section shall survive the payment or exchange of the Notes.
18. MISCELLANEOUS.
18.1. EXPENSES.
The Company agrees to pay all reasonable expenses incurred by you
(including reasonable counsel fees) in connection with the enforcement and
collection of any payment due under the Notes after an Event of Default, the
enforcement of any agreement contained in this Agreement or the other
Transaction Documents after an Event of Default, responding to any subpoena or
other legal process or informal investigative demand issued in connection with
this Agreement or the transactions contemplated hereby or by reason of any
holder's having acquired any Note, including without limitation costs and
expenses incurred in any bankruptcy case, and in connection with any amendment
or requested amendment of, or waiver or consent or requested waiver or consent
under or with respect to, this Agreement or any of the other Transaction
Documents, whether or not the same shall become effective. The obligations of
the Company under this Section shall survive the payment or exchange of the
Notes.
In furtherance of the foregoing, on the Closing Date the Company will
pay or cause to be paid the reasonable fees and disbursements of your special
counsel which are reflected in the statement of such special counsel submitted
to the Company on or prior to the Closing Date, subject to the limitation set
forth in Section 4.5. The Company will also pay, promptly upon receipt of
supplemental statements therefor, additional fees, if any, and disbursements of
such special counsel in connection with the transactions hereby contemplated
(including disbursements unposted as of the Closing Date), subject to the
limitation set forth in Section 4.5.
18.2. RELIANCE ON AND SURVIVAL OF REPRESENTATIONS.
All agreements, representations and warranties of the Company or any
Subsidiary contained herein and in any
<PAGE> 37
34
certificates or other instruments delivered pursuant to this Agreement shall (A)
be deemed to have been relied upon by you, notwithstanding any investigation
heretofore or hereafter made by you or on your behalf, and (B) shall survive the
execution and delivery of this Agreement and the delivery of the Notes to you,
and shall continue in effect so long as any Note is outstanding and thereafter
as provided in Sections 17, 18.1 and 18.6.
18.3. SUCCESSORS AND ASSIGNS.
This Agreement shall bind and inure to the benefit of and be
enforceable by the Company and its permitted successors and assigns hereunder,
you and your successors and assigns, and, in addition, shall inure to the
benefit of and be enforceable by all holders from time to time of the Notes,
provided that the benefits of Sections 6 and 15 shall be limited as provided
therein.
18.4. COMMUNICATIONS.
Except as otherwise specifically provided herein, all notices and
other communications provided for in this Agreement shall be in writing and
shall be sent by confirmed facsimile transmission (hard copy to be sent by
overnight mail on the date of such transmission) or delivered by hand or sent by
a reputable overnight courier service prepaid (with confirmation of receipt)
A. if to Parent or Texas-Sterling, at the address set forth at the
beginning of this Agreement, to the attention of the Chief Financial
Officer, or at such other address as Parent or Texas-Sterling may hereafter
designate by notice to you and to each other holder of a Note at the time
outstanding,
B. if to you, at your address as set forth in Schedule I or at such
other address as you may hereafter designate by notice to the Company, or
C. if to any other holder of a Note, at the address of such holder as
it appears on the Note Register.
Any notice or other communication herein provided to be given to the
holders of all outstanding Notes shall be deemed to have been duly given if sent
as aforesaid to each of the registered holders of the Notes at the time
outstanding at the address for such purpose of such holder as it appears on
Schedule I or the Note Register, as the case may be.
18.5. CONSENT TO JURISDICTION; SERVICE OF PROCESS; WAIVER OF JURY TRIAL.
A. Each of the parties hereto irrevocably submits to the non-exclusive
in personam jurisdiction of any New York State
<PAGE> 38
35
or federal court sitting in the Borough of Manhattan, The City of New York, over
any suit, action or proceeding arising out of or relating to this Agreement or
the other Transaction Documents. To the fullest extent permitted by applicable
law, each of the parties hereto irrevocably waives and agrees not to assert, by
way of motion, as a defense or otherwise, any claim that it is not subject to
the in personam jurisdiction of any such court, any objection that it may now or
hereafter have to the laying of the venue of any such suit, action or proceeding
brought in any such court and any claim that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum.
B. Each of the parties hereto consents to process being served in any
suit, action or proceeding of the nature referred to in Subsection A above by
mailing a copy thereof by registered or certified mail, postage prepaid, return
receipt requested, to the Company at its address specified in Section 18.4 or at
such other address of which you shall then have been notified pursuant to said
Section. Each of the parties hereto agrees that such service upon receipt (1)
shall be deemed in every respect effective service of process upon it in any
such suit, action or proceeding and (2) shall, to the fullest extent permitted
by applicable law, be taken and held to be valid personal service upon and
personal delivery to the Company. Notices hereunder shall be conclusively
presumed received as evidenced by a delivery receipt furnished by the United
States Postal Service or any reputable commercial delivery service.
C. Nothing in this Section 18.5 shall affect the right of any party to
serve process in any manner permitted by law, or limit any right that any party
may have to bring proceedings in the courts of any appropriate jurisdiction or
to enforce in any lawful manner a judgment obtained in one jurisdiction in any
other jurisdiction.
D. THE PARTIES HERETO WAIVE TRIAL BY JURY IN ANY ACTION BROUGHT ON OR
WITH RESPECT TO THIS AGREEMENT, THE NOTES OR ANY OTHER DOCUMENT EXECUTED IN
CONNECTION HEREWITH OR THEREWITH.
18.6. INDEMNIFICATION.
The Company agrees, to the fullest extent permitted by applicable law,
to indemnify, exonerate and hold you and each of your officers, directors,
employees and agents (collectively the "INDEMNITEES" and individually an
"INDEMNITEE") free and harmless from and against any and all actions, causes of
action, suits, losses, liabilities and damages, and expenses in connection
therewith, including without limitation reasonable counsel fees and
disbursements (collectively the "INDEMNIFIED LIABILITIES") incurred by the
Indemnitees or any of them as a result of, or arising out of, or relating to,
any transaction financed or to be
<PAGE> 39
36
financed in whole or in part directly or indirectly with proceeds from the sale
of any of the Notes or the execution, delivery, performance or enforcement of
this Agreement, any other Transaction Document or any instrument contemplated
hereby by any of the Indemnitees, except as to any Indemnitee for any such
Indemnified Liabilities arising on account of such Indemnitee's gross negligence
or willful misconduct; and if and to the extent the foregoing undertaking may be
unenforceable for any reason, the Company agrees to make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The obligations of the
Company under this Section shall survive payment or exchange of the Notes.
18.7. GOVERNING LAW.
This Agreement and the Notes shall be governed by and construed in
accordance with the laws of the State of New York, without regard to
conflict-of-law principles.
18.8. HEADINGS.
The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect any of the terms hereof.
18.9. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
<PAGE> 40
If you are in agreement with the foregoing, please sign the form of
acceptance in the space below provided, whereupon this Agreement shall become a
binding agreement between you and the Company.
Very truly yours,
STERLING CONSTRUCTION COMPANY,
a Michigan corporation
By /s/ Patrick Manning
---------------------
Name: Patrick T. Manning
Title:
STERLING CONSTRUCTION COMPANY,
a Delaware corporation
By: /s/ Patrick Manning
---------------------
Name: Patrick T. Manning
Title:
The foregoing Agreement is
hereby accepted as of the
date first above written.
OAKHURST TECHNOLOGY, INC.
By: /s/ Robert M. Davies
---------------------
Name: Robert M. Davies
Title: Chief Executive Officer
<PAGE> 41
I-1
SCHEDULE I
Schedule I shows the names and addresses of the purchasers under the
foregoing Note Purchase Agreement and the other agreements referred to in
Section 2.1 thereof and the principal amount of Notes to be purchased by each.
<TABLE>
<CAPTION>
Name and Address of Purchaser Principal Amount
- -------------------------------- ----------------
<S> <C>
Oakhurst Technology, Inc. $1,330,000
3365 Spruce Lane
Grapevine, Texas 76051
J O Capital Management Ltd A/c A $40,000
Registered Holder:
RBSI Custody Bank Limited
P.O. Box 451, Liberte House
19-23 La Motte Street, St Helier
Jersey, Channel Islands, JE4 5RL
United Kingdom
J O Capital Management Ltd A/c B $700,000
Registered Holder:
RBSI Custody Bank Limited
P.O. Box 451, Liberte House
19-23 La Motte Street, St Helier
Jersey, Channel Islands, JE4 5RL
United Kingdom
JO Capital Management Ltd A/c C $100,000
Registered Holder:
Hare & Co. A/c Bank of New York
Securities Department
Bank of New York
One Wall Street
New York, NY 10286
Oryx International Growth Fund $1,500,000
Registered Holder:
Hare & Co. A/c Bank of New York
Securities Department
Bank of New York
One Wall Street
New York, NY 10286
North Atlantic Smaller Companies
Investment Trust Plc $160,000
Registered Holder:
Banco Nominees (Guernsey) Limited
PO Box 208, Bermuda House
St Julians Avenue
St Peter Port, Guernsey
</TABLE>
<PAGE> 42
I-2
<TABLE>
<S> <C>
Invesco English & International Trust Plc $170,000
Registered Holder:
Chase Nominees Limited
A/c Invesco English & International Trust Plc
Chase Manhattan Bank
4 New York Plaza, 11th Floor
New York, NY 10004
</TABLE>
<PAGE> 43
II-1
SCHEDULE II
FINANCIAL COVENANTS
I. Covenants
A. Maintain Net Worth. On a consolidated statement basis, Parent and
its Subsidiaries shall maintain a Tangible Net Worth plus Subordinated
Debt of not less than $4,750,000 plus one hundred percent (100%) of
the Net Income earned after January 1, 1999 plus $3,500,000.
B. Maintain Debt Ratio. On a consolidated statement basis, Parent and
its Subsidiaries shall maintain a ratio of Debt to Tangible Net Worth
plus Subordinated Debt of not more than 3.125 to 1.0.
C. Maintain Current Ratio. On a consolidated statement basis, Parent
and its Subsidiaries shall maintain a ratio of Current Assets to
Current Liabilities of not less than 0.85 to 1.0.
D. Maintain Cash Flow Coverage Ratio. Parent and its Subsidiaries
shall maintain a Cash Flow Coverage Ratio of not less than 0.9 to 1.0,
verified monthly on a rolling twelve-month basis. For purposes hereof,
"Cash Flow Coverage Ratio" shall mean Net Income, plus depreciation
divided by the sum of the current maturities of all long-term debt
plus twenty-five percent (25%) of the outstanding principal on the
Bank Note.
II. Definitions. In addition to the definitions provided elsewhere in this
Agreement, the following terms shall have the respective meanings set forth
below whenever used in this Schedule II:
"Bank Note" shall mean the promissory note evidencing the credit
available to Texas-Sterling pursuant to the Revolving Credit
Agreement, dated March 13, 1996, between Texas-Sterling and
Comerica-Bank-Texas (as may be amended from time to time).
"Current Assets" shall mean, as of any applicable date of
determination, all cash, non-affiliated customer receivables (which
are not subject to any dispute), and United States government
securities and any other assets classified as current assets under
GAAP.
"Current Liabilities" shall mean, as of any applicable date of
determination, all liabilities of a Person that should be classified
as current in accordance with GAAP.
"Net Income" shall mean Parent and its Subsidiaries consolidated net
income after payment of all expenses, including all taxes.
<PAGE> 44
II-2
"Notes Receivable From Shareholders" shall mean any promissory notes
payable to Parent or any of its Subsidiaries from their shareholders.
"Subordinated Debt" shall mean the principal amount of indebtedness
evidenced by the Subordinated Stockholder Notes and the Notes.
"Tangible Net Worth" shall mean, as of any applicable date of
determination, the excess of the book value of all assets of a person
(other than Notes Receivable From Shareholders, patents, patent
rights, trademarks, trade names, franchises, copyrights, licenses,
goodwill, and similar intangible assets) after all appropriate
deductions (including, without limitation, reserves for doubtful
receivables, obsolescence, depreciation and amortization), all as
determined in accordance with GAAP, less all Debt of such person.
<PAGE> 45
EXHIBIT A
[FORM OF NOTE]
This security has not been registered under the Securities Act of 1933, as
amended, or applicable state securities laws, and this security may not be sold,
transferred or otherwise disposed of in the absence of such registration or an
exemption therefrom under said Act and laws and the respective rules and
regulations thereunder. This security and the transfer hereof are also subject
to the provisions of and restrictions contained in a Note Purchase Agreement
which the Company will furnish to the holder of this security upon request.
The security evidenced hereby is subject to the terms of that certain
Stockholders Agreement, dated as of January 19, 1999, by and among the Company,
Parent and certain investors identified therein, including certain restrictions
on transfer and voting. A copy of this Agreement has been filed with the
Secretary of the Company and is available upon request.
STERLING CONSTRUCTION COMPANY
8% CONVERTIBLE SENIOR SUBORDINATED NOTE DUE 2005
No. R-
$
-------------
FOR VALUE RECEIVED, the undersigned STERLING CONSTRUCTION COMPANY (the
"COMPANY"), a Michigan corporation, hereby promises to pay
__________________________________ ("HOLDER"), or registered assigns, the
principal sum of ____________ DOLLARS on December 31, 2005, with interest
(computed on the basis of actual days elapsed and a year of 360 days) (a) from
the date hereof on the unpaid balance thereof, payable quarterly on each
Interest Payment Date, at a rate per annum equal to 8.0% until the principal
hereof shall have become due and payable, and (b) on any overdue payment of
principal or (to the extent permitted by applicable law) interest, and at all
times after the occurrence of and during the continuance of an Event of Default,
payable quarterly as aforesaid at a rate per annum from time to time equal to
10.0%, from the date of such default to and including the last day of the
Interest Period during which such default occurs and thereafter at a rate per
annum equal to 10.0%.
Payments of principal of, interest on and any premium with respect to
this Note are to be made in lawful money of the United States of America at the
principal office of Willkie Farr & Gallagher on behalf of the Holder at 787
Seventh Avenue, New York, New York, or at such other place in New York, New York
as shall have been designated by written notice to the Company.
<PAGE> 46
A-2
This Note is issued pursuant to the Note Purchase Agreement dated as
of January 19, 1999 (as from time to time amended, the "NOTE PURCHASE
AGREEMENT") between, the Company, STERLING CONSTRUCTION COMPANY, a Delaware
corporation ("PARENT"), and the holder named on the signature page thereto and
is entitled to the benefits thereof. This Note may be exchanged for shares of
Common Stock, par value $0.01 per share, of Parent on terms specified in the
Note Purchase Agreement.
Each holder of this Note acknowledges that it is subject to the terms
and conditions of the subordination provisions contained in Section 11 of the
Note Purchase Agreement, which provisions are for the benefit of the holders of
Senior Indebtedness as third-party beneficiaries.
This Note is a registered Note and, as provided in the Note Purchase
Agreement, upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note or Notes for a like aggregate principal amount will be
issued to, and registered in the name(s) of, the transferee(s). Prior to due
presentment for registration of transfer, the Company may treat the person in
whose name this Note is registered as the owner hereof for the purpose of
receiving payment and for all other purposes, and the Company will not be
affected by any notice to the contrary.
The Company will make required prepayments of principal on the Notes
at the times and in the amounts specified in the Note Purchase Agreement. This
Note may not otherwise be prepaid.
If an Event of Default occurs and is continuing, the principal of this
Note may be declared or otherwise become due and payable in the manner, at the
price and with the effect provided in the Note Purchase Agreement.
This Note shall be construed and enforced in accordance with, and the
rights of the Company and the holder hereof shall be governed by, the laws of
the State of New York, excluding choice-of-law principles of such law.
<PAGE> 47
A-3
Capitalized terms used herein and not otherwise defined shall have the
meanings ascribed thereto in the Note Purchase Agreement.
STERLING CONSTRUCTION COMPANY,
a Michigan corporation
By
-----------------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.27
AMENDED EMPLOYMENT AGREEMENT
ROBERT M. DAVIES & OAKHURST COMPANY, INC.
THIS AMENDED EMPLOYMENT AGREEMENT (this "Agreement") is made effective as of
this 29th day of December 1998 by and between OAKHURST COMPANY, INC. (the
"Company") and ROBERT M. DAVIES ("Mr. Davies") upon the following terms and
conditions:
1. BACKGROUND. The Company and Mr. Davies entered into an employment
agreement dated as of March 1, 1998 (the "Employment Agreement"). The
parties now wish to amend the Employment Agreement in its entirety by
this Agreement.
2. CONSIDERATION. The parties are entering into this Agreement for and in
consideration of the mutual covenants contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged.
3. TERM. The term of this Agreement and of Mr. Davies' employment shall
commence as of the date hereof and shall continue through and including
February 28, 2001 (the "Term") unless sooner terminated as provided in
Section 9, below.
4. SERVICES.
(a) Mr. Davies shall provide to the Company the services of a Chief
Executive Officer and shall if elected, serve as a director of the
Company and if appointed, shall serve as Chairman of the Board of
Directors.
(b) Mr. Davies shall devote such time to the rendering of such services
as he and a majority of the Board of Directors consider to be
appropriate and commensurate with the responsibilities of those
offices and he shall perform such services subject to the general
direction of the Board of Directors.
(c) No restrictions shall be placed on other activities of Mr. Davies
provided that such activities (i) are not competitive with those of
the Company or any of its affiliates; (ii) do not create a conflict
of interest for Mr. Davies; and (iii) do not interfere with the
fulfillment by Mr. Davies of his obligations under this Agreement.
5. THE BOARD OF DIRECTORS. For purposes of this Agreement, an action or
determination by "a majority of the Board of Directors" shall mean an
action or determination taken in the good faith exercise of their
discretion by more than half of the directors of the Company then in
office, but (i) with Mr. Davies abstaining from such vote and (ii)
excluding Mr. Davies from the count of the total number of directors then
in office.
6. SALARY. During the Term --
(a) The Company shall pay Mr. Davies a salary of five thousand dollars
($5,000) per month.
(b) Mr. Davies' salary shall be paid at the same time and in the same
installments as the salaries of other officers of the Company are
paid.
(c) Mr. Davies has currently voluntarily agreed to the deferral of 10%
of his salary since October 1, 1998. That deferred salary shall be
re-paid to him at such time as the Compensation Committee of the
Board of Directors determines that the Company's cash flow from its
Steel City Products and Dowling's subsidiaries is adequate to do so.
- -------------------------------------------------------------------------------
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<PAGE> 2
Robert M. Davies Amended Employment Agreement - continued
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7. BENEFITS. Mr. Davies shall be entitled to the same health and other
benefits as are made available to the Company's senior executives
generally and on the same basis.
8. BUSINESS EXPENSES; USE OF COMPANY EQUIPMENT; CAR ALLOWANCE.
(a) Mr. Davies shall be entitled to be reimbursed, or to the use of a
Company credit card, for reasonable business expenses incurred by
him in the performance of his duties and responsibilities hereunder,
including, but not limited to, travel from his office and/or
residence to the Company's facilities, all in accordance with
policies established for the Company by the Board of Directors from
time to time. Mr. Davies' Company credit card charges and expense
reports will be subject to review by the Audit Committee of the
Board of Directors.
(b) The Company shall make available in its discretion to Mr. Davies the
use of certain Company owned office equipment from time to time.
(c) In lieu of charging the Company for automobile travel expenses and
to avoid the attendant paper work resulting therefrom, the Company
shall pay Mr. Davies a fixed automobile usage fee of two hundred
fifty dollars ($250) per month and shall reimburse to Mr. Davies the
costs required to repair, maintain and operate one full-sized
automobile (other than the costs of gasoline consumed by the private
use of such automobile by Mr. Davies), including excise taxes, and
the costs of collision, fire, theft and liability insurance in
reasonable amounts and with reasonable deductibles.
9. TERMINATION.
(a) Termination By the Company. Mr. Davies' employment may be terminated
only by a majority of the Board of Directors and only as follows:
(i) For Cause (as defined below), by written notice to Mr.
Davies, in which event the Company shall pay to him so much
of his salary as was accrued, but not paid at the date of
termination.
(ii) Without Cause, by written notice to Mr. Davies, in which
event, all stock options then held by Mr. Davies shall
thereupon become exercisable in full, and the Company shall
pay to Mr. Davies his salary at the rate then in effect that
was accrued, but not paid at the date of termination, and
within fifteen (15) days of such termination, shall pay in a
lump sum his salary at the rate then in effect multiplied by
the greater of (1) twenty-four (24); or (2) the number of
whole calendar months remaining in the Term at the date the
notice of termination is given to Mr. Davies. After receipt
of such lump sum payment, upon the request of a majority of
the Board of Directors, Mr. Davies shall resign as a director
and officer of the Company and of any of its subsidiaries.
(iii) "Cause" shall mean any act or acts by Mr. Davies of
dishonesty or fraud or that constitute serious moral
turpitude; misconduct of a material nature or a material
breach in connection with the performance by him of his
responsibilities hereunder; or the failure by Mr. Davies for
a substantial period to devote adequate time to rendering the
services provided for hereunder (other than by reason of his
death or permanent disability.)
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Robert M. Davies Amended Employment Agreement - continued
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(iv) Upon a determination that because of a permanent disability,
Mr. Davies is no longer able to carry out his duties and
responsibilities hereunder, in which event the Company shall
give notice of such termination to Mr. Davies and shall
thereafter continue to pay him his salary at the rate then in
effect for a period of three (3) full calendar months.
(v) Upon the death of Mr. Davies, in which event the Company
shall pay to his legal representative so much of Mr. Davies'
salary as was accrued, but not paid at the date of his death.
(b) Termination By Mr. Davies.
(i) Mr. Davies may resign his employment on sixty (60) days'
prior written notice to the Company, in which event the
Company shall continue to pay him his salary at the rate then
in effect for such sixty-day period; provided however, that
in the event that Mr. Davies gives notice of his resignation
within sixty (60) days after a Change in Control of the
Company (as defined below), all stock options then held by
Mr. Davies shall thereupon become exercisable in full, and
the Company shall pay Mr. Davies the amount provided for
under Section 9(a)(ii), above, as if his employment had been
terminated by the Company without Cause on the date Mr.
Davies gave the Company notice of his resignation.
(ii) For purposes of this Section 9(b), a "Change in Control of
the Company" shall mean the acquisition after the date hereof
by a person, an entity or a group of persons or entities of
20% or more of the Company's voting securities (other than as
a result of the exercise by stockholders of rights under the
Company's Shareholders Rights Plan).
(iii) The Company may deem any such notice given by Mr. Davies as a
resignation by him, effective upon the giving of such notice,
of the Chairmanship of the Board of Directors and of any one
or more of the offices then held by him in the Company and
its subsidiaries.
10. CONFIDENTIAL INFORMATION.
(a) So long as Mr. Davies is an employee and/or director of the Company
and after any or all of such relationships terminate for whatever
reason, Mr. Davies shall (i) not disclose to any person or entity
Confidential Information (as defined below) except in the proper
performance of his duties and responsibilities or except as may be
expressly authorized by the Board of Directors of the Company; and
(ii) shall not use Confidential Information for his own benefit or
for the benefit of any person or entity other than the Company and
its subsidiaries.
(b) For purposes of this Agreement, "Confidential Information" is defined
as including trade secrets, customer names and lists, vendor names
and lists, business plans, marketing plans, non-public financial
data, product specifications and designs, the existence, nature,
substance, progress and results of research and development projects,
concepts, inventions, discoveries, formulae, processes, drawings,
documents, records, software, or any other information of the
Company, its parent or of any of their subsidiaries that is not
generally available, or any such information of any third party that
is held by the Company, its parent or any of their subsidiaries under
an obligation of confidentiality. Without limiting the generality of
the foregoing, it is understood and agreed that the intellectual
property, plans, methods and techniques of the Company or that were
disclosed to the Company by a third
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<PAGE> 4
Robert M. Davies Amended Employment Agreement - continued
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party that relate to the realization of the benefits of net loss
operating carryforwards are included within the term Confidential
Information.
(c) Mr. Davies's obligation of confidentiality shall not, however, relate
to any information --
(i) that is or becomes generally or widely known through no act or
fault of Mr. Davies;
(ii) that is received by Mr. Davies (without a breach of this or
any other agreement) from a third party with no restrictions
as to its disclosure; or
(iii) that is required to be disclosed pursuant to applicable law,
a court order or a judicial proceeding, including a
proceeding to enforce this Agreement.
11. NON-COMPETE OBLIGATIONS.
(a) Mr. Davies's obligations with respect to competing with the Company
and soliciting its employees shall be as follows:
(i) Mr. Davies shall not render services or advice, whether for
compensation or without compensation and whether as an
employee, officer, director, consultant, principal or
otherwise, to any person or organization that is competitive
with the Company's current aftermarket automobile parts and
supplies distribution business or with any planned business
of the Company as to which Mr. Davies was involved in the
planning within a radius of 200 miles of any facility of the
Company.
(ii) Mr. Davies shall not either directly or indirectly as agent
or otherwise in any manner solicit, influence or encourage
any customer, client or associate of the Company to take away
or to divert or direct its business to Mr. Davies or to any
person or entity by or with which Mr. Davies is employed,
associated, affiliated or otherwise related (other than the
Company).
(iii) Mr. Davies shall not recruit or otherwise solicit or induce
any person to terminate his or her employment or other
relationship with the Company.
(b) Mr. Davies's obligations under Section 11(a), above, shall continue
so long as he is an employee of the Company. Such obligations also
shall continue after the termination of his employment as follows:
(i) in the event of the termination of his employment for any
reason other than his voluntary resignation, for a period of
one (1) year after the date of such termination;
(ii) in the event of his voluntary resignation from the Company's
employ, until the later of (1) the expiration of one (1) year
after the date of such termination, or (2) February 28, 2002.
(c) For purposes of this Section 11, the word "Company" shall include
the Company and any subsidiary of the Company.
12. OUTSTANDING STOCK OPTION AGREEMENTS. Each outstanding stock option
agreement between Mr. Davies and the Company is hereby amended so that
from and after the date hereof any references in such option agreements
to the "Consulting Agreement" shall, from and after the date hereof,
constitute references to this Agreement.
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Robert M. Davies Amended Employment Agreement - continued
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13. PRORATION. To the extent that Mr. Davies' salary at the rate in effect
from time to time needs to be prorated for a period of less than a full
month, such salary shall be deemed earned on a daily basis and shall be
pro rated based on a 365-day year.
14. NOTICES. All notices required or permitted under this Agreement shall be
in writing and shall be deemed given to a party either (a) when hand
delivered to such party; (b) when deposited with a courier service with
instructions to provide next-business-day delivery and proof of delivery
to such party; or (c) when sent by facsimile transmission to such party
as follows:
If to the Company, at: Oakhurst Company, Inc.
3365 Spruce Lane
Grapevine, Texas 76051
Attention: General Counsel
Facsimile No.: (817) 416-0717
with a copy other
than by facsimile to Joel S. Lever, Esq.
Kurzman & Eisenberg
One North Broadway
White Plains, NY 10601
If to Mr. Davies at: Robert M. Davies
434 North Street
Greenwich, Connecticut 06830
Facsimile No.: (203) 325-8948
or to such other address of a party as that party shall notify the other
party in the manner provided herein.
15. ENTIRE AGREEMENT ETC.
(a) This Agreement contains the entire understanding of the parties;
supersedes the Employment Agreement in its entirety from and after
the date hereof; shall not be amended except by written agreement of
the parties signed by each of them; and shall be binding upon and
inure to the benefit of the parties and their successors, personal
representatives and permitted assigns. Because the obligations of
Mr. Davies hereunder are personal, this Agreement shall not be
assignable by him.
(b) Each provision of this Agreement shall be interpreted and enforced
without the aid of any canon, custom or rule of law requiring or
suggestion construction against the party drafting or causing the
drafting of such provision.
(c) No representation, affirmation of fact, course of prior dealings,
promise or condition in connection herewith or usage of the trade
not expressly incorporated herein shall be binding on the parties.
(d) The words "herein," "hereof," "hereunder," "hereby," "herewith" and
words of similar import when used in this Agreement shall be
construed to refer to this Agreement as a whole.
(e) The failure by a party to insist upon strict compliance with any
term, covenant or condition, or to exercise any right, contained
herein shall not be deemed a waiver of such term,
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<PAGE> 6
Robert M. Davies Amended Employment Agreement - continued
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covenant, condition or right; and no waiver or relinquishment of any
term, covenant, condition or right at any one or more times shall be
deemed a waiver or relinquishment thereof at any other time or times.
(f) The captions of the paragraphs herein are for convenience only and
shall not be used to construe or interpret this Agreement.
16. SEVERABILITY. If any provision or part of a provision of this Agreement is
finally declared to be invalid by any tribunal of competent jurisdiction,
such part shall be deemed automatically adjusted, if possible, to conform
to the requirements for validity, but, if such adjustment is not possible,
it shall be deemed deleted from this Agreement as though it had never been
included herein. In either case, the balance of any such provision and of
this Agreement shall remain in full force and effect. Notwithstanding the
foregoing, however, no provision shall be severed if it is clearly
apparent under the circumstances that either or both of the parties would
not have entered into this Agreement without such provision.
17. SURVIVAL. The termination of Mr. Davies' employment and/or this Agreement
shall not relieve Mr. Davies of his obligations under Section 10
("Confidential Information") or Section 11 ("Non-Compete Obligations")
hereof. In addition, any other obligations of the parties that by their
terms are to be performed or are to have continued effect after the
termination of Mr. Davies' employment or of this Agreement shall survive
such expiration or termination.
18. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Delaware without giving
effect to any choice of law or conflict of law provision or rule (whether
of the State of Delaware or of any other jurisdiction) that would cause
the application hereto of the laws of any jurisdiction other than the
State of Delaware.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as
of the date first set forth above.
OAKHURST COMPANY, INC.
By: /s/ Joel S. Lever /s/ Robert M. Davies
--------------------------- -------------------------
Joel S. Lever ROBERT M. DAVIES
For the Board of Directors
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Page 6 of 6
<PAGE> 1
EXHIBIT 10.28
EMPLOYMENT AGREEMENT
ROBERT M. DAVIES & OAKHURST TECHNOLOGY, INC.
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made effective as of this
29th day of December, 1998 by and between OAKHURST TECHNOLOGY, INC. (the
"Company") and ROBERT M. DAVIES ("Mr. Davies") upon the following terms and
conditions:
1. BACKGROUND. Mr. Davies is an employee of the Company's parent company.
With the anticipated acquisition by the Company of a substantial
interest in New Heights Recovery & Power, LLC the Company wishes to
employ Mr. Davies as Chief Executive Officer of the Company.
2. CONSIDERATION. The parties are entering into this Agreement for and in
consideration of the mutual covenants contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged.
3. TERM. The term of this Agreement and of Mr. Davies' employment shall
commence as of the date hereof and shall continue through and including
February 28, 2001 (the "Term") unless sooner terminated as provided in
Section 8, below.
4. SERVICES.
(a) Mr. Davies shall provide to the Company the services of a Chief
Executive Officer, shall if elected, serve as a director of the
Company, and if appointed, shall serve as Chairman of the Board of
Directors.
(b) Mr. Davies shall devote such time to the rendering of such services
as he and a majority of the Board of Directors consider to be
appropriate and commensurate with the responsibilities of those
offices and he shall perform such services subject to the general
direction of the Board of Directors.
(c) No restrictions shall be placed on other activities of Mr. Davies
provided that such activities (i) are not competitive with those of
the Company or any of its affiliates; (ii) do not create a conflict
of interest for Mr. Davies; and (iii) do not interfere with the
fulfillment by Mr. Hemsley of his obligations under this Agreement.
5. THE BOARD OF DIRECTORS. For purposes of this Agreement, an action or
determination by "a majority of the Board of Directors" shall mean an
action or determination taken in the good faith exercise of their
discretion by more than half of the directors of the Company then in
office, but (i) with Mr. Davies abstaining from such vote and (ii)
excluding Mr. Davies from the count of the total number of directors then
in office.
6. SALARY. During the Term --
(a) The Company shall pay Mr. Davies a salary of five thousand dollars
($5,000) per month with effect from December 1, 1998 notwithstanding
that such date precedes the date of this Agreement and the formation
of the Company.
(b) Mr. Davies' salary shall be paid at the same time and in the same
installments as the salaries of other officers of the Company are
paid.
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<PAGE> 2
Robert M. Davies OTI Employment Agreement - continued
- --------------------------------------------------------------------------------
7. BUSINESS EXPENSES; USE OF COMPANY EQUIPMENT; CAR ALLOWANCE.
(a) Mr. Davies shall be entitled to be reimbursed, or to the use of a
Company credit card, for reasonable business expenses incurred by him
in the performance of his duties and responsibilities hereunder,
including, but not limited to, travel from his office and/or
residence to the Company's facilities, all in accordance with
policies established for the Company by the Board of Directors from
time to time. Mr. Davies' Company credit card charges and expense
reports will be subject to review by the Board of Directors.
(b) The Company shall make available in its discretion to Mr. Davies the
use of certain Company owned office equipment from time to time.
(c) In lieu of charging the Company for automobile travel expenses and to
avoid the attendant paper work resulting therefrom, the Company shall
pay Mr. Davies a fixed automobile usage fee of two hundred fifty
dollars ($250) per month and shall reimburse to Mr. Davies one-half
(1/2) the costs required to repair, maintain and operate one
full-sized automobile (other than the costs of gasoline consumed by
the private use of such automobile by Mr. Davies), including excise
taxes, and the costs of collision, fire, theft and liability
insurance in reasonable amounts and with reasonable deductibles.
8. TERMINATION.
(a) Termination By the Company. Mr. Davies' employment may be
terminated only by a majority of the Board of Directors and only as
follows:
(i) For Cause (as defined below), by written notice to Mr. Davies,
in which event the Company shall pay to him so much of his
salary as was accrued, but not paid at the date of
termination.
(ii) Without Cause, by written notice to Mr. Davies, in which
event, all stock options then held by Mr. Davies shall
thereupon become exercisable in full, and the Company shall
pay to Mr. Davies his salary at the rate then in effect that
was accrued, but not paid at the date of termination, and
within fifteen (15) days of such termination, shall pay in a
lump sum his salary at the rate then in effect multiplied by
the greater of (1) twenty-four (24); or (2) the number of
whole calendar months remaining in the Term at the date the
notice of termination is given to Mr. Davies. After receipt of
such lump sum payment, upon the request of a majority of the
Board of Directors, Mr. Davies shall resign as a director and
officer of the Company and of any of its subsidiaries.
(iii) "Cause" shall mean any act or acts by Mr. Davies of dishonesty
or fraud or that constitute serious moral turpitude;
misconduct of a material nature or a material breach in
connection with the performance by him of his responsibilities
hereunder; or the failure by Mr. Davies for a substantial
period to devote adequate time to rendering the services
provided for hereunder (other than by reason of his death or
permanent disability.)
(iv) Upon a determination that because of a permanent disability,
Mr. Davies is no longer able to carry out his duties and
responsibilities hereunder, in which event the Company shall
give notice of such termination to Mr. Davies and shall
thereafter continue to pay him his salary at the rate then in
effect for a period of three (3) full calendar months.
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<PAGE> 3
Robert M. Davies OTI Employment Agreement - continued
- --------------------------------------------------------------------------------
(v) Upon the death of Mr. Davies, in which event the Company shall
pay to his legal representative so much of Mr. Davies' salary
as was accrued, but not paid at the date of his death.
(b) Termination By Mr. Davies.
(i) Mr. Davies may resign his employment on sixty (60) days' prior
written notice to the Company, in which event the Company
shall continue to pay him his salary at the rate then in
effect for such sixty-day period; provided however, that in
the event that Mr. Davies gives notice of his resignation
within sixty (60) days after a Change in Control of the
Company (as defined below), all stock options then held by Mr.
Davies shall thereupon become exercisable in full, and the
Company shall pay Mr. Davies the amount provided for under
Section 8(a)(ii), above, as if his employment had been
terminated by the Company without Cause on the date Mr. Davies
gave the Company notice of his resignation.
(ii) For purposes of this Section 8(b), a "Change in Control of the
Company" shall mean the acquisition after the date hereof by a
person, an entity or a group of persons or entities of 20% or
more of the voting securities of the Company's parent
corporation.
(iii) The Company may deem any such notice given by Mr. Davies as a
resignation by him, effective upon the giving of such notice,
of any one or more of the offices (including Chairmanship of
the Board of Directors) then held by him in the Company and
its subsidiaries.
9. CONFIDENTIAL INFORMATION.
(a) So long as Mr. Davies is an employee and/or director of the Company
and after any or all of such relationships terminate for whatever
reason, Mr. Davies shall (i) not disclose to any person or entity
Confidential Information (as defined below) except in the proper
performance of his duties and responsibilities or except as may be
expressly authorized by the Board of Directors of the Company; and
(ii) shall not use Confidential Information for his own benefit or
for the benefit of any person or entity other than the Company and
its subsidiaries.
(b) For purposes of this Agreement, "Confidential Information" is defined
as including trade secrets, customer names and lists, vendor names
and lists, business plans, marketing plans, non-public financial
data, product specifications and designs, the existence, nature,
substance, progress and results of research and development projects,
concepts, inventions, discoveries, formulae, processes, drawings,
documents, records, software, or any other information of the
Company, its parent or of any of their subsidiaries that is not
generally available, or any such information of any third party that
is held by the Company, its parent or any of their subsidiaries
under an obligation of confidentiality.
(c) Mr. Davies's obligation of confidentiality shall not, however, relate
to any information --
(i) that is or becomes generally or widely known through no act or
fault of Mr. Davies;
(ii) that is received by Mr. Davies (without a breach of this or
any other agreement) from a third party (other than the
Company's parent or an affiliate thereof) with no restrictions
as to its disclosure; or
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<PAGE> 4
Robert M. Davies OTI Employment Agreement - continued
- --------------------------------------------------------------------------------
(iii) that is required to be disclosed pursuant to applicable law, a
court order or a judicial proceeding, including a proceeding
to enforce this Agreement.
10. NON-COMPETE OBLIGATIONS.
(a) Mr. Davies's obligations with respect to competing with the Company
and soliciting its employees shall be as follows:
(i) Mr. Davies shall not render services or advice, whether for
compensation or without compensation and whether as an
employee, officer, director, consultant, principal or
otherwise, to any person or organization that is competitive
with the Company's business or with any planned business of
the Company as to which Mr. Davies was involved in the
planning within a radius of 200 miles of any facility of the
Company.
(ii) Mr. Davies shall not either directly or indirectly as agent or
otherwise in any manner solicit, influence or encourage any
customer, client or associate of the Company to take away or
to divert or direct its business to Mr. Davies or to any
person or entity by or with which Mr. Davies is employed,
associated, affiliated or otherwise related (other than the
Company).
(iii) Mr. Davies shall not recruit or otherwise solicit or induce
any person to terminate his or her employment or other
relationship with the Company.
(b) Mr. Davies's obligations under Section 10(a), above, shall continue
so long as he is an employee of the Company. Such obligations also
shall continue after the termination of his employment as follows:
(i) in the event of the termination of his employment for any
reason other than his voluntary resignation, for a period of
one (1) year after the date of such termination;
(ii) in the event of his voluntary resignation from the Company's
employ, until the later of (1) the expiration of one (1) year
after the date of such termination, or (2) February 28, 2002.
(c) For purposes of this Section 10, only, the word "Company" shall
include the Company, the Company's parent, any subsidiary of the
Company, and any entity in which the Company has a substantial
investment.
11. PRORATION. To the extent that Mr. Davies' salary at the rate in effect
from time to time needs to be prorated for a period of less than a full
month, such salary shall be deemed earned on a daily basis and shall be
pro rated based on a 365-day year.
12. NOTICES. All notices required or permitted under this Agreement shall be
in writing and shall be deemed given to a party either (a) when hand
delivered to such party; (b) when deposited with a courier service with
instructions to provide next-business-day delivery and proof of delivery
to such party; or (c) when sent by facsimile transmission to such party as
follows:
If to the Company, at: Oakhurst Technology, Inc.
3365 Spruce Lane
Grapevine, Texas 76051
Attention: General Counsel
Facsimile No.: (817) 416-0717
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<PAGE> 5
Robert M. Davies OTI Employment Agreement - continued
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with a copy other
than by facsimile to Joel S. Lever, Esq.
Kurzman & Eisenberg
One North Broadway
White Plains, NY 10601
If to Mr. Davies at: Robert M. Davies
434 North Street
Greenwich, Connecticut 06830
Facsimile No.: (203) 625-9841
or to such other address of a party as that party shall notify the other
party in the manner provided herein.
13. ENTIRE AGREEMENT ETC.
(a) This Agreement contains the entire understanding of the parties;
shall not be amended except by written agreement of the parties
signed by each of them; and shall be binding upon and inure to the
benefit of the parties and their successors, personal representatives
and permitted assigns. Because the obligations of Mr. Davies
hereunder are personal, this Agreement shall not be assignable by
him.
(b) Each provision of this Agreement shall be interpreted and enforced
without the aid of any canon, custom or rule of law requiring or
suggestion construction against the party drafting or causing the
drafting of such provision.
(c) No representation, affirmation of fact, course of prior dealings,
promise or condition in connection herewith or usage of the trade not
expressly incorporated herein shall be binding on the parties.
(d) The words "herein," "hereof," "hereunder," "hereby," "herewith" and
words of similar import when used in this Agreement shall be
construed to refer to this Agreement as a whole.
(e) The failure by a party to insist upon strict compliance with any
term, covenant or condition, or to exercise any right, contained
herein shall not be deemed a waiver of such term, covenant, condition
or right; and no waiver or relinquishment of any term, covenant,
condition or right at any one or more times shall be deemed a waiver
or relinquishment thereof at any other time or times.
(f) The captions of the paragraphs herein are for convenience only and
shall not be used to construe or interpret this Agreement.
14. SEVERABILITY. If any provision or part of a provision of this Agreement
is finally declared to be invalid by any tribunal of competent
jurisdiction, such part shall be deemed automatically adjusted, if
possible, to conform to the requirements for validity, but, if such
adjustment is not possible, it shall be deemed deleted from this
Agreement as though it had never been included herein. In either case,
the balance of any such provision and of this Agreement shall remain in
full force and effect. Notwithstanding the foregoing, however, no
provision shall be severed if it is clearly apparent under the
circumstances that either or both of the parties would not have entered
into this Agreement without such provision.
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Page 5 of 6
<PAGE> 6
Robert M. Davies OTI Employment Agreement - continued
- --------------------------------------------------------------------------------
15. SURVIVAL. The termination of Mr. Davies' employment and/or this Agreement
shall not relieve Mr. Davies of his obligations under Section 9
("Confidential Information") or Section 10 ("Non-Compete Obligations")
hereof. In addition, any other obligations of the parties that by their
terms are to be performed or are to have continued effect after the
termination of Mr. Davies' employment or of this Agreement shall survive
such expiration or termination.
16. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Delaware without giving
effect to any choice of law or conflict of law provision or rule (whether
of the State of Delaware or of any other jurisdiction) that would cause
the application hereto of the laws of any jurisdiction other than the
State of Delaware.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date first set forth above.
OAKHURST TECHNOLOGY, INC.
By: /s/ Ross Pirasteh /s/ Robert M. Davies
-------------------------- ------------------------
Ross Pirasteh ROBERT M. DAVIES
For the Board of Directors
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<PAGE> 1
EXHIBIT 10.29
EMPLOYMENT AGREEMENT
MAARTEN D. HEMSLEY& OAKHURST COMPANY, INC.
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made effective as of this 18th
day of December 1998 by and between OAKHURST COMPANY, INC. (the "Company") and
MAARTEN D. HEMSLEY ("Mr. Hemsley") upon the following terms and conditions:
1. BACKGROUND. Prior to the date hereof, Mr. Hemsley has consulted for the
Company pursuant to a consulting agreement between the Company and
Bryanston Management Limited dated as of March 1, 1998 (the "Consulting
Agreement"). On the date hereof, Mr. Hemsley was elected a director and
an officer of the Company. Accordingly, the parties now wish to terminate
the Consulting Agreement and to employ Mr. Hemsley pursuant to the terms
and conditions of this Agreement.
2. CONSIDERATION. The parties are entering into this Agreement for and in
consideration of the mutual covenants contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged.
3. TERM. The term of this Agreement and of Mr. Hemsley's employment shall
commence as of the date hereof and shall continue through and including
February 28, 2001 (the "Term") unless sooner terminated as provided in
Section 9, below.
4. SERVICES.
(a) Mr. Hemsley shall provide to the Company the services of a
President, Chief Operating Officer and Chief Financial Officer and
shall if elected, serve as a director of the Company.
(b) In the event that for any reason Mr. Hemsley is not elected a
director of the Company and as a result is not eligible to be
President of the Company, Mr. Hemsley shall perform such other tasks
and responsibilities consonant with his experience and abilities as
the Board of Directors shall reasonably request.
(c) Mr. Hemsley shall devote such time to the rendering of such services
as he and a majority of the Board of Directors consider to be
appropriate and commensurate with the responsibilities of those
offices.
(d) No restrictions shall be placed on other activities of Mr. Hemsley
provided that such activities (i) are not competitive with those of
the Company or any of its affiliates; (ii) do not create a conflict
of interest for Mr. Hemsley; and (iii) do not interfere with the
fulfillment by Mr. Hemsley of his obligations under this Agreement.
5. THE BOARD OF DIRECTORS. For purposes of this Agreement, an action or
determination by "a majority of the Board of Directors" shall mean an
action or determination taken in the good faith exercise of their
discretion by more than half of the directors of the Company then in
office, but (i) with Mr. Hemsley abstaining from such vote and (ii)
excluding Mr. Hemsley from the count of the total number of directors
then in office.
6. SALARY. During the Term --
(a) The Company shall pay Mr. Hemsley a salary of seven thousand
eighty-four dollars ($7,084) per month.
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Maarten D. Hemsley Employment Agreement - continued
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(b) Mr. Hemsley's salary shall be paid at the same time and in the same
installments as the salaries of other officers of the Company are
paid.
(c) Mr. Hemsley has currently voluntarily agreed to the deferral of 10%
of his salary since October 1, 1998. That deferred salary shall be
re-paid to him at such time as the Compensation Committee of the
Board of Directors determines that the Company's cash flow from its
Steel City Products and Dowling's Fleet Service subsidiaries is
adequate to do so.
7. BUSINESS EXPENSES; USE OF COMPANY EQUIPMENT; CAR ALLOWANCE.
(a) Mr. Hemsley shall be entitled to be reimbursed, or to the use of a
Company credit card, for reasonable business expenses incurred by
him in the performance of his duties and responsibilities hereunder,
including, but not limited to, travel from his office and/or
residence to the Company's facilities, all in accordance with
policies established for the Company by the Board of Directors from
time to time. Mr. Hemsley's Company credit card charges and expense
reports will be subject to review by the Chief Executive Officer of
the Company.
(b) The Company shall make available in its discretion to Mr. Hemsley
the use of certain Company-owned office equipment from time to time.
(c) In lieu of charging the Company for automobile travel expenses and
to avoid the attendant paper work resulting therefrom, the Company
shall pay Mr. Hemsley a fixed automobile usage fee of two hundred
fifty dollars ($250) per month and shall reimburse to Mr. Hemsley
one-half (1/2) the costs required to repair, maintain and operate
one full-sized automobile (other than the costs of gasoline consumed
by the private use of such automobile by Mr. Hemsley), including
excise taxes, and the costs of collision, fire, theft and liability
insurance in reasonable amounts and with reasonable deductibles.
8. BENEFITS. Mr. Hemsley shall be entitled to the same health and other
benefits as are made available to the Company's senior executives
generally and on the same basis. The Company shall also reimburse to Mr.
Hemsley one-half (1/2) of the premiums for the long term disability
insurance coverage maintained by Mr. Hemsley.
9. TERMINATION.
(a) Termination By the Company. Mr. Hemsley's employment may be
terminated only by a majority of the Board of Directors and only as
follows:
(i) For Cause (as defined below), by written notice to Mr.
Hemsley, in which event the Company shall pay to him so much
of his salary as was accrued, but not paid at the date of
termination.
(ii) Without Cause, by written notice to Mr. Hemsley, in which
event, all stock options then held by Mr. Hemsley shall
thereupon become exercisable in full, and the Company shall
pay to Mr. Hemsley his salary at the rate then in effect that
was accrued, but not paid at the date of termination, and
within fifteen (15) days of such termination, shall pay in a
lump sum his salary at the rate then in effect multiplied by
the greater of (1) twenty-four (24); or (2) the number of
whole calendar months remaining in the Term at the date the
notice of termination is given to Mr. Hemsley.
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Maarten D. Hemsley Employment Agreement - continued
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After receipt of such lump sum payment, upon the request of a
majority of the Board of Directors, Mr. Hemsley shall resign
as a director and officer of the Company and of any of its
subsidiaries.
(iii) "Cause" shall mean any act or acts by Mr. Hemsley of
dishonesty or fraud or that constitute serious moral
turpitude; misconduct of a material nature or a material
breach in connection with the performance by him of his
responsibilities hereunder; or the failure by Mr. Hemsley for
a substantial period to devote adequate time to rendering the
services provided for hereunder (other than by reason of his
death or permanent disability.)
(iv) Upon a determination that because of a permanent disability,
Mr. Hemsley is no longer able to carry out his duties and
responsibilities hereunder, in which event the Company shall
give notice of such termination to Mr. Hemsley and shall
thereafter continue to pay him his salary at the rate then in
effect for a period of three (3) full calendar months.
(v) Upon the death of Mr. Hemsley, in which event the Company
shall pay to his legal representative so much of Mr.
Hemsley's salary as was accrued, but not paid at the date of
his death.
(b) Termination By Mr. Hemsley.
(i) Mr. Hemsley may resign his employment on sixty (60) days'
prior written notice to the Company, in which event the
Company shall continue to pay him his salary at the rate then
in effect for such sixty-day period; provided however, that
in the event that Mr. Hemsley gives notice of his resignation
within sixty (60) days after a Change in Control of the
Company (as defined below), all stock options then held by
Mr. Hemsley shall thereupon become exercisable in full, and
the Company shall pay Mr. Hemsley the amount provided for
under Section 9(a)(ii), above, as if his employment had been
terminated by the Company without Cause on the date Mr.
Hemsley gave the Company notice of his resignation.
(ii) For purposes of this Section 9(b), a "Change in Control of
the Company" shall mean the acquisition after the date hereof
by a person, an entity or a group of persons or entities of
20% or more of the Company's voting securities (other than as
a result of the exercise by stockholders of rights under the
Company's Shareholders Rights Plan).
(iii) The Company may deem any such notice given by Mr. Hemsley as
a resignation by him, effective upon the giving of such
notice, of any one or more of the offices then held by him in
the Company and its subsidiaries.
10. CONFIDENTIAL INFORMATION.
(a) So long as Mr. Hemsley is an employee and/or director of the Company
and after any or all of such relationships terminate for whatever
reason, Mr. Hemsley shall (i) not disclose to any person or entity
Confidential Information (as defined below) except in the proper
performance of his duties and responsibilities or except as may be
expressly authorized by the Board of Directors of the Company; and
(ii) shall not use Confidential Information for his own benefit or
for the benefit of any person or entity other than the Company and
its subsidiaries.
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Maarten D. Hemsley Employment Agreement - continued
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(b) For purposes of this Agreement, "Confidential Information" is
defined as including trade secrets, customer names and lists, vendor
names and lists, business plans, marketing plans, non-public
financial data, product specifications and designs, the existence,
nature, substance, progress and results of research and development
projects, concepts, inventions, discoveries, formulae, processes,
drawings, documents, records, software, or any other information of
the Company, its parent or of any of their subsidiaries that is not
generally available, or any such information of any third party that
is held by the Company, its parent or any of their subsidiaries
under an obligation of confidentiality. Without limiting the
generality of the foregoing, it is understood and agreed that the
intellectual property, plans, methods and techniques of the Company
or that were disclosed to the Company by a third party that relate
to the realization of the benefits of net loss operating
carryforwards are included within the term Confidential Information.
(c) Mr. Hemsley's obligation of confidentiality shall not, however,
relate to any information --
(i) that is or becomes generally or widely known through no act
or fault of Mr. Hemsley;
(ii) that is received by Mr. Hemsley (without a breach of this or
any other agreement) from a third party with no restrictions
as to its disclosure; or
(iii) that is required to be disclosed pursuant to applicable law,
a court order or a judicial proceeding, including a
proceeding to enforce this Agreement.
11. NON-COMPETE OBLIGATIONS.
(a) Mr. Hemsley's obligations with respect to competing with the Company
and soliciting its employees shall be as follows:
(i) Mr. Hemsley shall not render services or advice, whether for
compensation or without compensation and whether as an
employee, officer, director, consultant, principal or
otherwise, to any person or organization that is competitive
with the Company's current aftermarket automobile parts and
supplies distribution business or with any planned business
of the Company as to which Mr. Hemsley was involved in the
planning within a radius of 200 miles of any facility of the
Company.
(ii) Mr. Hemsley shall not either directly or indirectly as agent
or otherwise in any manner solicit, influence or encourage
any customer, client or associate of the Company to take away
or to divert or direct its business to Mr. Hemsley or to any
person or entity by or with which Mr. Hemsley is employed,
associated, affiliated or otherwise related (other than the
Company).
(iii) Mr. Hemsley shall not recruit or otherwise solicit or induce
any person to terminate his or her employment or other
relationship with the Company.
(b) Mr. Hemsley's obligations under Section 11(a), above, shall continue
so long as he is an employee of the Company. Such obligations also
shall continue after the termination of his employment as follows:
(i) in the event of the termination of his employment for any
reason other than his voluntary resignation, for a period of
one (1) year after the date of such termination;
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Maarten D. Hemsley Employment Agreement - continued
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(ii) in the event of his voluntary resignation from the Company's
employ, until the later of (1) the expiration of one (1) year
after the date of such termination, or (2) February 28, 2002.
(c) For purposes of this Section 11, the word "Company" shall include
the Company and any subsidiary of the Company.
12. PRORATION. To the extent that Mr. Hemsley's salary at the rate in effect
from time to time needs to be prorated for a period of less than a full
month, such salary shall be deemed earned on a daily basis and shall be
pro rated based on a 365-day year.
13. NOTICES. All notices required or permitted under this Agreement shall be
in writing and shall be deemed given to a party either (a) when hand
delivered to such party; (b) when deposited with a courier service with
instructions to provide next-business-day delivery and proof of delivery
to such party; or (c) when sent by facsimile transmission to such party
as follows:
If to the Company, at: Oakhurst Company, Inc.
3365 Spruce Lane
Grapevine, Texas 76051
Attention: General Counsel
Facsimile No.: (817) 416-0717
with a copy other
than by facsimile to Joel S. Lever, Esq.
Kurzman & Eisenberg
One North Broadway
White Plains, NY 10601
If to Mr. Hemsley at: Maarten D. Hemsley
82 Powder Point Avenue
Duxbury, Massachusetts 02332
Facsimile No.: (781) 934-0843
or to such other address of a party as that party shall notify the other
party in the manner provided herein.
14. ENTIRE AGREEMENT ETC.
(a) This Agreement contains the entire understanding of the parties;
shall not be amended except by written agreement of the parties
signed by each of them; and shall be binding upon and inure to the
benefit of the parties and their successors, personal
representatives and permitted assigns. Because the obligations of
Mr. Hemsley hereunder are personal, this Agreement shall not be
assignable by him.
(b) Each provision of this Agreement shall be interpreted and enforced
without the aid of any canon, custom or rule of law requiring or
suggestion construction against the party drafting or causing the
drafting of such provision.
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Maarten D. Hemsley Employment Agreement - continued
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(c) No representation, affirmation of fact, course of prior dealings,
promise or condition in connection herewith or usage of the trade
not expressly incorporated herein shall be binding on the parties.
(d) The words "herein," "hereof," "hereunder," "hereby," "herewith" and
words of similar import when used in this Agreement shall be
construed to refer to this Agreement as a whole.
(e) The failure by a party to insist upon strict compliance with any
term, covenant or condition, or to exercise any right, contained
herein shall not be deemed a waiver of such term, covenant,
condition or right; and no waiver or relinquishment of any term,
covenant, condition or right at any one or more times shall be
deemed a waiver or relinquishment thereof at any other time or
times.
(f) The captions of the paragraphs herein are for convenience only and
shall not be used to construe or interpret this Agreement.
15. SEVERABILITY. If any provision or part of a provision of this Agreement
is finally declared to be invalid by any tribunal of competent
jurisdiction, such part shall be deemed automatically adjusted, if
possible, to conform to the requirements for validity, but, if such
adjustment is not possible, it shall be deemed deleted from this
Agreement as though it had never been included herein. In either case,
the balance of any such provision and of this Agreement shall remain in
full force and effect. Notwithstanding the foregoing, however, no
provision shall be severed if it is clearly apparent under the
circumstances that either or both of the parties would not have entered
into this Agreement without such provision.
16. SURVIVAL. The termination of Mr. Hemsley's employment and/or this
Agreement shall not relieve Mr. Hemsley of his obligations under Section
10 ("Confidential Information") or Section 11 ("Non-Compete Obligations")
hereof. In addition, any other obligations of the parties that by their
terms are to be performed or are to have continued effect after the
termination of Mr. Hemsley's employment or of this Agreement shall
survive such expiration or termination.
17. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Delaware without giving
effect to any choice of law or conflict of law provision or rule (whether
of the State of Delaware or of any other jurisdiction) that would cause
the application hereto of the laws of any jurisdiction other than the
State of Delaware.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as
of the date first set forth above.
OAKHURST COMPANY, INC.
By: /s/ Joel S. Lever /s/ Maarten D. Hemsley
-------------------------------- ------------------------------------
Joel S. Lever MAARTEN D. HEMSLEY
For the Board of Directors
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Maarten D. Hemsley Employment Agreement - continued
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CONSENT
The undersigned, BRYANSTON MANAGEMENT LIMITED, hereby consents to the
cancellation effective December 18, 1998 of that certain Consulting
Agreement with the Company dated as of March 1, 1998 on the condition
that the fees payable thereunder are prorated through such date and all
reimbursable expenses incurred thereunder prior to such date are
reimbursed in due course.
BRYANSTON MANAGEMENT LIMITED
By: /s/ Maarten D. Hemsley
------------------------------------
Maarten D. Hemsley, President
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<PAGE> 1
EXHIBIT 10.30
EMPLOYMENT AGREEMENT
MAARTEN D. HEMSLEY & OAKHURST TECHNOLOGY, INC.
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made effective as of this 1st
day of December, 1998 by and between OAKHURST TECHNOLOGY, INC. (the "Company")
and MAARTEN D. HEMSLEY ("Mr. Hemsley") upon the following terms and conditions:
1. BACKGROUND. Mr. Hemsley is an employee of the Company's parent company. With
the anticipated acquisition by the Company of a substantial interest in New
Heights Recovery & Power, LLC the Company wishes to employ Mr. Hemsley as
President, Chief Operating Officer and Chief Financial Officer of the
Company.
2. CONSIDERATION. The parties are entering into this Agreement for and in
consideration of the mutual covenants contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged.
3. TERM. The term of this Agreement and of Mr. Hemsley's employment shall
commence as of the date hereof and shall continue through and including
February 28, 2001 (the "Term") unless sooner terminated as provided in
Section 8, below.
4. SERVICES.
(a) Mr. Hemsley shall provide to the Company the services of a President,
Chief Operating Officer and Chief Financial Officer and shall if
elected, serve as a director of the Company.
(b) Mr. Hemsley shall devote such time to the rendering of such services as
he and a majority of the Board of Directors consider to be appropriate
and commensurate with the responsibilities of those offices.
(c) No restrictions shall be placed on other activities of Mr. Hemsley
provided that such activities (i) are not competitive with those of the
Company or any of its affiliates; (ii) do not create a conflict of
interest for Mr. Hemsley; and (iii) do not interfere with the
fulfillment by Mr. Hemsley of his obligations under this Agreement.
5. THE BOARD OF DIRECTORS. For purposes of this Agreement, an action or
determination by "a majority of the Board of Directors" shall mean an action
or determination taken in the good faith exercise of their discretion by
more than half of the directors of the Company then in office, but (i) with
Mr. Hemsley abstaining from such vote and (ii) excluding Mr. Hemsley from
the count of the total number of directors then in office.
6. SALARY. During the Term --
(a) The Company shall pay Mr. Hemsley a salary of three thousand three
hundred thirty-four dollars ($3,334) per month with effect from December
1, 1998 notwithstanding that such date precedes the date of this
Agreement and the formation of the Company.
(b) Mr. Hemsley's salary shall be paid at the same time and in the same
installments as the salaries of other officers of the Company are paid.
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Maarten D. Hemsley OTI Employment Agreement - continued
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7. BUSINESS EXPENSES; USE OF COMPANY EQUIPMENT; CAR ALLOWANCE.
(a) Mr. Hemsley shall be entitled to be reimbursed, or to the use of a
Company credit card, for reasonable business expenses incurred by him in
the performance of his duties and responsibilities hereunder, including,
but not limited to, travel from his office and/or residence to the
Company's facilities, all in accordance with policies established for
the Company by the Board of Directors from time to time. Mr. Hemsley's
Company credit card charges and expense reports will be subject to
review by the Board of Directors.
(b) The Company shall make available in its discretion to Mr. Hemsley the
use of certain Company owned office equipment from time to time.
(c) In lieu of charging the Company for automobile travel expenses and to
avoid the attendant paper work resulting therefrom, the Company shall
pay Mr. Hemsley a fixed automobile usage fee of two hundred fifty
dollars ($250) per month and shall reimburse to Mr. Hemsley one-half
(1/2) the costs required to repair, maintain and operate one full-sized
automobile (other than the costs of gasoline consumed by the private use
of such automobile by Mr. Hemsley), including excise taxes, and the
costs of collision, fire, theft and liability insurance in reasonable
amounts and with reasonable deductibles.
8. TERMINATION.
(a) Termination By the Company. Mr. Hemsley's employment may be terminated
only by a majority of the Board of Directors and only as follows:
(i) For Cause (as defined below), by written notice to Mr. Hemsley, in
which event the Company shall pay to him so much of his salary as
was accrued, but not paid at the date of termination.
(ii) Without Cause, by written notice to Mr. Hemsley, in which event,
all stock options then held by Mr. Hemsley shall thereupon become
exercisable in full, and the Company shall pay to Mr. Hemsley his
salary at the rate then in effect that was accrued, but not paid
at the date of termination, and within fifteen (15) days of such
termination, shall pay in a lump sum his salary at the rate then
in effect multiplied by the greater of (1) twenty-four (24); or
(2) the number of whole calendar months remaining in the Term at
the date the notice of termination is given to Mr. Hemsley. After
receipt of such lump sum payment, upon the request of a majority
of the Board of Directors, Mr. Hemsley shall resign as a director
and officer of the Company and of any of its subsidiaries.
(iii) "Cause" shall mean any act or acts by Mr. Hemsley of dishonesty or
fraud or that constitute serious moral turpitude; misconduct of a
material nature or a material breach in connection with the
performance by him of his responsibilities hereunder; or the
failure by Mr. Hemsley for a substantial period to devote adequate
time to rendering the services provided for hereunder (other than
by reason of his death or permanent disability.)
(iv) Upon a determination that because of a permanent disability, Mr.
Hemsley is no longer able to carry out his duties and
responsibilities hereunder, in which event the Company shall give
notice of such termination to Mr. Hemsley and shall thereafter
continue to
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Maarten D. Hemsley OTI Employment Agreement - continued
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pay him his salary at the rate then in effect for a period of
three (3) full calendar months.
(v) Upon the death of Mr. Hemsley, in which event the Company shall
pay to his legal representative so much of Mr. Hemsley's salary as
was accrued, but not paid at the date of his death.
(b) Termination By Mr. Hemsley.
(i) Mr. Hemsley may resign his employment on sixty (60) days' prior
written notice to the Company, in which event the Company shall
continue to pay him his salary at the rate then in effect for such
sixty-day period; provided however, that in the event that Mr.
Hemsley gives notice of his resignation within sixty (60) days
after a Change in Control of the Company (as defined below), all
stock options then held by Mr. Hemsley shall thereupon become
exercisable in full, and the Company shall pay Mr. Hemsley the
amount provided for under Section 8(a)(ii), above, as if his
employment had been terminated by the Company without Cause on the
date Mr. Hemsley gave the Company notice of his resignation.
(ii) For purposes of this Section 8(b), a "Change in Control of the
Company" shall mean the acquisition after the date hereof by a
person, an entity or a group of persons or entities of 20% or more
of the voting securities of the Company's parent corporation.
(iii) The Company may deem any such notice given by Mr. Hemsley as a
resignation by him, effective upon the giving of such notice, of
any one or more of the offices then held by him in the Company and
its subsidiaries.
9. CONFIDENTIAL INFORMATION.
(a) So long as Mr. Hemsley is an employee and/or director of the Company and
after any or all of such relationships terminate for whatever reason,
Mr. Hemsley shall (i) not disclose to any person or entity Confidential
Information (as defined below) except in the proper performance of his
duties and responsibilities or except as may be expressly authorized by
the Board of Directors of the Company; and (ii) shall not use
Confidential Information for his own benefit or for the benefit of any
person or entity other than the Company and its subsidiaries.
(b) For purposes of this Agreement, "Confidential Information" is defined as
including trade secrets, customer names and lists, vendor names and
lists, business plans, marketing plans, non-public financial data,
product specifications and designs, the existence, nature, substance,
progress and results of research and development projects, concepts,
inventions, discoveries, formulae, processes, drawings, documents,
records, software, or any other information of the Company, its parent
or of any of their subsidiaries that is not generally available, or any
such information of any third party that is held by the Company, its
parent or any of their subsidiaries under an obligation of
confidentiality.
(c) Mr. Hemsley's obligation of confidentiality shall not, however, relate
to any information --
(i) that is or becomes generally or widely known through no act or
fault of Mr. Hemsley;
(ii) that is received by Mr. Hemsley (without a breach of this or any
other agreement) from a third party (other than the Company's
parent or an affiliate thereof) with no restrictions as to its
disclosure; or
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Maarten D. Hemsley OTI Employment Agreement - continued
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(iii) that is required to be disclosed pursuant to applicable law, a
court order or a judicial proceeding, including a proceeding to
enforce this Agreement.
10. NON-COMPETE OBLIGATIONS.
(a) Mr. Hemsley's obligations with respect to competing with the Company and
soliciting its employees shall be as follows:
(i) Mr. Hemsley shall not render services or advice, whether for
compensation or without compensation and whether as an employee,
officer, director, consultant, principal or otherwise, to any
person or organization that is competitive with the Company's
business or with any planned business of the Company as to which
Mr. Hemsley was involved in the planning within a radius of 200
miles of any facility of the Company.
(ii) Mr. Hemsley shall not either directly or indirectly as agent or
otherwise in any manner solicit, influence or encourage any
customer, client or associate of the Company to take away or to
divert or direct its business to Mr. Hemsley or to any person or
entity by or with which Mr. Hemsley is employed, associated,
affiliated or otherwise related (other than the Company).
(iii) Mr. Hemsley shall not recruit or otherwise solicit or induce any
person to terminate his or her employment or other relationship
with the Company.
(b) Mr. Hemsley's obligations under Section 10(a), above, shall continue so
long as he is an employee of the Company. Such obligations also shall
continue after the termination of his employment as follows:
(i) in the event of the termination of his employment for any reason
other than his voluntary resignation, for a period of one (1) year
after the date of such termination;
(ii) in the event of his voluntary resignation from the Company's
employ, until the later of (1) the expiration of one (1) year
after the date of such termination, or (2) February 28, 2002.
(c) For purposes of this Section 10, only, the word "Company" shall include
the Company, the Company's parent, any subsidiary of the Company, and
any entity in which the Company has a substantial investment.
11. PRORATION. To the extent that Mr. Hemsley's salary at the rate in effect
from time to time needs to be prorated for a period of less than a full
month, such salary shall be deemed earned on a daily basis and shall be pro
rated based on a 365-day year.
12. NOTICES. All notices required or permitted under this Agreement shall be in
writing and shall be deemed given to a party either (a) when hand delivered
to such party; (b) when deposited with a courier service with instructions
to provide next-business-day delivery and proof of delivery to such party;
or (c) when sent by facsimile transmission to such party as follows:
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Maarten D. Hemsley OTI Employment Agreement - continued
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If to the Company, at: Oakhurst Technology, Inc.
3365 Spruce Lane
Grapevine, Texas 76051
Attention: General Counsel
Facsimile No.: (817) 416-0717
with a copy other
than by facsimile to Joel S. Lever, Esq.
Kurzman & Eisenberg
One North Broadway
White Plains, NY 10601
If to Mr. Hemsley at: Maarten D. Hemsley
82 Powder Point Avenue
Duxbury, Massachusetts 02332
(781) 934-0483
or to such other address of a party as that party shall notify the other
party in the manner provided herein.
13. ENTIRE AGREEMENT ETC.
(a) This Agreement contains the entire understanding of the parties; shall
not be amended except by written agreement of the parties signed by each
of them; and shall be binding upon and inure to the benefit of the
parties and their successors, personal representatives and permitted
assigns. Because the obligations of Mr. Hemsley hereunder are personal,
this Agreement shall not be assignable by him.
(b) Each provision of this Agreement shall be interpreted and enforced
without the aid of any canon, custom or rule of law requiring or
suggestion construction against the party drafting or causing the
drafting of such provision.
(c) No representation, affirmation of fact, course of prior dealings,
promise or condition in connection herewith or usage of the trade not
expressly incorporated herein shall be binding on the parties.
(d) The words "herein," "hereof," "hereunder," "hereby," "herewith" and
words of similar import when used in this Agreement shall be construed
to refer to this Agreement as a whole.
(e) The failure by a party to insist upon strict compliance with any term,
covenant or condition, or to exercise any right, contained herein shall
not be deemed a waiver of such term, covenant, condition or right; and
no waiver or relinquishment of any term, covenant, condition or right at
any one or more times shall be deemed a waiver or relinquishment thereof
at any other time or times.
(f) The captions of the paragraphs herein are for convenience only and shall
not be used to construe or interpret this Agreement.
14. SEVERABILITY. If any provision or part of a provision of this Agreement is
finally declared to be invalid by any tribunal of competent jurisdiction,
such part shall be deemed automatically adjusted, if possible, to conform to
the requirements for validity, but, if such adjustment is not
- --------------------------------------------------------------------------------
Page 5 of 6
<PAGE> 6
Maarten D. Hemsley OTI Employment Agreement - continued
- --------------------------------------------------------------------------------
possible, it shall be deemed deleted from this Agreement as though it had
never been included herein. In either case, the balance of any such
provision and of this Agreement shall remain in full force and effect.
Notwithstanding the foregoing, however, no provision shall be severed if it
is clearly apparent under the circumstances that either or both of the
parties would not have entered into this Agreement without such provision.
15. SURVIVAL. The termination of Mr. Hemsley's employment and/or this Agreement
shall not relieve Mr. Hemsley of his obligations under Section 9
("Confidential Information") or Section 10 ("Non-Compete Obligations")
hereof. In addition, any other obligations of the parties that by their
terms are to be performed or are to have continued effect after the
termination of Mr. Hemsley's employment or of this Agreement shall survive
such expiration or termination.
16. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Delaware without giving
effect to any choice of law or conflict of law provision or rule (whether of
the State of Delaware or of any other jurisdiction) that would cause the
application hereto of the laws of any jurisdiction other than the State of
Delaware.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date first set forth above.
OAKHURST TECHNOLOGY, INC.
By: /s/ Ross Pirasteh /s/ Maarten D. Hemsley
------------------------------- -------------------------
Ross Pirasteh MAARTEN D. HEMSLEY
For the Board of Directors
- --------------------------------------------------------------------------------
Page 6 of 6
<PAGE> 1
EXHIBIT 18.1
May 21, 1999
Oakhurst Company, Inc.
3513 Concord Pike
Suite 3527
Wilmington, DE 19803
Dear Sirs/Madams:
We have audited the consolidated financial statements of Oakhurst Company, Inc.
as of February 28, 1999 and 1998, and for each of the three years in the period
ended February 28, 1999, included in your Annual Report on Form 10-K to the
Securities and Exchange Commission and have issued our report thereon dated May
21, 1999. Note 1 to such consolidated financial statements contains a
description of the adoption by your Steel City Products, Inc. subsidiary during
the year ended February 28, 1999 of the first-in, first-out method (FIFO) of
inventory costing. Prior to the year ended February 28, 1999, Steel City
Products, Inc. utilized the last-in, first-out method (LIFO) of inventory
costing. In our judgment, such change is to an alternative accounting principle
that is preferable under the circumstances.
Yours truly,
/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-00173 of Oakhurst Company, Inc., on Form S-3 and in Registration Statement
No.'s 33-83038, 33-83040 and 33-83180 on Form S-8 of our report dated May 21,
1999, appearing in this Annual Report on Form 10-K of Oakhurst Company, Inc. for
the year ended February 28, 1999.
/s/ DELOITTE & TOUCHE LLP
- ---------------------------
Pittsburgh, Pennsylvania
May 28, 1999
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