United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
(Mark one)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal Period Ended December 31, 1996
or
[ ] Transition Report to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the Transition Period
From ___________ to ___________
Commission file number: 33-56256
PCC Flow Technologies, Inc.
(Exact name of registrant as specified in its charter)
Delaware 94-3115884
(State of incorporation or organization) (I.R.S. Employer ID No.)
301 Camp Craft Road, Suite 100, Austin, Texas 78746
(Address of principal executive offices) (ZipCode)
512-314-8500
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act: None
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 and 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.
[ X ] Yes [ ] 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 ]
The common stock of the registrant is not publicly traded, and
is held 100% by Precision Castparts Corp. Therefore, the
aggregate market value of the voting stock held by the
non-affiliates is zero ($0.00).
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest
practicable date. :
Common Stock, par value $ .01, 1,000 shares authorized, 100
shares issued and outstanding as of March 15, 1997
Documents incorporated by reference: None
THIS FORM 10-K IS BEING FILED WITH THE REDUCED DISCLOSURE
FORMAT PURSUANT TO COMPLIANCE BY THE REGISTRANT WITH
CONDITIONS SET FORTH IN GENERAL INSTRUCTION J(1)(a) and (b)
of Form 10-K.
</PAGE>
<PAGE>
PCC Flow Technologies, Inc.
Annual Report on Form 10-K
December 31, 1996
TABLE OF CONTENTS
PART I
PAGE
Item 1: Business 3
Item 2: Properties 3
Item 3: Legal Proceedings 4
Item 4: Submission of matters to a Vote of Security Holders 6
PART II
Item 5: Market for the Registrant's Common Stock and Related
Stockholder Matters 7
Item 6: Selected Financial Data 7
Item 7: Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 8: Financial Statements and Supplementary Data 10
Item 9: Changes in and Disagreements on Accounting and
Financial Disclosure 30
PART III
Item 10: Directors and Executive Officers of the Registrant 31
Item 11: Executive Compensation 31
Item 12: Security Ownership of Certain Beneficial Owners
and Management 31
Item 13: Certain Transactions and Relationships 31
PART IV
Item 14: Exhibits, Financial Statement Schedules and
Reports on Form 8-K 32
Signature 35
2
</PAGE>
<PAGE>
PART I
Item 1 - Business
General
PCC Flow Technologies, Inc. ("the Company"),
previously known as NEWFLO Corporation, was acquired on July
31, 1996, by Precision Castparts Corp. ("PCC"), a world wide
manufacturer of complex metal structural investment castings
and the leading manufacturer of airfoils castings used in jet
aircraft engines. PCC is traded on the New York Stock
Exchange. The Company serves a wide variety of customers
worldwide with high quality fluid management products and
after sales services necessary for the efficient operation
of their facilities. The Company designs, manufacturers,
markets and services a broad range of high quality,
precision industrial fluid management products, including
fluid handling industrial valves, industrial pumps and
fluid measuring instruments. The Company's finished fluid
management products are manufactured primarily from
castings, forgings, and fabricated steel parts. These
products are sold worldwide under well established brand
names, including "NEWCO" , "General", "Barber" and "TECHNO"
valves, "Johnston" and "PACO" pumps, and "Water Specialties"
and "Penberthy" measuring instruments, to a wide range of
end-user markets. Principal end-user markets served by the
Company include energy, industrial process, water resources,
electric power, commercial construction, chemical, marine,
mining and other niche markets.
Item 1 is being filed with the reduced disclosure format
pursuant to compliance by the Registrant with conditions set
forth in General Instruction J(1)(a) and (b) and J(2)(d) of
Form 10-K.
Item 2 - Properties
The Company's headquarters are located in Austin, Texas. In addition,
the Company maintains various facilities throughout the United States and
Canada, and has offices in Singapore. The Company's facilities are as
follows:
<TABLE>
<S> <C> <C> <C> <C>
COMPANY LOCATION USE SQUARE OWNED/
FEET LEASED
PCC Flow Technologies Austin, TX Administration 3,549 Leased
Larkspur, CA Leased to Third Party 2,700 Leased(1)
Flow Products
Johnston/PACO/General Brookshire, TX Admin/Manufacturing 252,000 Owned
Johnston Pump Chattanooga,TN Service Center 25,000 Leased
Cullman, AL Pattern Storage 10,000 Leased
Hampton, VA Service Center 24,000 Leased
Houston, TX Service Center 24,000 Leased
Mobile, AL Service Center 45,000 Leased
Pomona, CA Service Center 22,000 Leased
Salt Lake
City, UT Service Center 20,000 Leased
Singapore Sales Office 2,000 Leased
</TABLE>
3
</PAGE>
<PAGE>
Item 2 - Properties (continued)
<TABLE>
<CAPTION>
COMPANY LOCATION USE SQUARE OWNED/
FEET LEASED
<S> <C> <C> <C> <C>
Crown Pumps Deleon, TX Sales/Manufacturing 25,000 Leased
PACO Pumps Oakland, CA Sales & Svc Ctr 42,000 Leased
Portland, OR Sales & Svc Ctr 35,450 Owned
Commerce, CA Sales & Svc Ctr 10,500 Leased
Dallas, TX Sales & Svc Ctr 15,600 Leased
Seattle, WA Sales & Svc Ctr 10,000 Leased
General Valve Signal Hill, CA Admin./Manufacturing 15,000 Leased
Penberthy, Inc. Prophetstown, IL Admin./Manufacturing 152,000 Leased
Water Specialties Porterville, CA Admin./Manufacturing 22,000 Leased
Newmans Tulsa, OK Admin./Warehouses 227,700 Owned
Houston, TX Admin./Warehouse 93,300 Owned
Houston, TX Modification Shop 10,000 Leased
E. Brunswick, NJ Sales Office/Warehouse 63,500 Owned
Milwaukie, OR Sales Office/Warehouse 27,500 Owned
Barrie, Ontario Sales Office/Warehouse 34,000 Owned
Sarnia, Ontario Sales Office/Warehouse 10,000 Leased
Edmonton, Alberta Sales Office/Warehouse 25,000 Owned
Techno Erie, PA Manufacturing 22,700 Owned
Barber Edmonton, Alberta Manufacturing 50,000 Owned
Calgary, Alberta Sales/Administration 4,400 Leased
Grande Prairie,
Alberta Sales & Svc Ctr 5,000 Leased
Brooks, Alberta Sales & Svc Ctr 3,000 Leased
Slave Lake,
Alberta Sales & Svc Ctr 4,000 Leased
Fort St. John,
British Columbia Sales & Svc Ctr 4,000 Leased
</TABLE>
NOTES:
(1) Property subleased to a third party.
The Company considers all of its facilities to be in good operating
condition and adequate for the business conducted therein, appropriately
utilized in line with past experience and to have sufficient production
capacity for sales growth in the future without substantial additional
capital expenditure requirements.
Item 3 - Legal Proceedings
Environmental
The Company is subject to federal, state and local environmental laws
and regulations relating to protection of the environment, including among
other things, those relating to air emissions, wastewater discharges, storage,
handling and transportation of certain materials, and solid and hazardous
waste disposal. The Company believes that it is currently in compliance in
all material respects with these applicable requirements.
4
</PAGE>
<PAGE>
Item 3 - Legal Proceedings (continued)
In connection with the acquisition of Johnston Pump/General Valve, Inc.
("JP/GV"), the Company acquired property containing hazardous materials which
may require remediation. In October 1991, the Company established reserves
for known environmental matters based upon investigations conducted by the
Company, its environmental consultants, and federal regulatory agencies. In
January 1995, JP/GV was notified by the EPA that the EPA does not plan to
ask JP/GV to participate in the cleanup of the regional ground water
contamination. During 1995, the Company engaged the services of a nationally
known environmental consultant to visit every location and evaluate all known
environmental matters. The Company has established reserves in connection
with the sites and it believes these reserves to be adequate based, in part,
upon conclusions of the Company's environmental consultants. To date, the
Company's costs with respect to the sites have not been material, and the
Company does not anticipate any material adverse effect on its business or
financial condition as a result of its involvement with the sites. The
Company also believes that it has established adequate reserves for all
identified remediation matters at its currently owned and leased properties,
based on investigations conducted by the Company and its environmental
consultants. There can be no assurance, however, that such reserves will be
sufficient or that future expenditures with respect to the sites or other
environmental matters would not have a material adverse effect on the
Company's business or financial condition.
Legal
The Company is involved in various legal proceedings incidental to its
business, including product liability, worker's compensation, and other
general liability actions for which the Company carries insurance, as well as
related litigation for wrongful discharge and other employer/employee
litigation. In the opinion of the management of the Company, no such legal
proceedings will have a material adverse effect on financial position or
results of operations of the Company.
Prior to the acquisition by PCC, the Company (then known as NEWFLO
Corporation) and subsidiaries, General Valve Company, H & H Valve Company and
Newman's Valve Ltd. were named as defendants in Marello Valve Ltd. vs.
General Valve, Brian Warren, NEWFLO Corporation, et al. (Ontario Court of
Justice, Ontario Canada 96-CU-10728CM, filed July 9, 1996). The suit alleges
that General Valve breached the exclusivity terms of a distributor agreement
with Marello Valve Ltd. and terminated the distributor agreement without
proper notice, and that NEWFLO Corporation, Brian Warren (an employee of
General Valve) and the other defendants induced General Valve to commit a
breach. The complaint seeks damages from General Valve, NEWFLO Corporation
and Brian Warren relating to breach of contract in an aggregate amount of
$66.8 million (Canadian). The Company has filed a Statement of Defense d
enying the allegations. The Company believes that the claims asserted by
Marello Valve Ltd. can be successfully defended and that the matter will not
have a material adverse effect on the Company or the results of its
operations.
5
</PAGE>
<PAGE>
Item 4 - Submission of Matters to A Vote of Security Holder
Item 4 is being filed with the reduced disclosure format pursuant to
compliance by the Registrant with conditions set forth in General Instruction
J(1)(a) and (b) and J(2)(c) of Form 10-K.
6
</PAGE>
<PAGE>
PART II
Item 5 - Market for the Registrant's Common Equity
Securities and Related Stockholder Matters
There is no established public market for the Company's common stock.
See Item 12: "Security Ownership of Certain Beneficial Owners and Management"
for a discussion of the ownership of the Company.
Item 6 - Selected Financial Data
Item 6 is being filed with the reduced disclosure format pursuant to
compliance by the Registrant with conditions set forth in General Instruction
J(1)(a) and (b) and J(2)(a) of Form 10-K.
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion should be read in conjunction with the
consolidated audited financial statements contained in the Form 10-K filed
with the Securities and Exchange Commission for the fiscal year ended
December 31, 1995, and the consolidated financial statements which are
included in Item 8 of this report. PCC Flow Technologies, Inc. (the
"Successor"), previously known as NEWFLO Corporation (the"Predecessor") was
acquired on July 31, 1996 by PCC, a world wide manufacturer of complex metal
structural investment castings and the leading manufacturer of airfoils
castings used in jet aircraft engines. The following discussion of
operations are for the combined results of the five month period ended
December 31, 1996 (Successor) and the seven month period ended July 30, 1996
(Predecessor), the twelve month period ended December 31, 1995 (Predecessor)
and the twelve month period ended December 31, 1994 (Predecessor). The
results of operations discussed are not necessarily indicative of the results
to be expected for the continuing operations.
Year ended December 31, 1996 compared with year ended December 31, 1995.
Sales
Net sales in 1996 increased by $36.4 million or 18.2% to $236.2 million
from $199.8 million in 1995. This increase includes $15.2 million in sales
generated by the acquisition of certain assets and liabilities of Barber
Industries Ltd. ("Barber") in January 1996. Excluding Barber the increase
for 1996 was $21.2 million, or a 10.6% increase. Increased market demand for
vertical, centrifugal pumps and pumping systems resulted in a sales increase
of $17.6 million in 1996. Valve sales, excluding the impact of Barber,
accounted for the remaining sales increase and resulted from improved demand
in the marketplace.
Customer Order Backlog
The customer order backlog increased by $1.4 million during 1996 to
$41.3 million at December 31, 1996, from $39.9 million at December 31, 1995
because of increased orders for pump products. Approximately 90% of the
December 31, 1996, backlog is scheduled for shipment during 1997.
7
</PAGE>
<PAGE>
Gross Profit
Gross profit as a percent of sales decreased from 32.8% during 1995 to
31.6% during 1996. Gross profit increased to $74.7 million for 1996, an
increase of $9.2 million over 1995 gross profit of $65.5 million. Excluding
the effect of the Barber acquisition, 1996 gross profit as a percent of sales
was 32.1%, reflecting a lower margin product mix and the impact of stronger
competition in the marketplace for fluid measurement products.
Operating Expenses
Operating expenses increased by $7.6 million in 1996. The Barber
acquisition resulted in an increase of $2.5 million in operating expenses.
Excluding this acquisition, operating expenses increased $5.1 million. Sales
and marketing expenses increased in support of the higher sales levels. The
administration expenses increased reflecting the significantly smaller
insurance refunds and lack of other non-recurring benefits received in 1995.
Income from Operations
Income from operations for 1996 of $28.6 million or 12.1% of sales
represented an increase of $1.6 million from $27.0 million or 13.5% of sales
in 1995. Income from operations increased in 1996 by $1.6 million as
discussed above relating to the increase in sales volume, gross profit and
operating expenses.
Interest Expense
Interest expense on long term debt for 1996 of $13.4 million represents
a decrease of $4.7 million from the 1995 interest expense of $18.1 million.
Interest reductions resulted from lower interest rates and debt balances for
the seven month period ended July 30, 1996. In addition, approximately,
$32.7 million of senior debt was retired July 31, 1996 with the acquisition
of the Company by PCC. In conjunction with the acquisition, the Company's
debt was restated to fair market value and a liability was established to
reflect the difference between the stated interest rate on the outstanding
subordinated notes and a market rate. As a result, the effective interest
rate for the Company was lower for the period from July 31, 1996 to December
31, 1996.
Income Before Income Taxes and Minority Interest
The 1996 income before income taxes and minority interest of $14.9
million was $6.5 mllion greater than 1995 income of $8.4 million. Excluding
Barber, this increase would have been $6.8 million.
Year ended December 31, 1995 compared with year ended December 31, 1994
Discussion of the year ended December 31, 1995 compared with year ended
December 31, 1994 is being omitted in conjunction with the Company filing
this report with the reduced disclosure format pursuant to compliance by the
Registrant with conditions set forth in General Instruction J(1)(a) and (b)
and J(2)(a) of Form 10-K.
8
</PAGE>
<PAGE>
Liquidity and Capital Resources
Cash provided by operating activities was $12.1 million for the twelve
months ended December 31, 1996, compared with cash provided by operating
activities of $7.0 million for the same period in 1995. Debt levels decreased
during 1996 in conjunction with the acquisition of the Company by PCC.
Senior debt of $32.7 million was repaid on July 31, 1996 as part of the
acquisition.
Capital spending for 1996 was $2.9 million compared to $2.2 million for
1995. Capital spending for 1996 was primarily for the upgrading of
production equipment, tooling for new products and cost reduction programs.
The Company believes it has sufficient capacity for sales growth in the
future without substantial additional capital expenditure requirements.
The Company paid $4.3 million in dividends to PCC in 1996.
Working capital at December 31, 1996, was $58.4 million compared with
$54.4 million at December 31, 1995. The $4.0 million increase in working
capital from December 31, 1995, included $8.2 million increase from
acquisitions, $7.1 decrease due to purchase accounting related to the
acquisition of the Company and the remaining $2.9 million is related to
increased levels of accounts payable and other accrued liabilities, partially
offset by increased inventory. The ratio of current assets to current
liabilities at December 31, 1996, was 2.0 compared with 2.6 at December 31,
1995.
Working capital at July 30, 1996, was $66.0 million compared with $54.4
million at December 31, 1995. The $11.6 million increase in working capital
at July 30, 1996, from December 31, 1995, included $6.5 million from the
acquisition of Barber and $5.1 million related to increased levels of
accounts payable, partially offset by increased inventory and accounts
receivable and a decrease in other accrued liabilities. The ratio of current
assets to current liabilities at July 30, 1996, was 2.9 compared with 2.6 at
December 31, 1995.
Prior to July 31, 1996, the Company financed its activities principally
through cash provided by operations and borrowings under a Senior Credit
Agreement with a financial institution, which would have expired February 28,
1998. That agreement included a term loan with annual repayment requirements
and a revolving loan credit facility. On July 31, 1996, the Senior Credit
Agreement was retired as part of the acquisition of the Company by PCC. The
Company expects cash provided by operations and financing provided by PCC to
be sufficient to meet its current obligations and future operating
requirements.
9
</PAGE>
<PAGE
Item 8 - Financial Statements and Supplemental Data
PCC FLOW TECHNOLOGIES, INC.
Index to Consolidated Financial Statements
Page
Report of Independent Accountants-Predecessor 11
Report of Independent Accountants-Successor 12
Consolidated Balance Sheets 13
Consolidated Statements of Operations 15
Consolidated Statements of Stockholders' Equity (Deficit) 16
Consolidated Statements of Cash Flows 17
Notes to Consolidated Financial Statements 19
10
</PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of PCC Flow Technologies, Inc. (formerly NEWFLO Corporation)
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of
NEWFLO Corporation and its subsidiaries at July 30, 1996 and the results of
their operations and their cash flows for the period January 1, 1996 to July
30, 1996 in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audit of these statements in accordance with
generally accepted auditing standards which 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 assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above. The financial statements of NEWFLO Corporation for
the year ended December 31, 1995 and 1994 were audited by other independent
accountants whose report dated February 23, 1996 expressed an unqualified
opinion on those statements (See Exhibit 20.1)
PRICE WATERHOUSE LLP
Portland, Oregon
March 21, 1997
11
</PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of PCC Flow Technologies, Inc. (formerly NEWFLO Corporation)
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of PCC
Flow Technologies, Inc. (formerly NEWFLO Corporation) and its subsidiaries at
December 31, 1996 and the results of their operations and their cash flows
for the period July 31, 1996 to December 31, 1996 in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audit of these statements in accordance with generally accepted auditing
standards which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Portland, Oregon
March 21, 1997
12
</PAGE>
<PAGE>
PCC FLOW TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
Consolidated Balance Sheets
Successor Predecessor
December 31, July 30, December 31,
1996 1996 1995
------------ ---------- -----------
(In thousands)
<S> <C> <C> <C>
Assets
Current Assets:
Cash $ 3,960 $ 3,912 $ 736
Accounts receivable 36,957 33,772 33,637
Less allowance for doubtful accounts (1,331) (1,155) (905)
----------- ---------- -----------
Accounts receivable (net) 35,626 32,617 32,732
Inventories, at cost:
Raw materials 18,025 15,864 13,603
Work-in-process 6,296 7,098 6,104
Finished goods 41,620 36,977 30,394
----------- ---------- -----------
Total Inventories 65,941 59,939 50,101
Deferred taxes - current 9,637 2,116 2,116
Other current assets 2,368 1,448 1,857
----------- ---------- -----------
Total current assets 117,532 100,032 87,542
Property, plant and equipment 32,235 56,489 49,439
Less accumulated depreciation (1,936) (25,389) (20,716)
----------- ---------- -----------
Net property, plant and equipment 30,299 31,100 28,723
Goodwill (Predecessor), net of $6,953
amortization (1995 - $6,119) --- 33,905 34,009
Goodwill (Successor), net of $2,373
amortization 230,698 --- ---
Goodwill Crown Pump, net of $0
amortization 4,352 --- ---
Deferred taxes - long term 12,195 --- ---
Other assets 1,317 7,224 8,768
---------- ---------- ----------
Total assets $396,393 $172,261 $159,042
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
</PAGE>
<PAGE>
PCC FLOW TECHNOLOGIES, INC.
<TABLE>
Consolidated Balance Sheets (continued)
Successor Predecessor
December 31, July 30, December 31,
1996 1996 1995
------------ --------- -----------
(In thousands)
<S> <C> <C> <C>
Liabilities
Current liabilities:
Accounts payable $ 14,958 $ 12,983 $ 11,973
Accrued liabilities 32,105 10,818 11,133
Accrued taxes payable 11,745 1,229 1,238
Current portion of long term debt 274 9,004 8,782
--------- --------- ---------
Total current liabilities 59,082 34,034 33,126
Payable to affiliate 6,369 --- ---
Long term debt 100,163 124,305 115,452
Deferred taxes - long term 8,615 5,945 5,948
Other liabilities 14,848 8,397 7,947
Minority interest 1,647 1,470 1,330
Redeemable preferred stock
Preferred stock, Class A, $.01 par
value, 450 shares authorized, 113
shares issued and outstanding;
liquidation preference of $113 in
1996 (Predecessor) and 1995;
redeemed July 31, 1996 --- 113 113
Preferred stock, Class B, $.01 par
value, 7,000 shares authorized,
issued and outstanding in 1996
(Predecessor) and 1995; liquidation
preference of $7,000; redeemed
July 31, 1996 --- 9,683 9,356
Common stockholders' equity (deficit):
Common stock, Class A, $.01 par value;
285,000 shares authorized; 196,638 shares
issued and outstanding; redeemed
July 31, 1996 --- 2 2
Common Stock, par value $.01, 1,000 shares
authorized, 100 shares issued and
outstanding --- --- ---
Additional paid-in-capital --- 732 732
Contributed capital from Parent 201,663 --- ---
Accumulated translation adjustment 4 (1,360) (1,390)
Retained earnings (deficit) 4,002 (11,060) (13,574)
--------- --------- ---------
Total common stockholders'
equity (deficit) 205,669 (11,686) (14,230)
Total liabilities and stockholders' --------- --------- ---------
equity $396,393 $172,261 $159,042
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
financial statements
14
</PAGE>
<PAGE>
PCC FLOW TECHNOLOGIES, INC
<TABLE>
<CAPTION>
Consolidated Statements of Operations
Successor Predecessor
Five Seven Twelve Twelve
months months months months
ended ended ended ended
December 31, July 30, December 31, December 31,
1996 1996 1995 1994
----------- --------- ----------- -----------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Product sales, net $ 97,921 $138,320 $199,791 $195,483
Cost of sales 67,572 93,963 134,295 134,460
--------- --------- --------- ---------
Gross profit 30,349 44,357 65,496 61,023
Operating expenses:
Sales and marketing 12,631 17,793 27,481 25,801
General and administrative 6,086 9,580 11,028 14,943
Loss on sale of Flo-Bend assets --- --- --- 5,535
--------- --------- --------- ---------
Total operating expenses 18,717 27,373 38,509 46,279
Income from operations 11,632 16,984 26,987 14,744
Interest expense (2,438) (10,938) (18,074) (19,394)
Other expense --- (337) (560) (154)
Income (loss) before income --------- --------- --------- ---------
taxes and minority interest 9,194 5,709 8,353 (4,804)
Income tax expense (5,016) (2,719) (2,413) (221)
Income (loss) before minority --------- --------- --------- ---------
interest 4,178 2,990 5,940 (5,025)
Minority Interest (176) (140) (280) (254)
--------- --------- --------- ---------
Net income (loss) $4,002 $2,850 $5,660 (5,279)
========= ========= ========= =========
Net income (loss) attributable
to common shares $4,002 $2,840 $5,630 $(5,883)
========= ========= ========= =========
Net income (loss) per common
share $66,700.00 $ 11.18 $22.17 $(29.92)
========== ========= ========= =========
Shares used in calculation
of net income (loss) per
common share 60 253,938 253,938 196,638
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
</PAGE>
<PAGE>
PCC FLOW TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
Consolidated Statements of Stockholders' Equity (Deficit)
Periods ended December 31, 1996, July 30, 1996, December 31, 1995 and 1994
(In thousands, except share and per share amounts)
Common Stock Total
Additional Cumulative Retained Stockholders'
Paid-In Translation Earnings Equity
Amounts Capital Adjustment (Deficit) (Deficit)
-------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1993, 196,638 shares
Common stock $ 2 $732 $(1,203) $(12,761) $(13,230)
-------- --------- ---------- ---------- ----------
Dividends on preferred
stock, $80 to $130 per
share --- --- --- (604) (604)
Translation adjustment --- --- (316) --- (316)
Net loss for the year --- --- --- (5,279) (5,279)
-------- ---------- --------- ---------- ----------
Balance at December 31,
1994, 196,638 shares
Common stock $ 2 $732 $(1,519) $(18,644) $(19,429)
Dividends on preferred
stock, $80 to $130
per share --- --- --- (590) (590)
Translation adjustment --- --- 129 --- 129
Net income for the year --- --- --- 5,660 5,660
-------- ---------- --------- ---------- ----------
Balance at December 31,
1995, 196,638 shares
Common stock $ 2 $732 $(1,390) $(13,574) $(14,230)
Dividends on preferred
stock, $80 to $130
per share --- --- --- (336) (336)
Translation adjustment --- --- 30 --- 30
Net income for the seven
months ended July 30,
1996, Predecessor --- --- --- 2,850 2,850
-------- ---------- --------- ---------- ----------
Balance at July 30,
1996, 196,638 shares
Common stock $ 2 $732 $(1,360) $(11,060) $(11,686)
Elimination of
stockholders' equity at
the purchase date resulting
from the acquisition of
the Company,196,638 shares
Common Stock retired (2) (732) 1,360 11,060 11,686
Contributed Capital by
Parent at July 31 ,1996 --- 205,963 --- --- 205,963
Common stocj, 100 shares
issued and outstanding --- --- --- --- ---
Translation adjustment --- --- 4 --- 4
Net income for the five
months ended December 31,
1996, Successor --- --- --- 4,002 4,002
Dividends paid to Parent --- (4,300) --- --- (4,300)
-------- ---------- --------- ---------- ----------
Balance at December 31,
1996, Successor $ --- $201,663 $ 4 $ 4,002 $205,669
-------- ---------- --------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
</PAGE>
<PAGE>
PCC FLOW TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Successor Predecessor
Five Months Seven Months Twelve Months Twelve Months
Ended Ended Ended Ended
December 31, July 30, December 31, December 31,
1996 1996 1995 1994
------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C>
Operating activities:
Net income (loss) $ 4,002 $ 2,850 $ 5,660 $ (5,279)
Adjustments to reconcile net
income to net cash provided
by (used in) operating
activities:
Depreciation and
amortization 5,747 5,448 9,330 11,405
Loss on sale of Flo-Bend
assets --- --- --- 5,535
Deferred income taxes 2 (3) 175 (6)
Minority interest 177 140 280 254
(Gain) on disposal of
property --- --- (1,320) ---
Other operating adjustments 234 (193) (152) (249)
Changes in operating assets
and liabilities:
Accounts receivable (2,300) 2,648 (5,817) 2,522
Inventories (5,658) (5,079) (2,926) 1,633
Other current assets (897) 473 (827) 93
Accounts payable 1,849 542 1,201 (877)
Income taxes payable 3,820 (9) 1,238 ---
Accrued compensation 1,055 314 1,113 (715)
Accrued interest (2,018) 1,111 --- ---
Other accrued liabilities 1,095 (3,299) (926) (921)
---------- --------- ---------- ----------
Cash provided by operating
activities 7,108 4,943 7,029 13,395
Investing activities:
Acquisition, net of cash
acquired, Barber --- (9,774) --- ---
Acquisition, net of cash
acquired, Crown (5,878) --- --- ---
Proceeds from sale of
Flo-Bend assets --- --- --- 5,542
Purchase of property and
equipment (1,104) (1,844) (2,220) (1,958)
Proceeds from sale of property
and equipment --- 311 2,706 340
Advances from parent 6,369 --- --- ---
Other long term liabilities (1,996) 444 (1,089) 926
--------- --------- --------- ---------
Cash (used in) provided by
investing activities (2,609) (10,863) (603) 4,850
</TABLE>
17
</PAGE>
<PAGE>
PCC FLOW TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows (continued)
Successor Predecessor
Five Months Seven Months Twelve Months Twelve Months
Ended Ended Ended Ended
December 31, July 30, December 31, December 31,
1996 1996 1995 1994
----------- ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C>
Financing activities:
Repayments of notes payable
and capital leases (155) (4,348) (10,728) (8,948)
Borrowings under bank line
of credit --- 13,423 4,414 (9,019)
Redemption of preferred stock --- --- (113) (225)
Payment of preferred stock
dividends --- (9) (30) (44)
Payment of dividends to
Parent (4,300) --- --- ---
---------- ---------- ---------- ----------
Cash (used in) provided by
financing activities (4,455) 9,066 (6,457) (18,236)
Effect of foreign exchange
rate changes on cash 4 30 129 (239)
--------- ---------- ---------- ----------
Net increase (decrease)
in cash $ 48 $ 3,176 $ 98 $ (230)
Cash, beginning of period $ 3,912 $ 736 $ 638 $ 868
--------- ---------- ---------- ---------
Cash, end of period $ 3,960 $ 3,912 $ 736 $ 638
========= ========== ========== =========
Cash paid during the year for:
Interest $ 6,658 $ 8,875 $16,812 $ 17,647
Income taxes $ 1,187 $ 2,699 $ 1,107 $ ---
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
</PAGE>
<PAGE>
PCC Flow Technologies, Inc.
Notes to Consolidated Financial Statements
December 31, 1996
1. The Company
PCC Flow Technologies, Inc., (the "Company"), formerly known as NEWFLO
Corporation, designs, manufactures, markets and services a broad range of
specialty and general purpose valves, pumps, meters and related products for
a variety of industrial, commercial, utilities and municipal customers.
The Company sells its products worldwide through direct sales, distributors
and manufacturers' representatives primarily to chemical, petrochemical,
construction contractors, municipalities and other industrial companies. The
accompanying consolidated financial statements include the accounts the
Company and its wholly owned and majority owned subsidiaries.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements of PCC Flow
Technologies, Inc. are prepared in accordance with generally accepted
accounting principles for financial information and include all adjustments
(consisting only of normal recurring entries) which, in the opinion of
management, are necessary for a fair presentation of financial position,
results of operations and cash flows. The Company was acquired on July 31,
1996, by Precision Castparts Corp. ("PCC"), a worldwide manufacturer of
complex metal structural investment castings and the leading manufacturer of
airfoils castings used in jet aircraft engines. PCC is traded on the New
York Stock Exchange. The accompanying consolidated financial statements
consist of twelve months ended December 31, 1995 and seven months ended
July 30, 1996 ("Predecessor"), and the five months ended
December 31, 1996 ("Successor"). As a result of the acquisition of the
Company by PCC, the consolidated financial statements have been presented in
a manner to reflect the change of ownership, and the effect of the purchase
price adjustments that resulted from the recognition of fair values in
conjunction with the Company's acquisition by PCC. All other items are
directly comparable for the Predecessor and Successor. Certain
reclassifications have been made in the financial statements for the
Predecessor periods to conform to presentations for the Successor period.
Such reclassifications have had no impact on the previously reported
financial position or results of operations.
The following summarizes the significant accounting policies applied in
the preparation of the accompanying consolidated financial statements. The
accounting policies described apply to both the Predecessor and the Successor.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company's and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
19
</PAGE>
<PAGE>
PCC Flow Technologies, Inc.
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies (continued)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles required management to make estimates and
assumptions, in particular estimates of excess and obsolete inventory
reserves and allowances for doubtful accounts related to accounts receivable,
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates. The Company's
management believes that the estimates made in conjunction with these
consolidated financial statements are reasonable.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with
a maturity of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or estimated market value.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and are depreciated
using the straight-line method over the useful lives as follows:
Buildings and improvements 20-40 years
Machinery and equipment 3-15 years
Intangible Assets
The successor excess of purchase price over net assets of acquired
businesses is amortized on a straight line basis over a period of 40 years.
The carrying value of goodwill is reviewed on an ongoing basis by management.
If this review of facts and circumstances suggests that goodwill may be
impaired, based on the undiscounted cash flows of the acquired entity over
remaining amortization period, the Company's carrying value of goodwill would
be reduced by the estimated shortfall of projected cash flows.
Translation of Foreign Currencies
Gains on losses resulting from balance sheet translation of foreign
operations where a foreign currency is the functional currency are included
as a separate component of stockholders' equity. Gains and losses resulting
from balance sheet translation of foreign operations where the U.S. dollar is
not the functional currency are included in the consolidated statement of
operations.
20
</PAGE>
<PAGE>
PCC Flow Technologies, Inc.
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies (continued)
Revenue Recognition
Sales and related cost of sales are recognized upon shipment of
products. Sales are recorded net of estimated sales returns and allowances.
Fair Value of Financial Instruments
Management has determined that the fair value of the Company's
financial instruments is equivalent to the carrying amount of such
instruments included in the financial statements.
Net Income (Loss) Per Common Share
For the Successor, net income per share was calculated based on
1,000 shares of common stock authorized, 100 shares, par value $.01 per share,
issued and outstanding.
For the Predecessor net income (loss) per common share was computed
using the net income (loss) after deducting preferred stock Series A
dividends. The weighted average number of shares consisted of the common
stock and the common stock equivalents. For the seven month period ended
July 30, 1996 and the twelve month period ended December 31 1995, the common
equivalent shares from stock warrants and preferred stock, Series B, were
included in the computation of net income per common share.
3. Acquisitions and Dispositions
During the third quarter of 1994, the Company sold substantially all of
the assets and business of an operating subsidiary, Flo-Bend, Inc. Proceeds
of the sales were approximately $5.5 million, net of the expenses related to
the sale of assets.
21
</PAGE>
<PAGE>
PCC Flow Technologies, Inc.
Notes to Consolidated Financial Statements
3. Acquisitions and Dispositions (continued)
On January 31, 1996, the Company acquired certain assets and assumed
liabilities of Barber Industries Ltd. ("Barber") for a cash payment of
approximately $9.3 million and related acquisition costs of approximately $0.5
million. This transaction has been accounted for using the purchase method
of accounting, and accordingly, the purchase price has been allocated to the
net assets acquired based on their respective fair values at the date of
acquisition and the excess of $0.4 million was recorded as goodwill. The
following unaudited pro forma information presents a summary of consolidated
results of operations of the Company as if the acquisition had occurred
January 1, 1995 (in thousands). The pro forma information is not necessarily
indicative of the results which would have resulted had the acquisition
occurred at the beginning of the period, nor is it necessarily indicative of
future results.
Year ended
December 31, 1995
Revenues $ 217,107
Net Income $ 6,282
On July 31,1996, PCC acquired 100% of the capital stock of NEWFLO
Corporation (Predecessor) and renamed the acquired Company "PCC Flow
Technologies, Inc." The acquisition has been recorded in the Successor period
pursuant to the purchase method of accounting. Accordingly, the purchase
price plus direct costs of the acquisition have been allocated to the assets
acquired and liabilities assumed based on their estimated fair market values.
The excess of the total cost of the acquisition over the fair market value of
the net assets acquired has been recorded as goodwill.
A summary of the consideration paid, liabilities assumed and assets
acquired follows:
Consideration (in thousands):
Cash $ 206,000
Less:
Fair value of assets acquired (138,900)
Plus:
Fair value of liabilities assumed 160,700
---------
Goodwill $ 227,800
Subsequent to July 31, 1996, a $5.3 million deferred tax adjustment was
made and a corresponding amount was reflected as Goodwill. At December 31,
1996, Goodwill totaled $233.1 million less $2.4 million in amortization.
22
</PAGE>
<PAGE>
PCC Flow Technologies, Inc.
Notes to Consolidated Financial Statements
4. Financing Arrangements
Debt consisted of the following:
Successor Predecessor
December 31, July 30, December 31,
1996 1996 1995
------------ ---------- -----------
(In thousands)
Subordinated notes, interest paid
semi-annually at 13.25%, principal
due November 15, 2002 $100,000 $100,000 $100,000
Borrowings under a line of credit
with a financial institution,
principal due February 1998.
Repaid at acquisition of NEWFLO
by PCC --- 20,817 7,394
Term loan payable to a financial
institution, principle and interest
due in varying quarterly
installments through 1998. Repaid
at acquisition of NEWFLO by PCC --- 11,901 15,964
Note payable in annual installments
of $175,000, through March 1, 1996,
plus interest at 8%, unsecured --- --- 175
Note Payable in annual installments
of $80,000 for five years commencing
on September 1994, plus interest
at 8% 160 240 240
Noninterest bearing note payable in
installments of $180,000 for five
years commencing on September 1994,
net of imputed interest at 6%
of $142,000 277 351 461
--------- --------- ---------
100,437 133,309 124,234
Less current portion 274 9,004 8,782
--------- --------- ---------
$100,163 $124,305 $115,452
========= ========= =========
Long-term debt at December 31, 1996 will mature as follows (in thousands):
1997 $ 274
1998 163
1999 ---
2000 ---
2001 ---
Thereafter 100,000
---------
$100,437
=========
Terms and conditions of the subordinated notes restrict any call
transactions by the Company prior to November 15, 1997. In conjunction with
the acquisition by PCC, the Company recorded a current liability for the call
premium of $5.25 million.
23
</PAGE>
<PAGE>
PCC Flow Technologies, Inc.
Notes to Consolidated Financial Statements
5. Redeemable Preferred Stock and Stockholders' Equity
At the time of acquisition by PCC, all outstanding common stock was
retired, preferred stock redeemed, warrants redeemed and all dividends were
paid. On August 1, 1996, the Board of Directors authorized 1,000 shares of
common stock at par value of $.01. on October 1, 1996, 100 sjhares were issued
and are outstanding of which have been issued.
Prior to acquisition by PCC, the Company had issued $7,000,000
(7,000 shares) of Class B preferred stock, that had a cumulative annual
dividend of $80 per share and a liquidation preference of $1,000 per share
(plus unpaid dividends). In addition, the Company had issued $450 (450
shares) of Class A preferred stock.
Prior to acquisition by PCC, the Company had the right to repurchase
13,371 shares of Class A common stock held by certain stockholders at $.01
per share. The repurchase rights lapsed at the earlier of conversion of the
Class B preferred stock or January 2003.
Prior to acquisition by PCC, the Company had warrants outstanding to
its term loan holders to purchase 12,157 shares of Class B common stock at
$5.91 per share and 4,677 shares Class B common stock at $10.80 per share.
6. Income Taxes
For the Successor period, the Company will file as an affiliated
company within PCC's consolidated return. At December 31, 1996, the Company
had net operating loss carryforwards of approximately $533,000 for foreign
income tax purposes. The foreign net operating loss carryforward expires in
the year 1999. In 1995, the valuation allowance decreased by $1,773,000
principally due to the utilization of federal and state net operating loss
carryforwards. The following discussion is not presented in the Successor and
Predecessor format because the difference in the results for the periods
ended December 31, 1996 and July 30, 1996 is not material.
24
</PAGE>
<PAGE>
PCC Flow Technologies, Inc.
Notes to Consolidated Financial Statements
6. Income Taxes (continued)
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for the
Company's deferred tax liabilities and assets as of December 31, 1996 and
1995 which are as follows (in thousands):
1996 1995
------------ -----------
Deferred tax assets:
Effect of basis difference for purchased assets $ 7,704 $ 1,305
Foreign operations 1,618 ---
Expenses not currently deductible for tax purposes 5,837 2,781
Net operating loss carryforwards --- 200
Amortization of purchased intangibles 2,561 1,946
Other 3,047 2,503
----------- -----------
Total deferred tax assets 20,767 8,735
Valuation allowance on deferred tax assets --- (2,471)
----------- -----------
Net deferred tax assets 20,767 6,264
Deferred tax liabilities:
Effect of basis difference for purchased assets 1,546 (1,520)
Foreign operations (2,038) (2,956)
Accelerated tax depreciation and amortization (4,801) (3,424)
Other (2,257) (2,196)
----------- ------------
Total deferred tax liabilities (7,550) (10,096)
----------- ------------
Net deferred tax assets (liabilities) $ 13,217 $ (3,832)
=========== ============
The following is a summary by taxing jurisdiction of deferred tax
assets and liabilities at December 31, 1996 and 1995 (in thousands):
1996 1995
Current Long-Term Current Long-Term
--------- ----------- ---------- ---------
Federal:
Deferred tax assets $8,432 $10,725 $2,709 $4,680
Valuation allowance --- --- (597) (1,031)
--------- ----------- ---------- --------
Subtotal 8,432 10,725 2,112 3,649
Deferred tax liabilities --- (6,680) (150) (7,489)
--------- ----------- ---------- --------
Net deferred tax assets
(liabilities) $8,432 $4,045 $1,962 $(3,840)
========= =========== ========== ========
25
</PAGE>
<PAGE>
PCC Flow Technologies, Inc.
Notes to Consolidated Financial Statements
6. Income Taxes (continued)
1996 1995
Current Long-Term Current Long-Term
------- ---------- ------- ---------
State:
Deferred tax assets $1,205 $1,470 $427 $719
Valuation allowance --- --- (240) (403)
------ ------- ------- --------
Subtotal 1,205 1,470 187 316
Deferred tax liabilities --- (649) (33) (1,138)
------ ------- ------- --------
Net deferred tax assets (liabilities) $1,205 $ 821 $ 154 $ (822)
------ ------- ------- --------
Foreign:
Deferred tax assets $ --- $ --- $ --- $ 200
Valuation allowance --- --- --- (200)
------ -------- ------- --------
Subtotal --- --- --- ---
Deferred tax liabilities --- (1,286) --- (1,286)
------ -------- ------- --------
Net deferred tax assets (liabilities) $ --- $(1,286) $ --- $(1,286)
------ -------- ------- --------
For financial reporting purposes, income (loss) before taxes, minority
interest and extraordinary items attributable to foreign operations was
(in thousands) $1,993, $(132) and $(1,750) for the years ended December 31,
1996, 1995 and 1994, respectively.
The (provision) benefit for income taxes for 1996, 1995, and 1994,
was as follows (in thousands):
1996 1995 1994
-------------------------------------
Current
Federal $ (5,911) $ (1,560) $ (373)
State (780) (600) (173)
Foreign (1,043) (78) 319
----------- ----------- -------
(7,734) (2,238) (227)
Deferred
Federal (53) (231) ---
State 52 --- (43)
Foreign --- 56 49
----------- ----------- -------
(1) (175) 6
----------- ----------- -------
$ (7,735) $ (2,413) $ (221)
=========== =========== =======
26
</PAGE>
<PAGE>
PCC Flow Technologies, Inc.
Notes to Consolidated Financial Statements
6. Income Taxes (continued)
Differences between the (provision) benefit for income taxes and the
federal statutory rate for 1996, 1995 and 1994, were as follows:
1996 1995 1994
-------------------------
Tax at statutory rate 35% 34% (34)%
Effect of earnings of foreign subsidiaries
taxed at different rates 4 1 (6)
Intangible amortization 10 3 10
State income taxes, net of federal benefit 3 7 4
Valuation allowance on deferred tax assets --- (16) 21
Other --- --- 10
----- ----- -----
Effective tax rate 52% 29% 5%
7. Commitments and Contingencies
The Company is involved in various litigation arising in the ordinary
course of business. In management's opinion, the resolution of these
matters will not have a material effect on the Company's financial position
or results of operations.
The Company utilizes and has utilized property containing hazardous
materials which may require remediation. The Company has made accruals for
all known environmental issues based upon investigations conducted by
the Company, its environmental consultants and federal regulatory agencies.
Management believes the ultimate resolution of these matters will not be
significant to the financial position or results of operations of the Company.
The Company has employment contracts with certain employees that
require annual payments of $1,687,000 in 1997, $204,000 in 1998 and $75,000
in 1999. Certain employee contracts are subject to cost of living increases.
Accrued liabilities for the periods ended December 31, 1996, July 30,
1996 and December 31, 1995 were (in thousands):
Successor Predecessor
December 31, July 30, December 31,
1996 1996 1995
------------ ----------- ------------
Accrued compensation and
benefits $ 6,146 $ 4,432 $ 4,118
Accrued interest and
call premium 13,219 2,827 1,716
Accrued other liabilities 12,740 3,559 5,299
--------- --------- ----------
Total accrued liabilities $ 32,105 $ 10,818 $ 11,133
========= ========= ==========
27
</PAGE>
<PAGE>
PCC Flow Technologies, Inc.
Notes to Consolidated Financial Statements
7. Commitments and Contingencies (continued)
Other long term liabilities for the periods ended December 31, 1996,
July 30, 1996 and December 31, 1995 were (in thousands):
Successor Predecessor
December 31, July 30, December 31,
1996 1996 1995
------------ ---------- ------------
Legal and environmental
contingencies $ 6,038 $ 648 $ 690
Accrued other long term
liabilities 8,810 7,749 7,257
--------- -------- --------
Total other long term
liabilities $ 14,848 $ 8,397 $ 7,947
========== ======== ========
8. Employee Benefit Plans
The following discussion is not presented in the Successor and
Predecessor format because the difference in the results for the periods
ended December 31, 1996 and July 30, 1996 is not material.
PCC Flow Technologies has a defined contribution savings plan
(the Plan) which qualifies under the provision of Section 401(k) of the
Internal Revenue Code and covers all nonunion employees. Under the terms of
the Plan, member employees may contribute varying amounts of their annual
compensation (to a maximum of $9,500 in 1996). The Company makes
contributions to the Plan equal to those of member employees, up to a
maximum of 5% of any individual employee's compensation, or as approved by
the Board of Directors. Company contributions of $1.6 million were
charged to operations in 1996 (1995 - $1.5 million, 1994 - $1.6 million).
A subsidiary sponsored a noncontributory defined benefit pension plan
that provided benefits based upon specified percentages of the participants'
salaries and the number of months of continuous service as of the date of
retirement. This plan was suspended as of December 31, 1991. Assets of the
plan are invested primarily in contracts with insurance companies.
Contributions are made to the plan on an as-needed basis, as determined by
the actuaries.
Another subsidiary sponsors a noncontributory defined benefit plan for
its hourly workers. The normal retirement benefit under this plan is based
upon the number of years of service and a monthly benefit rate per year of
service. Assets of this plan are invested primarily in mutual funds which are
held in a separate trust account.
28
</PAGE>
<PAGE>
PCC Flow Technologies, Inc.
Notes to Consolidated Financial Statements
8. Employee Benefit Plans (continued)
Assumptions used in the actuarial valuation for the two defined benefit
plans were as follows:
1996 1995 1994
--------------------------------------------
Discount rate for present values 7.25%-7.5% 7.5% 8.5%-8.75%
Expected long-term rate of
return on assets 9.0% 8.5%-9.0% 9.0%-10%
The following table sets forth the plans' combined funded status at
December 31, 1996, and 1995 (in thousands):
1996 1995
---------------------------
Actuarial present value of benefit obligations:
Vested benefits $7,336 $5,950
Non-vested benefits 234 316
--------- --------
Projected benefit obligation 7,570 6,266
Plan assets at fair value 6,415 5,513
--------- --------
Plan assets less than projected benefit obligation (1,155) (753)
Unrecognized prior service cost --- 135
Unrecognized net (gain) loss (329) 618
--------- --------
Accrued pension cost included in accrued
compensation and related expenses $1,484 $ ---
========= ========
The combined components of net periodic pension (income) expense for
the year ended December 31, 1996, 1995 and 1994 were as follows (in thousands):
1996 1995 1994
---------------------------------------------
Service cost $ 104 $ 68 $ 70
Interest cost 368 447 437
Actual return on plan assets (258) (510) (84)
Net amortization and deferral (114) 6 (381)
------- ------- -------
Net periodic pension expense $ 100 $ 11 $ 42
======= ======= =======
In addition to providing pension benefits, a subsidiary provided
noncontributory post retirement health care and life insurance benefits for
its employees. This benefit plan was terminated as of December 31, 1991
resulting in PCC Flow Technologies recording a liability for those employees
with vested benefits. The net periodic postretirement benefit costs consist
of interest accruals along with any experienced gains or losses of $384,000 in
1996 (1995 - $365,000, 1994 - $502,000).
29
</PAGE>
<PAGE>
PCC Flow Technologies, Inc.
Notes to Consolidated Financial Statements
8. Employee Benefit Plans (continued)
The reconciliation of the accumulated postretirement benefit obligation
to the accrued liability included in the Company's consolidated balance sheet
at December 31, 1996 and 1995 follows (in thousands):
1996 1995
---------------------------
Actuarial present value of benefit obligations:
Retirees $(3,609) $(4,505)
Active eligible (235) (366)
-------- --------
Accumulated post retirement benefit obligation (3,844) (4,871)
Unrecognized actuarial net gains (181) (1,495)
-------- --------
Accrued postretirement cost included in other
liabilities $(4,025) $(6,366)
======== ========
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25% for 1996 and 7.5% for 1995. An
8.0% annual rate of increase in the cost of health care benefits was assumed
for 1996 and the rate is assumed to decrease by 1% per year until 5% is
reached; thereafter the rate remains at 5%. An increase of 1% in the health
care trend rate would have increased 1996 net periodic postretirement benefit
expense by approximately $26,000 and the December 31, 1996 accumulated
postretirement benefit obligation by approximately $360,000. The plan is
funded on an as-needed basis.
9. Segment Data (Unaudited)
The Company operates in one segment and its business involves the
design, manufacture, marketing and servicing of a broad range of products
involving the control, handling and measurement of a variety of fluids. No
single customer accounted for more than 10 percent of net sales. Export
sales from the United States were $33,657,000, $25,701,000 and $25,889,000
in 1996, 1995 and 1994, respectively. Total net sales to customers outside
the United States were $66,219,000, $39,516,000 and $39,742,000 in 1996, 1995
and 1994, respectively. Total net sales and identifiable assets of the
Company's foreign subsidiaries represent less than 10 percent of consolidated
totals.
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
On July 31, 1996, 100% of the outstanding capital stock of NEWFLO
Corporation was purchased by PCC from its shareholders consisting of
individual and institutional investors. As a result of the Change in Control
of Registrant, the certifying accountant was changed to Price Waterhouse LLP,
certifying accountant for PCC. There were no disagreements with the prior
auditors, Ernst & Young LLP, and there had been no adverse opinions,
disclaimers, qualifications or modifications to audit opinions.
30
</PAGE>
<PAGE>
PART III
Item 10 - Executive Officers and Directors of Registrant
Item 10 is being filed with the reduced disclosure format pursuant to
compliance by the Registrant with conditions set forth in General Instruction
J(1)(a) and (b) and J(2)(c) of Form 10-K.
Item 11 - Executive Compensation
Item 11 is being filed with the reduced disclosure format pursuant to
compliance by the Registrant with conditions set forth in General Instruction
J(1)(a) and (b) and J(2)(c) of Form 10-K.
Item 12 - Security Ownership of Certain Beneficial Owners
and Management
Item 12 is being filed with the reduced disclosure format pursuant to
compliance by the Registrant with conditions set forth in General Instruction
J(1)(a) and (b) and J(2)(c) of Form 10-K.
Item 13 - Certain Relationships and Related Transactions
Item 13 is being filed with the reduced disclosure format pursuant to
compliance by the Registrant with conditions set forth in General Instruction
J(1)(a) and (b) and J(2)(c) of Form 10-K
31
</PAGE>
<PAGE>
PART IV
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K
A. (1) Financial Statements
The financial statements filed as part of this report are listed on the
Index to the Consolidated Statements on page 10.
(2) Financial Statement Schedules
All schedules for the periods ended December 31, 1996, July 30, 1996,
December 31, 1995 and 1994, have been omitted because the information
is not applicable, or is not material, or because the information
required is included in the financial statements or the notes thereto.
(3) Exhibits
Index to Exhibits
Item 14-A(3) Exhibits required by Item 601 of Regulation S-K and
additional exhibits.
The file number of PCC Flow Technologies, Inc., the Registrant, and for
exhibits incorporated by reference is 33-56256, and/or 1-10348 for the
parent company Precision Castparts Corp.
Exhibit
Number
3.1 Amended and Restated Certificate of Incorporation; previously
filed as Exhibit 3.1, with NEWFLO's S-1, filed with the
Commission on June 12, 1992, and herein incorporated by
reference.
3.2 Amended and Restated Bylaws; previously filed as Exhibit 3.3,
with NEWFLO's S-1, filed with the Commission on June 12, 1992,
an herein incorporated by reference.
3.3 Certificate of Amendment to Amended and Restated Certificate of
Incorporation of NEWFLO Corporation, dated August 7, 1996.
10.8 Form of Employment Agreement, dated as of November 11, 1991,
between NEWFLO and Brian W. Warren; previously filed as
Exhibit 10.9, with NEWFLO's S-1, filed with the Commission on
June 12, 1992, and herein incorporated by reference.
32
</PAGE>
<PAGE>
Exhibit
Number
10.9 Employment and Non-Competition Agreement, dated as of January
1, 1992 between Penberthy and Normand M. Simard; previously
filed as Exhibit 10.9, with NEWFLO's S-4, filed with the
Commission on December 23, 1992, and herein incorporated by
reference.
10.13 Employment and Non-Competition Agreement, dated as of September
30, 1993, between H&H Valve and William Ross, filed with the
Commission on March 30, 1994, and herein incorporated by
reference.
10.14 Employment and Non-Competition Agreement, dated as of September
30, 1993, between H&H Valve and J. M. Heinen, filed with the
Commission on March 30, 1994, and herein incorporated by
reference.
10.34 Executed Supply and Distribution Agreement, dated February 12,
1993, by and between Penberthy, Inc. and Axel Johnson (Canada)
Inc., including its Penberthy Canada and Brian Controls
divisions, filed with the Commission on March 30, 1994, and
herein incorporated by reference.
10.35 Executed Trademark License Agreement, dated as of February 12,
1993, between Axel Johnson (Canada) Inc. and Penberthy, Inc.,
filed with the Commission on March 30, 1994, and herein
incorporated by reference.
10.48 Form of Employment and Non-Interference Agreement, dated as of
May 2, 1994, between NEWFLO Corporation and John D. Lilla,
filed with the Commission on March 30, 1995, and herein
incorporated by reference.
10.58 Form of Employment and Non-Interference Agreement, dated May 2,
1994, as amended April 12, 1995, between NEWFLO Corporation and
Kathleen Mathews; previously filed with the Commission on March
30, 1995 as Exhibit 10.39, and herein incorporated by reference.
10.59 Form of Employment and Non-Competition Agreement, dated January
1, 1992, as amended January 2, 1995, between Flow Technologies,
Inc. and Robert K. Elders; previously filed with the Commission
on March 29, 1993 as Exhibit 10.7, and herein incorporated by
reference.
10.63 Purchase and sale agreement between NEWFLO Corporation and
Precision Castparts Corp. previously filed with the Commission
on July 31, 1996 by Parent (Registrant file Number 1-10348)
on Form 8K and herein incorporated by reference.
10.64 Asset purchase agreement between Barber Industries, Ltd. and
662200 Alberta Ltd. dated January 31, 1996.
20.1 Report of Independent Auditors dated February 23, 1996 previously
filed with the Commission on March 29, 1996 on Form 10K and herein
incorporated by reference.
27 Financial Data Schedule
B. Reports on Form 8-K
Reports on Form 8K have been filed by Registrant during of the period
covered by this report on:
August 15, 1996
September 30, 1996
October 10, 1996
33
</PAGE>
<PAGE>
C. Exhibits
See Item 14A(3) above.
D. Financial Statement Schedule
See Item 14A(1) and Item 14A(2) above.
34
</PAGE>
<PAGE>
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.
Dated: March 31, 1997
PCC Flow Technologies, Inc.
By: /s/ William C.McCormick
----------------------------------
William C. McCormick
(Director and Chairman of the Board)
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:
/s/ William C. McCormick Director and Chairman March 31, 1997
- --------------------------- of the Board
William C. McCormick
/s/ William D. Larsson Director and Chief March 31, 1997
- ----------------------------- Financial Officer
William D. Larsson
/s/ David W. Norris Director and President March 31, 1997
- -----------------------------
David W. Norris
35
</PAGE>
<PAGE>
EXHIBIT 3.3
Certificate of Amendment
to
Amended and Restated Certificate of Incorporation
of
NEWFLO Corporation
NEWFLO CORPORATION, a corporation organized and existing under the
General Corporation Law of the State of Delaware, (the "Company"), DOES
HEREBY CERTIFY:
FIRST: A resolution was duly adopted of the Board of Directors
(the "Board") of the Company, setting forth a proposed amendment to the
Amended and Restated Certificate of Incorporation of the Company as amended
and restated on November 17, 1992 and filed with the Secretary of the State
of Delaware on November 18, 1992 (the "Amended Certificate"). The resolution
was adopted in lieu of a special meeting of the Board in accordance with the
provisions of Section 141 of the General Corporation Law of the State of
Delaware. The proposed amendment changes the corporate name of the Company
from NEWFLO Corporation to PCC Flow Technologies, Inc. The Board having
declared said amendment to be advisable, called for the submission of said
amendment to a vote of the sole shareholder of the Company in accordance with
the General Corporation Law of the State of Delaware. The resolution setting
forth the proposed amendment is as follows:
RESOLVED, that the First Article of the Restated Certificate of
Incorporation of the Company is amended to provide as follows:
"First: The name of the Corporation is PCC Flow Technologies, Inc."
SECOND: A resolution was duly adopted of the Board, setting forth a
proposed amendment to the Amended Certificate. The resolution was adopted in
lieu of a special meeting of the Board in accordance with the provisions of
Section 141 of the General Corporation Law of the State of Delaware. The
proposed amendment decreases and reclassifies the authorized capital stock of
the Company. The Board having declared said amendment to be advisable,
called for the submission of said amendment to a vote of the sole shareholder
of the Company in accordance with the General Corporation Law of the State of
Delaware. The resolution setting forth the proposed amendment is as follows:
RESOLVED, that the Fourth Article of the Amended and Restated
Certificate of Incorporation of the Company is amended to read as follows:
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 100 shares of capital stock.
Outstanding shares of Class A and Class B common stock shall be redeemed
and the Corporation shall issue 100 shares of single-class common stock, par
value $.01 per share.
THIRD: That pursuant to resolution of the Board, the proposed
amendments were submitted to the sole stockholder of the Company and were
duly adopted by the sole shareholder of the Company pursuant to a written
consent dated July 31, 1996 in accordance with the applicable provisions of
Section 228 of the General Corporation Law of the State of Delaware.
FOURTH: That said amendments were duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, NEWFLO Corporation has caused this Certificate to
be signed, and attested by its duly authorized officer.
Dated: August 7, 1996
NEWFLO CORPORATION
By: /s/ J. Jack Watson
-----------------------
J. Jack Watson
President and Chief Executive
Officer
</PAGE>
<PAGE>
Exhibit 10.64
ASSET PURCHASE AGREEMENT
BETWEEN
BARBER INDUSTRIES LTD.
and
662200 ALBERTA LTD.
</PAGE>
<PAGE>
TABLE OF
CONTENTS
ARTICLE 1 INTERPRETATION
1.1 Definitions..............................................1
1.2 Schedules...............................................10
1.3 Construction............................................11
1.4 Canadian GAAP...........................................11
1.5 Entire Agreement........................................12
ARTICLE 2 PURCHASE AND SALE
2.1 Purchase and Sale.......................................12
2.2 Consideration...........................................12
2.3 Goods and Services Tax..................................12
2.4 Purchase Price Allocation...............................13
2.5 Excluded Assets.........................................13
ARTICLE 3 INTERIM MATTERS
3.1 General Maintenance.....................................13
3.2 Restricted Activities...................................14
3.3 Interim Monitoring......................................15
3.4 Employee Obligations....................................15
3.5 Pension and Benefits Plans..............................16
3.6 Purchaser's Insurance...................................16
3.7 Facilitation............................................16
ARTICLE 4 DUE DILIGENCE
4.1 Access to Assets and Information........................16
4.2 Deficiencies............................................17
4.3 Valuation Disputes......................................17
4.4 Deficiency Adjustment...................................18
ARTICLE 5 NET WORTH DETERMINATION
5.1 Net Worth...............................................18
5.2 Specific Items..........................................19
5.3 Financial Records.......................................19
5.4 Closing Net Worth Estimation............................19
ARTICLE 6 COMPLETION
6.1 Closing.................................................19
6.2 Vendor's Deliveries.....................................20
6.3 Purchaser's Deliveries..................................20
6.4 Purchaser's Conditions Precedent........................21
6.5 Vendor's Conditions Precedent...........................23
6.6 Interim Statement of Adjustments........................23
6.7 Possession and Risk.....................................24
- ii -
</PAGE>
<PAGE>
6.8 Assumption of Obligations................................24
6.9 Excluded Obligations.....................................24
6.10 Vendor's Records.........................................25
6.11 Lev-O-Matic Trademark....................................25
ARTICLE 7 REPRESENTATIONS AND WARRANTIES
7.1 Vendor's Representations.................................25
7.2 Limitation...............................................30
7.3 Acknowledged Matters.....................................31
7.4 Disclosure to Vendor.....................................31
7.5 Purchaser's Representations..............................31
ARTICLE 8 LIABILITY AND INDEMNIFICATION
8.1 Vendor Liability and Indemnification.....................32
8.2 Purchaser Liability and Indemnification..................32
8.3 Limitations..............................................33
8.4 Environmental Liability..................................34
8.5 Environmental Report.....................................35
8.6 Environmental Remediation................................35
8.7 Disputed Responsibility..................................35
8.8 Environmental Emergency..................................36
8.9 Elected Responsibility...................................36
ARTICLE 9 POST-CLOSING ADJUSTMENT PROCEDURE
9.1 Post-Closing Statement of Adjustments....................36
9.2 Ongoing Adjustments......................................37
9.3 Assigned Receivables Adjustment..........................37
9.4 Late Payment.............................................37
ARTICLE 10 GENERAL.
10.1 Consequences of Termination..............................38
10.2 Confidential Information.................................38
10.3 Exclusivity..............................................39
10.4. Brokers' Fees............................................39
10.5 Communications...........................................39
10.6 Public Announcements.....................................40
10.7 Transaction Expenses.....................................41
10.8 Assignment...............................................41
10.9 Enurement................................................41
10.10 Governing Law............................................41
10.11 Further Assurances.......................................41
10.12 Waiver...................................................41
10.13 Non-Merger...............................................41
10.14 Counterpart Execution....................................42
- iii -
</PAGE>
<PAGE>
SCHEDULES
Schedule "A" - Operating Equipment
Part I - Owned Equipment
Part II - Leased Equipment/Equipment Leases
Schedule "B" - Real Property
Part I - Owned Real Property
Part II - Leased Property/Real Property Leases
Schedule "C" - Other Material Contracts
Part I - Sales and Services Contracts
Part II - Agency Agreements
Part III - Employment Contracts
Part IV - Miscellaneous Material Contracts
Schedule "D" - Employees
Part I - Key Employees
Part II - Staff Employees
Part III - Union Employees
Schedule "E" - Intellectual Property Rights
Schedule "F" - Financial Statements
Part I - September 30, 1990, June 30, 1991 and
December 31, 1991, 1992, 1993 and 1994
Part II - July 31, 1995 (Seven Months)
Part III - August, September, October, November and
December, 1995 (Monthly)
Schedule "G" - Pro Forma Net Worth Statement
Schedule "H" - Outstanding Capital Expenditures Obligations
Schedule "I" - Assignable Authorizations
Schedule "J" - Letters of Credit
Schedule "K" - Base Price Allocation
Schedule "L" - Non-Competition Agreement
Schedule "M" - Weatherford Enterra Canada Ltd. Guarantee
Schedule "N" - Acknowledged Matters
- iv-
</PAGE>
<PAGE>
ASSET PURCHASE AGREEMENT
THIS AGREEMENT made as of the 31st day of January, 1996,
BETWEEN:
BARBER INDUSTRIES LTD., a body corporate having an office
in the City of Calgary, in the Province of Alberta
(the "Vendor")
OF THE FIRST PART
- - and -
662200 ALBERTA LTD., a body corporate having an office in the
City of Calgary, in the Province of Alberta (the "Purchaser")
OF THE SECOND PART
WHEREAS the Vendor has agreed to sell and convey, and the Purchaser
has agreed to purchase and accept, on the terms and conditions hereinafter
set forth, all of the Vendor's right, title, estate and interest in and to the
Business Assets, as the same are hereinafter defined;
NOW THEREFORE, in consideration of the premises and of the
respective agreements of the parties hereinafter set forth, the parties
agree as follows:
ARTICLE 1
INTERPRETATION
1.1 Definitions
In this Agreement, including the premises and the schedules hereto
(a) "Accrued Continuing Employee Obligations" means all employment payment
obligations of any nature (including, without limitation, those
relating to salary or wages, vacation pay, workers' compensation and
other statutory contributions and withholdings, and employer
contributions to pension and benefit plans) accruing prior to the
Closing Date in respect of Employees that become "continuing employees"
within the contemplation of Section 3.4, but does not include any such
obligations that have been satisfied by the Vendor by the Closing Date;
(b) "ACEO Adjustment Amount" means (i) the total dollar amount of all
Accrued Continuing Employee Obligations that are not taken into
account for purposes of determining the Closing Net Worth, less (ii)
the total dollar amount of any claims fluctuation reserve credit or
other Vendor's credit under the Benefits Plan, and of any Vendor's
credit under the Pension Plan, to the extent that the same are not
taken into account for purposes of determining the Closing Net Worth;
</PAGE>
<PAGE>
- 2 -
(c) "Acknowledged Matters" means any of the matters disclosed or referred
to in Schedule "N";
(d) "Affiliate Obligations" means the Vendor's debt and other obligations
and liabilities to its parent, Enterra Petroleum Equipment Group, Inc.,
or to any other affiliate of the Vendor, and includes all interest,
fee, cost and similar amounts payable by the Vendor in respect thereof;
(e) "Applicable Law" means the mandatorily applicable provisions of any law,
statute, regulation, rule, ordinance, order or directive enacted or
issued by any governmental or regulatory body or other duly
constituted public authority (whether legislative, administrative or
executive) having jurisdiction over the Vendor or the Business Assets,
and includes, without limitation, the mandatorily applicable provisions
of any permit, licence or other governmental or regulatory
authorization issued to the Vendor in respect of the Business Assets or
any of them;
(f) "Arbiter" means the Calgary office of Ernst & Young, Chartered
Accountants, or such other firm of chartered accountants as the
parties may agree to retain as an arbiter for purposes of Sections 4.3
and 9.5;
(g) "Assignable Authorizations" means those of the Vendor's licences,
permits and other governmental and regulatory authorizations
applicable to the Business or the Business Assets that are lawfully
assignable to the Purchaser in conjunction with the sale of the
Business and the other Business Assets pursuant hereto;
(h) "Assignable Prepaid Items" means the benefit of all prepaid rentals
and other expense prepayments or deposits heretofore made by the
Vendor in respect of the Business or the Business Assets, to the extent
that such benefit is lawfully assignable to the Purchaser in
conjunction with the sale of the Business and the other Business
Assets pursuant hereto;
(i) "Assigned Receivables" means all of the Vendor's trade and other
accounts receivable (including, without limitation, accounts for
goods, services and benefits provided but not yet invoiced) relating to
the Business and remaining outstanding at the time of Closing;
(j) "Assumed Obligations" means the obligations to be assumed by the
Purchaser pursuant to Section 6.8;
</PAGE>
<PAGE>
- 3 -
(k) "Base Price" means the sum of Nine Million, One Hundred and Twenty-Five
Thousand U.S. Dollars ($9,125,000 U.S.), converted to Canadian dollars
at the noon day exchange rate quoted by the Bank of Canada on the day
before Closing;
(l) "Benefits Plan" means the Great-West Life Assurance Company benefits
plan currently maintained by the Vendor for the Employees, being the
plan established under Great-West Life Assurance Company's Group
Policy No. 134376;
(m) "Business" means the wellhead and safety systems manufacturing, sales,
installation and service business conducted by the Vendor's Edmonton
Manufacturing Division at the manufacturing, distribution, storage,
sales and service sites and facilities that form part of the Business
Assets, and at such other sites and facilities as are used in
conjunction therewith, as conducted or proposed to be conducted by the
Vendor on the date hereof and on the Closing Date, and does not
include any part of the business of the Vendor's former Harrisburg
Woolley Division;
(n) "Business Assets" means the Owned Equipment, the Owned Real Property,
the Inventory, the Vendor's rights and interests under the Material
Contracts, the Office Assets, the Intellectual Property Rights, the
Assignable Authorizations, the Assignable Prepaid Items, the Assigned
Receivables, the Vendor's Records and all other property, assets and
rights of the Vendor relating to the Business (including, without
limitation, goodwill, miscellaneous contractual rights and interests,
the Vendor's rights in respect of the Pension Plan and Benefits Plan,
any Related Claim Rights, and any property, assets or rights acquired by
the Vendor in respect of the Business between the date hereof and
Closing, to the extent that such items are lawfully assignable to the
Purchaser in conjunction with the sale of the Business and the other
Business Assets pursuant hereto), but does not include any Excluded
Assets;
(o) "Business Day" means any day of the week except Saturday, Sunday or any
statutory holiday in Calgary, Alberta;
(p) "Closing" has the meaning ascribed thereto in Section 6.1;
(q) "Closing Date" has the meaning ascribed thereto in Section 6.1;
(r) "Closing Net Worth" has the meaning ascribed thereto in Section 5.1;
(s) "Closing Payment" means the amount determined by adding (i) the Base
Price, (ii) the Closing estimate of the Net Worth Adjustment Amount as
determined in accordance with Section S.4 (it being acknowledged that
if the Closing estimate of the Net Worth Adjustment Amount is a
negative number, its addition shall be equivalent to the subtraction of
the absolute value thereof) and (iii) the amount of any GST that may be
payable in connection with the purchase and sale of the Business
Assets, and by subtracting from the total thereof (iv) the Closing
estimate
</PAGE>
<PAGE>
-4-
of the ACEO Adjustment Amount as determined in accordance with Section
6.6 (it being acknowledged that if the Closing estimate of the ACEO
Adjustment Amount is a negative number, its subtraction shall be
equivalent to the addition of the absolute value thereof), and (v) the
Deficiency Adjustment Amount, if any.
(t) "Deficiency Adjustment Amount" has the meaning ascribed thereto in
Section 4.4;
(u) "Employees" means the individuals listed in Schedule "D", being the
individuals (other than Reginald Worsley) who are presently employed
by the Vendor in respect of the Business;
(v) "Employment Contracts" means the Union Contract and all written
employment contracts between the Vendor and any Key Employee or Staff
Employee;
(w) "ENSR Report" means the environmental due diligence report prepared
for the Purchaser by ENSR Consulting and Engineering, dated November,
1995 and entitled Environmental Due Diligence Examination of Barber
Industries Ltd.
(x) "Environmental Deficiency" means:
(i) any release (whether by way of spilling, leaking, seeping,pumping,
pouring, emitting, emptying, discharging, injecting, escaping,
leaching, disposing or dumping), prior to the Closing Date, of
any substance or material in respect of which Environmental Law
imposes liability or a standard of conduct (including, without
limitation, crude oil and derivatives thereof, asbestos and
asbestos-containing materials, polychlorinated biphenyls, and
other toxic, corrosive or hazardous chemicals, pollutants,
contaminants and waste materials) on, in, at or under any Owned
Real Property or other real property leased or used by the
Vendor in the Business, or
(ii) any other violation of Environmental Law occurring prior to the
Closing Date and affecting any Owned Real Property or other real
property leased or used by the Vendor in the Business, that has
not been remedied as required by Environmental Law (
(y) "Environmental Law" means any past or present Applicable Law relating to
pollution or protection of the environment,persons or the public
welfare from environmental detriment, including, without limitation,
that relating to:
(i) actual or potential exposure (or the effects of exposure) to any
actual or potential release (whether by way of spilling, leaking,
seeping, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, disposing or dumping) of, or
</PAGE>
<PAGE>
- 5 -
(ii) the manufacture, processing, production, gathering,
transportation, use, treatment, storage or disposal of, any toxic,
corrosive or hazardous chemicals, pollutants, contaminants, waste
products or other substances or materials of any nature
(including, without limitation, crude oil and derivatives thereof,
asbestos and asbestos-containing materials, and polychlorinated
biphenyls), but does not include any such law the primary focus
of which is worker safety or workplace conditions;
(z) "Equipment Leases" means the lease and rental agreements in respect of
Operating Equipment that is presently leased or rented by the Vendor,
being the lease and rental agreements described in Part II of Schedule
"A";
(aa) "Escrow Agreement" means the form of Escrow Agreement attached as
Schedule "M";
(bb) "Excluded Assets" means (i) all cash, bank deposits and accounts,
deposit certificates and similar cash equivalent deposits, investments or
accounts of the Vendor, together with the right to any interest accrued
on any thereof, (ii) all income tax and GST credits, rebates, refunds and
other payments and benefits to which the Vendor is now or hereafter
entitled, (iii) any prepaid rentals or other expense prepayments or
deposits, any licences, permits or other governmental and regulatory
authorizations, and any other rights in the nature of a chose in action,
that by their terms or nature cannot be lawfully assigned to the
Purchaser by the Vendor pursuant to this Agreement, (iv) any Inventory,
equipment or materials disposed of by the Vendor between the date hereof
and the Closing Date in accordance with the provisions of Section 3.2,
(v) any claims or causes of action accruing in favour of the Vendor
prior to the Closing Date, other than Related Claim Rights, and (vi) all
taxpayer and other identification numbers, corporate records and
similar items personal to the Vendor and not relating exclusively to
the Business Assets or the Assumed Obligations;
(cc) "Excluded Obligations" means any liability or obligation on the part of
the Vendor in respect of (i) income taxes, capital taxes or GST, or any
other Taxes not taken into account in calculating the Closing Net Worth
(other than the prorated post-Closing portion of any property or
similar Taxes that are for any reason not taken into account in
calculating the Closing Net Worth), (ii) Affiliate Obligations, (iii)
any subsisting indebtedness not specifically included in the Assumed
Obligations, (iv) Reginald Worsley or any Employee who rejects an offer
of employment made by the Purchaser in accordance with Section 3.4,
(v) any payment recovery rights (other than those in respect of salary
or wages, vacation pay, Pension Plan or Benefits Plan recoveries or
entitlements, or agreements or commitments made by or on behalf of
the Purchaser) arising on employment termination in favour of any
Employee who accepts an offer of employment made by the Purchaser in
accordance with Section 3.4, and within one year of the Closing Date
voluntarily terminates his or her employment with
</PAGE>
<PAGE>
- 6 -
the Purchaser under circumstances in which he or she is not entitled to
rightfully claim wrongful constructive dismissal from such employment,
(vi) Environmental Deficiencies, (vii) any subsisting retiree medical
benefits due to Reginald Worsley or any Employee or former employee of
the Vendor, (viii) the Vendor's former Harrisburg Woolley Division,
(ix) any injury, loss or damage suffered by, or any claim asserted by,
any third party in respect of any deficiency in or problem with any
product manufactured by the Vendor prior to the Closing Date and shipped
on or before December 31, 1996 (unless shipped by the Purchaser with the
knowledge of the existence of such deficiency or problem, or unless and
to the extent such deficiency or problem is attributable to, or
exacerbated by, any act or omission on the part of the Purchaser or any
person acting for it or on its behalf), and (x) any injury, loss or
damage suffered by, or any claim asserted by, any person in respect of
any act or omission on the part of the Vendor or any person acting for
it or on its behalf (including, without limitation, any breach of any
agreement by the Vendor) occurring at any time prior to the Closing
Date, other than an act or omission giving rise to a deficiency or
problem of the kind for which the Purchaser is to assume the risk
pursuant to subsection 6.8(e);
(dd) "Financial Statements" means (i) the unaudited September 30, 1990, June
30, 1991 and December 31, 1991, 1992, 1993 and 1994 financial statements
of the Business comprising Part I of Schedule "F", (ii) the unaudited
July 31, 1995 balance sheet and seven month income statement of the
Business comprising Part II of Schedule "F", and (iii) the unaudited
August, September, October, November and December, 1995 monthly income
statements and month-end balance sheets comprising Part III of Schedule
"F";
(ee) "GAAP" means generally accepted Canadian accounting principles
applicable at the relevant time of consideration;
(ff) "GST" means the goods and services tax provided for in the Excise Tax
Act (Canada);
(gg) "Intellectual Property" means all (i) inventions and improvements thereto
(whether patentable or not), and all patents, patent applications and
patent disclosures, together with all re-issuances, continuations,
continuations-in-part, revisions, extensions and re-examinations thereof,
(ii) trademarks, trade names and corporate names and applications,
registrations and renewals related thereto, (iii) copyrightable works,
copyrights, and applications, registrations, and renewals related
thereto, (iv) trade secrets and confidential business information, (v)
computer software (including data and related documentation), and (vi)
other intellectual property rights of any nature;
(hh) "Intellectual Property Rights" means the Vendor's Intellectual Property
rights and interests related to the Business;
</PAGE>
<PAGE>
- 7 -
(ii) "Inventory" means the Vendor's raw materials, supplies, spare parts,
components, work-in-progress, finished goods and other inventory items
related to the Business, wherever located;
(jj) "Key Employees" means the persons listed in Part 1 of Schedule "D";
(kk) "Material Contracts" means the Equipment Leases, the Real Property
Leases, the Employment Contracts and any other contracts that are
related to the Business, and
(i) pursuant to which the Vendor is or will be required to make or
entitled to receive payments of, or to provide goods or services
having a value to the Vendor of, $30,000 or more, taking into
account any extensions, amendments or elections which could be
effected without the consent of the Vendor, or
(ii) the loss of which could reasonably be expected to adversely
affect the value of the Business or the operation or value of the
Business Assets or any of them in a material way;
(ll) "Material Deficiency" means any deficiency, defect or problem in or
with any of the Business Assets that (i) adversely affects the value of
such Asset by more than $5,000, and (ii) is not dealt with by way of an
adjustment to the Closing Net Worth in accordance with the principles
set forth in Article 5, but does not include any political, economic or
other factors or developments of any nature having an effect generally
on businesses of the nature of the Business, or assets of the nature
of the Business Assets;
(mm) "Net Worth Adjustment Amount" means the difference obtained by subtracting
(i) Ten Million, Five Hundred and Twenty-Four Thousand Dollars
($10,524,000) from (ii) the Closing Net Worth;
(nn) "Office Assets" means all of the office equipment, computers,
furnishings, fixtures and supplies used by the Vendor in the Business;
(oo) "Operating Equipment" means the vehicles, machinery, tools and equipment
listed in Schedule "A", and includes all of the component and ancillary
equipment and materials associated therewith, whether or not specifically
listed in Schedule "A";
(pp) "Outstanding Capital Expenditure Obligations" means the Vendor's
outstanding payment obligations as tat September 30, 1995 in respect of
equipment and technology on order or acquired subject to deferred
payment arrangements, as more particularly set forth in Schedule "H";
(qq) "Owned Equipment" means the Operating Equipment listed in Part I of
Schedule "A";
</PAGE>
<PAGE>
- 8 -
(rr) "Owned Real Property" means the Real Property listed in Part I of
Schedule "B";
(ss) "Pension Plan" means the pension plan for the Vendor's employees as
implemented by the plan document entitled The Barber Industries Ltd.
Pension Plan (consolidated to April 1, 1992);
(tt) "Permitted Encumbrances" means:
(i) the encumbrances and restrictions identified in the Schedules,
(ii) the terms and conditions of the Material Contracts and the
Assignable Authorizations,
(iii) easements, rights of way, servitudes and similar rights in land,
including rights of way and servitudes for highways and other
roads, railways, sewers, drains, gas and oil pipelines, gas and
water mains, electric light, power, telephone, telegraph or cable
television conduits, poles, wires and cables,
(iv) the right reserved to or vested in any government or other public
authority by the terms of any lease, licence, franchise, grant or
permit forming part of the Business Assets, or by any statutory
provision, to terminate any such lease, licence, franchise, grant
or permit, or to require annual or other periodic payments as a
condition of the continuance thereof,
(v) rights reserved to or vested in any governmental authority to
control or regulate any of the Business Assets in any manner, and
all applicable laws, rules and orders of governmental authorities,
(vi) liens incurred or created as security in favour of a person
conducting the development or operation of any of the Business
Assets, for the Vendor's proportionate share of the costs and
expenses of such development or operation, but only insofar as such
liens relate to costs and expenses for which payment is not due,
(vii) the reservations, limitations, provisos and conditions in any
original grant from the Crown of any of the Real Property or
interests therein, and statutory exceptions to title,
(viii) liens for taxes, assessments or governmental charges which are
not due, or the validity of which is being contested in good
faith by the Vendor,
(ix) mechanics', builders' or materialmen's liens in respect of
services rendered or goods supplied, but only insofar as such
liens relate to goods or services for which payment is not due,
</PAGE>
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(x) liens incurred, created or granted in the ordinary course of
business to a public utility, municipality or governmental
authority in connection with operations conducted with respect
to the Business Assets, but only insofar as such liens relate to
costs and expenses for which payment is not due, and
(xi) security granted in the ordinary course of business to a public
utility or governmental authority where required by such utility
or authority in connection with operations relating to the
Business Assets;
(uu) "Pro Forma Net Worth Statement" means the September 30, 1995 Pro Forma
Balance Sheet attached as Schedule "G";
(vv) "Purchase Price" has the meaning ascribed thereto in Section 2.2;
(ww) "Real Property" means the real property described in Schedule "B", and
includes all buildings, structures, improvements, fixtures and
appurtenances affixed thereto or forming part thereof;
(xx) "Related Claim Right" means any right that the Vendor may now or
hereafter have to maintain a cause of action against any non-affiliated
third party for any act, omission or event occurring either before or
after the Closing Date and resulting in any damage, loss or cost to the
Purchaser as a result of any damage to or loss of any of the Business
Assets, but does not include any such right:
(i) relating to any act, omission or event the occurrence, existence
or non-disclosure of which renders the Vendor directly liable to
the Purchaser, whether under this Agreement or otherwise, or
(ii) that might be raised in counterclaim or set-off against any claim
or cause of action being asserted or threatened against the
Vendor;
provided, however, that the exclusion of rights relating to the matters
contemplated by clause (i) shall not be construed as limiting the
Purchaser's right to indemnification hereunder;
(yy) "Real Property Leases" means the lease and rental agreements in respect
of Real Property that is presently leased or rented by the Vendor,
being the lease and rental agreements described in Part II of Schedule
"B";
(zz) "Staff Employees" means the persons whose names are listed in Part II
of Schedule "D";
(aaa) "Taxes" means any federal, provincial or municipal taxes or duties,
levies, fees or assessments in the nature of taxes (including, without
limitation, income taxes, capital taxes, windfall profits taxes, GST,
sales taxes, property taxes, social
</PAGE>
<PAGE>
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security taxes, stamp taxes, value added taxes, use taxes, excise
taxes, customs duties and fuel taxes), and includes any interest,
penalty or other additional obligation associated therewith;
(bbb) "Union Contract" means the Collective Agreement made as of February 1,
1993 between Barber Industries (Edmonton Division) and the Glass,
Molders, Pottery, Plastics & Allied Workers International Union, Local
371, A.F.L., C.I.O., C.L.C.; and
(ccc) "Vendor's Records" means all of the Vendor's books, records, accounts,
files, software and other documentary and computer information, data
and materials of any nature relating to the Business or the Business
Assets.
1.2 Schedules
The following schedules are annexed to this Agreement and form a part hereof:
Schedule "A" - Operating Equipment
Part I - Owned Equipment
Part II - Leased Equipment/Equipment Leases
Schedule "B" - Real Property
Part I - Owned Real Property
Part II - Leased Property/Real Property Leases
Schedule "C" - Other Material Contracts
Part I - Sales and Services Contracts
Part II - Agency Agreements
Part III - Employment Contracts
Part IV - Miscellaneous Material Contracts
Schedule "D" - Employees
Part I - Key Employees
Part II - Staff Employees
Part III - Union Employees
Schedule "E" - Intellectual Property Rights
Schedule "F" - Financial Statements
Part I - September 30, 1990, June 30, 1991
and December 31, 1991, 1992, 1993
and 1994
Part II - July 31, 1995 (Seven Months)
Part III - August, September, October
November and December, 1995
(Monthly)
Schedule "G" - Pro Forma Net Worth Statement
Schedule "H" - Outstanding Capital Expenditures Obligations
Schedule "I" - Assignable Authorizations
Schedule "J" - Letters of Credit
Schedule "K" - Base Price Allocation
</PAGE>
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Schedule "L" - Non-Competition Agreement
Schedule "M" - Weatherford Enterra Canada Ltd. Guarantee
Schedule "N" - Acknowledged Matters
1.3 Construction
In this Agreement, unless otherwise expressly stated:
(a) references to a "party" or "parties" are references to a
party or parties to this
Agreement, and references to "herein",
"hereby", "hereunder", "hereof" and similar
expressions are references to this
Agreement and not to any particular section,
subsection or schedule;
(b) references to an "Article", "Section",
"subsection", "clause" or "Schedule" are
references to an Article, Section,
subsection, clause or Schedule of or to this
Agreement;
(c) references to dollar amounts are
references to Canadian dollar amounts;
(d) the phrase "to the best of the Vendor's
knowledge" and similar phrases and
references mean to the best of the
actual and conscious knowledge of the Key
Employees, having made reasonable
inquiry;
(e) words importing the singular shall
include the plural and vice versa, words
importing gender shall include the
masculine, feminine and neuter genders, and
references to a "person" or "persons"
shall include individuals, corporations,
partnerships, associations, bodies
politic and other entities, all as may be applicable
in the context;
(f) for purposes of Section 7.1, the term
"material", when used to describe an
occurrence or circumstance giving rise
to liability, loss, damage or an obligation
to expend monies, shall mean any such
occurrence or circumstance for which the
liability, loss, damage or expenditure
obligation associated therewith exceeds
$30,000;
(g) the use of headings is for convenience of
reference only and shall not affect the
construction or interpretation hereof;
and
(h) time is of the essence.
1.4 Canadian GAAP
Except as otherwise expressly provided
herein, all determinations and assessments
reliant on the application of accounting principles shall be
made on a basis consistent with
GAAP.
</PAGE>
<PAGE>
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Entire Agreement
This Agreement and the Confidentiality Letter
dated August 28, 1995 between NEWFLO Corporation, on behalf
of itself and the Purchaser, and Enterra Corporation, on
behalf of the Vendor, together express and constitute the
entire agreement between the parties with respect to the
purchase and sale of the Business Assets, and supersede any
previous agreements or understandings with respect to the
purchase and sale of the Business Assets (including, without
limitation, the October 12, 1995 letter of intent from
NEWFLO Corporation to Enterra Petroleum Equipment Group).
This Agreement may be amended only by written instrument
executed by both the Vendor and the Purchaser.
ARTICLE 2
PURCHASE AND SALE
2.1 Purchase and Sale
The Vendor hereby agrees to sell and convey the
Business Assets to the Purchaser, and the Purchaser hereby
agrees to purchase and accept the Business Assets from the
Vendor, all on the terms and conditions set forth in this
Agreement.
2.2 Consideration
As consideration for the sale and conveyance of
the Business Assets to the Purchaser, the Purchaser shall:
(a) pay to the Vendor a purchase
price (the "Purchase Price") equal to the amount
determined by adding (i) the
Base Price and (ii) the Net Worth Adjustment
Amount (it being acknowledged
that if the Net Worth Adjustment Amount is a
negative number, its addition
shall be equivalent to the subtraction of the
absolute value thereof), and by
subtracting from the total thereof (i) the ACEO
Adjustment Amount (it being acknowledged
that if the -ACEO Adjustment Amount is a
negative number, its subtraction
shall be equivalent to the addition of the absolute
value thereof), (ii) the
Deficiency Adjustment Amount, if any, and (iii) the
amount of any Assigned Receivables
adjustment required pursuant to Section 9.3; and
(b) assume full and several
responsibility and liability for the due satisfaction
of the Assumed Obligations.
2.3 Goods and Services Tax
The parties acknowledge that the Purchase Price is
exclusive of any GST that may be payable by the Purchaser
pursuant to the Excise Tax Act (Canada) (the "Act") in
respect of the purchase of the Business Assets, but also
acknowledge that no GST should be payable in respect of such
purchase by virtue of the provisions of subsection 167(1.1)
of the Act. In connection therewith:
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<PAGE>
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(a) the Purchaser represents and
covenants to the Vendor that it is now, and will
until completion of Closing continue
to be, a registrant under the Act, and that its GST
registration number is R886457753;
(b) the Vendor represents and
covenants to the Purchaser that it is now, and
will until completion of Closing continue
to be, a registrant under the Act, and that its GST
registration number is R130511827; and
(c) the parties shall at Closing
prepare and jointly execute the election prescribed
by subsection 167(1) of the Act,
and upon completion of Closing the Purchaser shall
file such election in the manner
and within the time prescribed therefor.
2.4 Purchase Price Allocation
The parties acknowledge and agree that the Base
Price has been allocated among the various categories of
property comprising the Business Assets in the manner set
forth in Schedule "K", and that such allocation of the Base
Price is reasonable and bona fide. Once the Purchase Price
has ultimately been determined, the Purchaser shall adjust
the allocation set forth in Schedule "K" to reflect the
adjustments contemplated by the Net Worth Adjustment Amount,
the ACEO Adjustment Amount, the Deficiency Adjustment
Amount, if any, and Section 9.3. The Purchaser's
determination of such allocation adjustment shall be
reasonable and bona fide, and in compliance with both
Applicable Law and the allocation principles reflected in
Schedule "K". Provided that the Purchaser complies with its
obligations in this respect, the Base Price allocation as so
adjusted shall be the agreed Purchase Price allocation. All
income tax returns and reports filed by the parties in
respect of their respective taxation years in which Closing
occurs shall reflect such allocation of the Purchase Price,
and neither party shall take any position inconsistent
therewith in any Tax filing or matter.
2.5 Excluded Assets
The Purchaser acknowledges that the purchase and
sale contemplated hereby does not include the shares of
Barber Industries, Inc., any accounts receivable or other
remaining assets of the Vendor's former Harrisburg Woolley
Division, or any Excluded Assets.
ARTICLE 3
INTERIM MATTERS
3.1 General Maintenance
Throughout the period from the
date hereof to the completion of Closing the
Vendor shall:
(a) maintain its corporate existence
and good standing under the laws of the Province
of Alberta;
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<PAGE>
- 14
(b) maintain its relations with its
employees and all material suppliers and customers,
conduct the Business in a
proper, prudent and lawful manner, in keeping with
its current practices, and use all
reasonable efforts to preserve the goodwill
associated with the Business;
(c) pay all expenses and other
amounts payable by it in a timely manner, and
observe, perform and comply in all
material respects with all material covenants,
agreements and obligations
under the Material Contracts, except as otherwise
provided in Section 3.2;
(d) comply in all material respects
with all laws, regulations, ordinances, orders and
decrees applicable to the
Business and the Business Assets;
(e) use, operate and maintain the
Operating Equipment, the Real Property, the Office
Assets, the Inventory and all
other tangible Assets in a proper, prudent and lawful
manner, in keeping with its
current practices;
(f) continue to maintain insurance
coverage on its operations and the Business Assets
in accordance with its current
practices; and
(g) maintain the Vendor's Records.
3.2 Restricted Activities
Throughout the period from the
date hereof to the completion of Closing the
Vendor shall not, without the prior consent of the
Purchaser:
(a) enter into or engage in any new
transaction or activity outside of the ordinary
course of the Business;
(b) sell, trade, abandon, mortgage,
charge or otherwise dispose of or encumber any
of the Business Assets, other
than (i) tools, implements, appliances, equipment,
machinery and like items that
have become worn out, unserviceable, obsolete,
unsuitable or unnecessary in
the operation of the Business, that are disposed of in
the ordinary course of
business, and that have a market value of less than $30,000
in the aggregate, and (ii)
Inventory sold or otherwise disposed of in the ordinary
course of business;
(c) place orders for, purchase or
otherwise acquire any new property or assets of any
kind, other than (i) the
equipment and technology on order or acquired in
connection with the Outstanding
Capital Expenditure Obligations, (ii) Inventory
acquired in the ordinary course
of business, and (iii) tools, implements, appliances,
equipment, machinery and like
items acquired in the ordinary course of business
and having a value of less than
$30,000 in the aggregate;
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<PAGE>
- 15 -
(d) incur any indebtedness, obligation
or liability of any nature in respect of the
Business, other than accounts
payable and bank overdraft obligations incurred in
the ordinary course of the
Business;
(e) terminate, surrender or amend any
of the Material Contracts in any material manner;
(f) forgive or otherwise do any thing
that adversely affects the value or recoverability
of any of the Assigned
Receivables;
(g) introduce any material new method
of conducting the Business or using or
operating any of the Business
Assets;
(h) Defer the payment of any accounts
payable related to the Business beyond the
payment deferral periods
considered part of the normal course of business; or
(i) increase the compensation of any
Employee or otherwise change the terms of any
Employment Contract in any way
adverse to the Purchaser.
3.3 Interim Monitoring
Throughout the period from the date hereof to the
completion of Closing the Purchaser shall be entitled to
monitor the activities and affairs of the Vendor and the
operation, management and administration of the Business and
the Business Assets, and the Vendor shall ensure that the
Purchaser is kept apprised of all material developments and
decisions relating to the Business and the Business Assets.
3.4 Employee Obligations
The Purchaser shall offer each of the Employees an
employment position with the Purchaser, commencing on
completion of the purchase and sale of the Business Assets
pursuant hereto. The responsibilities, remuneration and
benefits to be offered to each Employee shall be
substantially the same as those presently enjoyed by such
person in his or her employment with the Vendor, including,
without limitation, recognition of a length of employment
service with the Purchaser equal to the length of employment
service that such person has with the Vendor. The Employees
who accept the Purchaser's offer of employment shall be
considered to be "continuing employees", and the Purchaser
shall assume full responsibility for both:
(a) all Accrued Continuing Employee
Obligations; and
(b) all employment obligations of any
nature (including, without limitation, those
relating to salary or wages,
vacation pay, workers' compensation and other
statutory contributions and
withholdings, and employer contributions to pension
and benefit plans, and those
relating to any termination of employment on any
basis or for any reason) accruing
on or after the Closing Date in respect of such
Employees.
</PAGE>
<PAGE>
- 16-
If any Employee rejects the Purchaser's offer of employment,
the Vendor shall remain responsible for all employment
obligations of any nature relating to such Employee
(including, without limitation, any obligation to pay any
Pension Plan, Benefits Plan or other severance settlement
amount on termination of the employment of such Employee),
and the Purchaser shall assume no responsibility therefor.
The Purchaser shall not be prevented hereby from changing
the job responsibilities and other employment terms of the
"continuing employees" following Closing, but the Purchaser
shall be responsible for all obligations and liabilities
associated therewith, and the Vendor shall have no
responsibility therefor.
3.5 Pension and Benefits Plans
The parties shall use all reasonable efforts to
arrange for the Purchaser to be permitted to assume the
Vendor's position under the Pension Plan and the Benefits
Plan upon completion of Closing, and shall do all things
reasonably required to ensure that the Purchaser assumes the
Vendor's position under the Pension Plan and the Benefits
Plan upon completion of Closing.
3.6 Purchaser's Insurance
By the Closing Date the Purchaser shall obtain
policies of insurance providing the Purchaser with business
insurance coverage (including, without limitation, products
liability, property and comprehensive general liability) in
accordance with industry and business practices followed by
owners of businesses in the nature of the Business. Such
policies of insurance shall be maintained in full force and
effect by the Purchaser for a period of at least one year
following the Closing Date.
3.7 Facilitation
Each of the parties shall proceed reasonably,
diligently and in good faith to facilitate or secure the
satisfaction of the conditions precedent set forth in
Sections 6.4 and 6.5, to the extent that the same is within
its reasonable control, and otherwise to perform and satisfy
its covenants, agreements and obligations hereunder with a
view to completing the purchase and sale of the Business
Assets at the time and in the manner provided herein;
provided, however, that nothing in this Section 3.7 shall
affect the right of any party to exercise its discretion as
to whether any such conditions precedent in its favour have
been satisfied or complied with.
ARTICLE 4
DUE DILIGENCE
4.1 Access to Assets and Information
Throughout the period from the
date hereof to the completion of Closing the
Vendor shall:
</PAGE>
<PAGE>
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(a) at reasonable times and upon
reasonable notice, provide the Purchaser and its
agents with access to all of the
Business Assets, including the Vendor's Records,
in order that the Purchaser might
conduct such examinations and investigations as
it considers appropriate in
conjunction with the purchase and sale contemplated
hereby; and
(b) cause all of its officers,
employees, consultants and advisors to cooperate with the
Purchaser in the conduct of its
examinations and investigations.
4.2 Deficiencies
If as a result of the Purchaser's due diligence
investigations or otherwise the Purchaser becomes aware of
any Material Deficiencies or other deficiencies affecting
any of the Business Assets, the Purchaser may provide the
Vendor with written notice of any such deficiencies, in
which case the Vendor shall use reasonable efforts to remedy
such deficiencies to the reasonable satisfaction of the
Purchaser prior to the Closing Date. In order to maximize
the time available to remedy such deficiencies, the
Purchaser shall endeavour to notify the Vendor of such
deficiencies on an ongoing basis, as soon as reasonably
practicable after becoming aware of the same. If any such
deficiencies are, in the Purchaser's reasonable and bona
fide opinion, Material Deficiencies, the Purchaser shall in
a timely manner, and in any event by no later than 4:00 p.m.
Calgary time on Tuesday, January 30, 1996, provide the
Vendor with its reasonable and bona fide assessment of the
dollar amount by which each such Material Deficiency reduces
the value of the particular Business Asset or Business
Assets to which it relates.
4.3 Valuation Disputes
If the Vendor is of the opinion that the value
reduction amount attributed to any particular Material
Deficiency by the Purchaser pursuant to Section 4.2 is
unreasonably high, it shall have a period of two Business
Days in which to provide the Purchaser with a notice to such
effect, setting forth the Vendor's bona fide assessment of
the dollar amount by which each such Material Deficiency
reduces the value of the Business or the particular Business
Asset or Business Assets to which it relates. If the Vendor
provides the Purchaser with such a dispute notice within the
stated time, and if the parties are unable to agree upon a
mutually acceptable value reduction amount for the subject
Material Deficiency within two Business Days of the date of
delivery of such notice, or by the Closing Date, whichever
is earlier, the matter shall be referred to the Arbiter, who
shall be instructed to determine the proper value reduction
amount having regard to the effect of the subject Material
Deficiency on the particular Business Asset or Business
Assets to which it relates, and whose decision shall be
final and binding on the parties. If any value reduction
amount determined by the Arbiter in accordance with the
provisions of this Section 4.3 is lower than the Purchaser's
suggested value reduction amount for the particular Material
Deficiency, and is closer to the Vendor's suggested value
reduction amount than the Purchaser's suggested value
reduction amount, the Purchaser shall bear the cost of
having the particular value reduction amount determination
made by the Arbiter. Otherwise the Vendor shall bear such
cost. If the Arbiter does not render his decision prior to
the Closing Date, the Closing Date shall be postponed in
accordance with Section 6.1, provided that nothing in this
Section 4.3 shall compel a party to complete the Closing if
any of the conditions precedent in such party's
</PAGE>
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favour in Section 6.4 or Section 6.5, as the case may be,
have not been satisfied as of any such new Closing Date.
4.4 Deficiency Adjustment
In the event that any Material Deficiencies
identified by the Purchaser pursuant to Section 4.2 remain
outstanding at Closing, and the aggregate amount of the
value reduction amounts attributed to such Material
Deficiencies pursuant to either Section 4.2 or Section 4.3,
as applicable, exceeds $50,000, the Purchaser shall be
entitled to a deficiency adjustment equal to such aggregate
amount (the "Deficiency Adjustment Amount"). If the
Deficiency Adjustment Amount exceeds 10% of the Base Price,
either party may terminate this Agreement by written notice
given to the other party on or before the Closing Date.
ARTICLE 5
NET WORTH DETERMINATION
5.1 Net Worth
For the purposes of this Agreement the book net
worth of the Business and the Business Assets at the time of
Closing (the "Closing Net Worth") shall be the dollar amount
by which:
(a) the total value of the Business
Assets, determined as at the Closing Date
in accordance with the same
accounting principles and practices as were utilized in
the preparation of the Pro Forma
Net Worth Statement;
exceeds
(b) the total value of the Assumed
Obligations, determined as at the Closing Date
in accordance with the same
accounting principles and practices as were utilized in
the preparation of the Pro Forma
Net Worth Statement;
provided, however, that if any of the accounting principles
or practices utilized in the preparation of the Pro Forma
Net Worth Statement is inconsistent with either Section 5.2
or current GAAP (including, without limitation, current GAAP
requirements with respect to calculations and the reflection
of such reserves, accruals and adjustments as are required
to be reflected in year-end balance sheets), such principle
or practice shall for purposes of determining the Closing
Net Worth be modified to the extent necessary to make it
comply with Section 5.2 and current GAAP. The accounting
principles and practices utilized in the preparation of the
Pro Forma Net Worth Statement, as modified to give effect to
any application of the preceding proviso, shall for purposes
of this Article 5 be referred to as the "Established
Principles".
</PAGE>
<PAGE>
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5.2 Specific Items
The parties acknowledge and agree that,
irrespective of the treatment of such items in the Pro Forma
Net Worth Statement, for purposes of determining the Closing
Net Worth:
(a) no Excluded Assets or other assets
not forming part of the Business Assets shall
be taken into account;
(b) no Excluded Obligations or other
liabilities or obligations remaining the
responsibility of the Vendor
shall be taken into account; and
(c) all property taxes, rentals,
licence and registration fees and similar expenses of the
Business payable with reference
to a period of time overlapping the Closing Date
shall be allocated pro rata on a
per diem basis between the portions of such period
preceding and following the
Closing Date, with any post-Closing allocation
amounts that have been paid by
Closing to be taken into account as assets, and
with any pre-Closing allocation
amounts that have not been paid by Closing to be
taken into account as
liabilities.
5.3 Financial Records
The Vendor maintains financial records and books
of account (collectively, the "Financial Records") in
respect of the various account items to be taken into
account for purposes of calculating the Closing Net Worth.
The parties acknowledge that the Financial Records are
intended to reflect the Established Principles, and that the
Financial Records shall be used as the basis for determining
the Closing Net Worth.
5.4 Closing Net Worth Estimation
The parties acknowledge that, because the conduct
of the Business will be ongoing throughout the period
between the date hereof and Closing, the Closing Net Worth
will not be capable of precise determination until some time
following Closing. The parties shall accordingly use the
best reasonable estimate of the Closing Net Worth available
from the Financial Records as they stood on December 31,
1995 to determine a Closing estimate of the Net Worth
Adjustment Amount, shall use such estimate to determine the
Closing Payment, and shall adjust for any retrospectively
discovered variances in the manner provided in Article 9.
ARTICLE 6
COMPLETION
6.1 Closing
The closing of the purchase and sale contemplated
hereby ("Closing") shall take place at the offices of the
Vendor's Solicitors at 3700 Canterra Tower, 400 - Avenue
S.W., Calgary, Alberta, at 10:00 a.m. Calgary time on
Wednesday, January 31, 1996 (the "Closing
</PAGE>
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Date"), or at such other place and time, or on such other
Closing Date, as may be mutually
agreed upon in writing; provided however, that if on the
Closing Date a dispute is being
arbitrated pursuant to Section 4.3, the Closing Date shall
be postponed to the first Business Day
following the day on which a final decision is rendered in
respect of such dispute.
6.2 Vendor's Deliveries
At Closing the Vendor shall
deliver or cause to be delivered to the Purchaser:
(a) all such transfers, conveyances,
assignments, novation agreements, notices and
other documents and instruments
as the Purchaser may reasonably request for the
purpose of effecting the sale and
conveyance of the Business Assets to it in
accordance with the terms of this
Agreement, all duly executed by the Vendor;
(b) an execution original of the form
of Non-Competition Agreement attached as
Schedule "L", duly executed by
the Vendor and Weatherford Enterra Canada Ltd.;
(c) the certificate contemplated by
subsection 6.4(c);
(d) the written consent and
undertaking contemplated by subsection 6.4(f);
(e) copies of all such consents and
approvals contemplated by subsection 6.4(g) as
have been received by the Vendor
by Closing;
(f) the election contemplated by
subsection 2.3(c); and
(g) an execution original of the form
of Guarantee attached as Schedule "M", duly
executed by Weatherford Enterra
Canada Ltd.;
6.3 Purchaser's Deliveries
At Closing the Purchaser shall
deliver or cause to be delivered to the Vendor:
(a) executed originals of each of the
documents contemplated by subsection 6.2(a) that
are to be executed by the
Purchaser;
(b) the election contemplated by
subsection 2.3(c);
(c) confirmation of the obtainment of
the policies of insurance contemplated by
Section 3.6; and
(d) replacement letters of credit, in
form and substance satisfactory to the Vendor,
suitable to replace the letters
of credit previously provided by the Vendor to its
suppliers and other Business
creditors, as set forth in Schedule "J";
</PAGE>
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and shall pay the Closing Payment by wire transferring it
(in U.S. funds) to the following account of the Vendor's
Solicitors:
Toronto-Dominion Bank
Calgary Place Branch
340 - 5th Avenue S.W.
Calgary, Alberta T2P OL3
Account Name: Macleod Dixon Trust
Account
Account no. 0805-730-1780
Transit no. 80609-004
6.4 Purchaser's Conditions Precedent
The following shall be conditions precedent to the
Purchaser's obligation to complete the purchase contemplated
by this Agreement:
(a) the Vendor shall between the date
hereof and the Closing Date have complied in all
material
respects with its covenants under
Articles 3, 4 and 5 and Section 6.2;
(b) the Purchaser shall not by the
Closing Date have become aware of any fact or matter
indicating
that the Business Assets are
subject to any material deficiency or problem of which the
Purchaser
is not presently aware, and an
adjustment for which cannot be made pursuant to either
Article 4 or
Article 5;
(c) the Vendor's representations and
warranties contained in Section 7.1 shall be true and
correct as at
the Closing Date, and the Vendor
shall on the Closing Date have delivered to the
Purchaser a
certificate of a senior officer
of the Vendor, dated as of the Closing Date, stating
that the
representations and warranties
contained in Section 7.1 are true and correct as at the
Closing Date;
(d) each of the Key Employees shall by
the Closing Date have accepted the employment offer
made to
him by the Purchaser pursuant to
Section 3.4, and have entered into a written agreement
confirming such acceptance;
(e) Reginald Worsley shall by the
Closing Date have accepted a consulting position with
the
Purchaser, on terms satisfactory
to the Purchaser, and have entered into a written
agreement
confirming such acceptance;
(f) the Vendor shall on the Closing
Date have provided the Purchaser with a written
consent and authorization to use
the name "Barber", together with an undertaking
to (i) proceed immediately to
file Articles of Amendment changing the Vendor's
name to a name not involving the
word "Barber", (ii) cause its parent, Weatherford
Enterra Canada Ltd., to change
the name of its Cherco-Barber Division to a name
not involving the word "Barber"
within one year of the Closing Date, and (iii)
</PAGE>
<PAGE>
- 22 -
cause any other affiliates that use the name "Barber" to
discontinue the use of that name as of
the Closing Date;
(g) the Vendor shall by the Closing
Date have received all governmental, regulatory
and third party consents and
approvals required to be obtained by it in connection
with the sale of the Business
Assets to the Purchaser pursuant hereto (including,
without limitation, any consents
of a material nature required to be obtained under
the terms of Material Contracts
prior to the assignment thereof), and the Purchaser
shall by the Closing Date have
received all governmental and regulatory consents
and approvals required to be
obtained by it in connection with the purchase of the
Business Assets from the Vendor
pursuant hereto;
(h) the parties' Closing estimate of
the Closing Net Worth as determined in accordance
with Section 5.4 shall be at
least $10,524,000;
(I) the composition and mix of the
Vendor's operating assets and liabilities related to
the Business shall be
substantially the same on the Closing Date as disclosed in
the balance sheet forming part of
the July 31, 1995 Financial Statements;
(j) the net sales attributable to the
Business, as determined in accordance with the
Vendor's usual accounting
principles and practices (modified, if necessary, to the
extent required to remedy any
inconsistencies with GAAP), shall (i) have been at
least $23.5 million for the
twelve months ended July 31, 1995, and (ii) on the
basis of actual financial results
as at October 31, 1995, be projected to be at least
$23.4 million for the twelve
months ended December 31, 1995; and
(k) the net income of the Business
(determined without taking into account any
extraordinary or non-recurring
items, any interest, portfolio or investment income,
or any items of income or expense
not relating to the Business), plus all depreciation,
interest expense and income Tax
amounts deducted in calculating such net income, all
as determined in accordance with
the Vendor's usual accounting principles and practices
(modified, if necessary, to the
extent required to remedy any inconsistencies with
GAAP),
shall (i) have been at least $3.9
million for the twelve months ended July 31, 1995, and
(ii) on the basis of actual
financial results as at October 31, 1995, be projected
to be at
least $3.53 million for the
twelve months ended December 31, 1995.
The foregoing conditions shall be for the sole benefit of
the Purchaser and may be waived in whole or in part by the
Purchaser in writing. In the event that any of the foregoing
conditions is not satisfied or waived by the Closing Date,
and the non-satisfaction of such condition or conditions is
materially adverse to the Purchaser in the context of the
transaction as a whole, the Purchaser shall be entitled to
terminate this Agreement by notice in writing given to the
Vendor on the Closing Date.
</PAGE>
<PAGE>
- 23 -
6.5 Vendor's Conditions Precedent
The following shall be conditions precedent to the
Vendor's obligation to complete the sale contemplated by
this Agreement:
(a) the Purchaser shall between the
date hereof and the Closing Date have complied
in all material respects with its
covenants under Articles 3, 4 and 5 and
Section 6.3;
(b) the Purchaser's representations
and warranties contained in Section 7.4 shall be true
and correct as
at the date
hereof and as at the Closing
Date, the Vendor shall not at the Closing Date be aware
of any facts
indicating to
the contrary, and the Purchaser
shall on the Closing Date have delivered to the Vendor
a certificate
of a senior
officer of the Purchaser, dated
as of the Closing Date, stating that the
representations and
warranties contained
in Section 7.4 were true and
correct as at the date hereof and are true and correct
as at the Closing
Date; and
(c) the Vendor shall by the Closing
Date have received all governmental, regulatory and third
party
consents and approvals required
to be obtained by it in connection with the sale of the
Business
Assets to the Purchaser pursuant
hereto, (including, without limitation, any consents of a
material
nature required to be obtained
under the terms of Material Contracts prior to the
assignment
thereof) and the Purchaser shall
by the Closing Date have received all governmental and
regulatory
consents and approvals required
to be obtained by it in connection with the purchase of the
Business Assets from the Vendor
pursuant hereto.
The foregoing conditions shall be for the sole benefit of
the Vendor and may be waived in whole or in part by the
Vendor in writing. In the event that any of the foregoing
conditions is not satisfied or waived by the Closing Date,
and the non-satisfaction of such condition or conditions is
materially adverse to the Vendor in the context of the
transaction as a whole, the Vendor shall be entitled to
terminate this Agreement by notice in writing given to the
Purchaser on the Closing Date.
6.6 Interim Statement of Adjustments
The parties shall detail the components of the
Closing Payment in an interim statement of adjustments to be
signed by the Vendor and the Purchaser at Closing. The
Vendor shall prepare a draft of such interim statement of
adjustments and provide the Purchaser with a copy of the
same at least three Business Days before the Closing Date,
and such draft shall be used as the basis for the generation
of the interim statement of adjustments to be tabled at
Closing. The parties acknowledge that the Closing Payment
will be made in U.S. funds and that the amount of the
Closing Payment in U.S. funds shall be calculated by
converting the Closing Payment from Canadian dollars to U.S.
dollars at the noon day exchange rate quoted by the Bank of
Canada on the day before Closing.
</PAGE>
<PAGE>
- 24 -
6.7 Possession and Risk
Possession and risk of the
Business Assets shall pass to the Purchaser upon
completion of Closing.
6.8 Assumption of obligations
If the purchase and sale contemplated hereby is completed,
the Purchaser shall upon completion of Closing, without
requirement of any further documentation or acknowledgement,
assume full and several responsibility and liability for the
due payment and satisfaction of:
(a) all of the Vendor's trade and other
accounts payable (including, without limitation, accrued
obligations in respect of goods,
services and benefits provided but not yet invoiced)
relating to
the Business or any Business
Assets and remaining outstanding at the time of Closing,
other
than any such accounts payable not
taken into account in the determination of the Closing Net
Worth;
(b) the Outstanding Capital Expenditure
Obligations;
(c) the Employee obligations described
in subsections 3.4(a) and (b);
(d) without limiting the generality of
Section 6.7, all obligations and liabilities of any
nature (other than Excluded
Obligations, which, by definition, includes
obligations and liabilities on
the part of the Vendor in respect of any breach of any
agreement by the Vendor) accruing
under or in respect of the Material Contracts
(including, without limitation,
the Union Contract), the Assignable Authorizations, the
Pension Plan, the Benefits Plan
or any other agreement or arrangement forming part
of the Business Assets, or
otherwise accruing in respect of any of the Business
Assets, at any time after the
time of completion of Closing; and
(e) subject to the provisions of
subsection 8.1(a), and except as otherwise provided by
virtue of clauses (vi) and (ix)
of the definition of Excluded Obligations, any loss,
damage or injury of any nature
suffered or incurred by, or any claim asserted by,
any person whatsoever in
connection with any use or application of any of the
Business Assets at any time
following Closing, whether arising as a result of
defects or deficiencies in design
or workmanship, or otherwise.
6.9 Excluded Obligations
Nothing in this Agreement shall be construed as
rendering the Purchaser liable for any of the Vendor's
obligations in respect of any of the Excluded Obligations.
</PAGE>
<PAGE>
- 25 -
6.10 Vendor's Records
The Vendor shall be entitled to retain copies of
all such Vendor's Records as it may reasonably expect to
require the use of, and following Closing the Purchaser
shall, at reasonable times and upon reasonable notice,
provide the Vendor and its agents with access to such of the
Vendor's Records and the Employees as the Vendor may from
time to time reasonably request access to for purposes of
obtaining or confirming information relevant to any matter
or thing occurring prior to Closing.
6.11 Lev-O-Matic Trademark
Forthwith following Closing the Vendor shall cause
the Lev-O-Matic trademark referred to in paragraph 5 of
Schedule "N" to be registered in the name of the Vendor and
immediately thereafter transferred to the Purchaser, and
shall cause the mortgage of Bank of Nova Scotia on the Owned
Real Property registered at the Corporate Registry Office of
the Registrar of Corporations for the Province of Alberta to
be discharged and released.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES
7.1 Vendor's Representations
The Vendor represents and warrants
to the Purchaser that, except for Acknowledged Matters:
(a) the Vendor is a corporation duly
incorporated and validly subsisting under the laws of
the
Province of Alberta, with full
capacity and authority to sell and convey the Business
Assets,
and to otherwise transact the
affairs contemplated by this Agreement, in accordance
with the
provisions hereof;
(b) the Vendor has taken all corporate
actions necessary to authorize the execution and
delivery
of this Agreement, and will at the
Closing Date have taken all corporate actions necessary
to
authorize and complete the sale
and conveyance of the Business Assets in accordance
with the
provisions hereof, and this
Agreement has been validly executed and delivered, and
it and all
other documents executed and
delivered by or on behalf of the Vendor pursuant hereto
shall
constitute legal, valid and
binding obligations of the Vendor enforceable in
accordance with
their respective terms and
conditions;
(c) completion of the sale and
conveyance of the Business Assets in accordance with
the provisions
of this Agreement will not
constitute a default under, or be in contravention or
breach of any
agreement or instrument to which
the Vendor is a party, or by which it is bound, or any
judgment, decree, order, law,
statute, rule or regulation applicable to the Vendor;
(d) the Vendor has good and marketable
title to, is the lawful owner of, and has the full
right to
sell, convey, transfer, assign
and deliver the Owned Equipment, the Owned Real
</PAGE>
<PAGE>
- 26 -
Property, the Office Assets, the
Inventory and all Intellectual Property Rights owned by the
Vendor, and such Business Assets
will at Closing be free and clear of any liens,
encumbrances, security interests
or third party rights or claims of any nature whatsoever,
other than Permitted Encumbrances;
(e) subject only to consent
requirements and restrictions contained in the Material
Contracts
and the instruments giving rise to
the Intellectual Property Rights, the Vendor is entitled
to convey and assign the Material
Contracts, the Intellectual Property Rights and the
Assigned Receivables to the
Purchaser, and such Business Assets will at Closing be free
and clear of any liens,
encumbrances, security interests or third party rights or
claims of
any nature whatsoever, other than
Permitted Encumbrances;
(f) Schedule "A" sets forth a complete
and accurate list of all of the Operating Equipment
other than (i) equipment ancillary
to and materials associated with the Operating
Equipment and (ii) items acquired
by the Vendor in the ordinary course of business
between December 31, 1995 and the
Closing Date (and the Vendor will identify in writing
to the Purchaser, prior to
Closing, each item so acquired which has a market value or
book value of $30,000 or more);
(g) Part II of Schedule "A" lists all
of the lease and rental agreements pursuant to which the
Vendor holds any leased Operating
Equipment used in connection with the Business and
the Vendor has delivered or made
available to the Purchaser true, correct and complete
copies of the Equipment Leases;
(h) Part II of Schedule "B" lists all
of the lease and rental agreements pursuant to which the
Vendor holds any leased real
property used in connection with the Business and includes
complete and accurate descriptions
of such leased real property and the Vendor has
delivered or made available to the
Purchaser true, correct and complete copies of the Real
Property Leases;
(i) Schedule "C" contains a complete
and accurate list of the Material Contracts of all types
whatsoever, other than those set
out in any other Schedule, and the Vendor has delivered
or made available to the Purchaser
true, correct and complete copies of all written Material
Contracts and a written
description of each oral Material Contract;
(j) to the best of the Vendor's
knowledge, the Material Contracts and Assignable
Authorizations are all in good
standing, the Vendor has not in any material respect
breached any of the material terms
thereof, and the Vendor has not received any
notice of default or of any
intention to terminate any of the Material Contracts or
Assignable Authorizations;
(k) for the five (5) years immediately
preceding the Closing Date, the Vendor has maintained
insurance coverage on its
operations and insurable Business Assets in accordance
with
industry and business practices;
</PAGE>
<PAGE>
- 27 -
(l) Schedule "E" is a complete and
accurate list of all of the Intellectual Property
Rights and none of the Intellectual
Property Rights are the subject of any pending
adverse claim or, to the best of
the Vendor's knowledge, any threatened claim of
infringement, and to the best of
the Vendor's knowledge, the products the Vendor
manufactures, produces or sells in
connection with the Business do not, and any
process, method, part, design or
material the Vendor employs does not, infringe
any intellectual property of any
other person;
(m) the Financial Statements accurately,
completely and fairly present the assets,
liabilities and financial position
of the Business, and the results of its operations, as
of the respective dates thereof in
conformity with GAAP and the past accounting
practice of the Vendor,
consistently applied during the periods presented,
except as
otherwise noted, and, except as
otherwise noted:
(i) the Financial
Statements make full and adequate disclosure of, and
provision
for, all material
obligations and liabilities of the Vendor related to the
Business,
the Business Assets
and the Assumed Obligations, as of the dates presented, to
the extent required by
GAAP and the Vendor's past accounting practices, and
(ii) to the best of the
Vendor's knowledge, except as set forth in the
Financial
Statements, there are
no liabilities, debts, claims or obligations of the
kinds
normally recorded in
financial statements prepared in conformity with GAAP
and the past
accounting practices of the Vendor, whether accrued,
absolute,
contingent or
otherwise, which could have a material adverse effect
on the
Business or Business
Assets;
(n) since July 31, 1995:
(i) the Business and all
other activities of the Vendor have been carried on in
the ordinary and
normal course, and
(ii) there has not been
any material adverse change in the Business, or any
material
damage, destruction,
loss or change (whether or not covered by insurance)
adversely affecting
the Business or the Business Assets in any material way
in
the context of the
Business and Business Assets as a whole;
(o) except for Reginald Worsley, who is
not for purposes of this Agreement considered an
Employee, Schedule"D" constitutes
a complete listing of the Vendor's employees and
their respective salaries or wage
rates, dates of hire and benefits and bonus arrangements;
(p) the Pension Plan and Benefits Plan
have each been established, maintained and
administered in all material
respects in accordance with their respective governing
documents and Applicable Law, and:
</PAGE>
<PAGE>
- 28 -
(i) as of December 31,
1995, the Vendor's contributions to the Pension Plan were
fully paid up and
the Vendor had no unfunded past service liability to the
Benefits
Plan, calculated in
accordance with the financial account method employed by the
carrier, The Great-
West Life Assurance Company, or to the Pension Plan,
(ii) neither the Pension
Plan nor the Benefits Plan presently provides any post-
retirement
medical or life
insurance benefits for which the Purchaser would have any
obligation
to make any
contribution upon or following the retirement of a
beneficiary thereof,
and
(iii) except for the
Pension Plan, the Benefits Plan and as otherwise noted in
Schedule "D", the
Vendor does not have any pension, profit sharing,
retirement,
bonus, deferred
compensation, stock option or stock appreciation rights
plan,
arrangement or
practice, or any medical (including retiree medical) or
severance
pay plan, affecting
one or more Employees, and does not have any commitment to
create any such
plan, arrangement or practice or additional benefits above
those
currently enjoyed by
the Employees;
(q) to the best of the Vendor's
knowledge, the Business has in all material respects
been
conducted, and the Operating
Equipment, Real Property and Inventory have, while
owned by
the Vendor, in all material
respects been maintained and utilized in accordance
with accepted
industry practices, Applicable
Laws and the terms and conditions of the agreements
relating
thereto;
(r) without limiting the generality of
subsection 7.1(q), the Vendor is not in breach of any
Applicable Law that would have a
material adverse effect on the Business or the Business
Assets in the context of the
Business or Business Assets as a whole;
(s) to the best of Vendor's knowledge,
no work stoppage or other labour dispute in respect of
the Vendor's Business is pending
or threatened, and, to the best of Vendor's knowledge,
no application for certification
of a new collective bargaining agent is pending or
threatened
and, to the best of Vendor's
knowledge, no facts or circumstances exist which could
provide
the basis for any work stoppage or
other labour dispute;
(t) the Vendor is not a party or
subject to any action, suit or other legal, administrative,
criminal
or arbitration proceeding or
governmental investigation, actual, or to the best of the
Vendor's
knowledge, threatened, including
any such action relating to or arising from products
liability,
Environmental Deficiencies or the
acts or omissions of the trustee or carrier of the Pension
Plan or Benefits Plan, which might
reasonably be expected to result in any liability on the
part of the Purchaser, or in any
material impairment or loss of the Business or the Business
Assets;
</PAGE>
<PAGE>
- 29 -
(u) there has not been any accident,
happening or event within the five (5) years
immediately preceding the Closing
Date involving claims or threatened claims,
in writing, in excess of $20,000
in respect of alleged material defects in the design,
manufacture, materials or
workmanship, including without limitation, any alleged
future to warn or any alleged
breach of express or implied warranties, with respect
to a product designed or
manufactured by or on behalf of the Vendor;
(v) to the best of the Vendor's
knowledge, there are no material defects in design,
manufacture, materials or
workmanship, including, without limitation, any failure
to
warn, or any breach of express or
implied warranties which involve any product
designed, manufactured, shipped,
sold or delivered by or on behalf of the Vendor and,
to the best of the Vendor's
knowledge, there has not been any product recall,
rework or
post-sale warning or similar
action (collectively "Recalls") conducted with respect
to any
product designed, manufactured,
shipped, sold or delivered by or on behalf of the
Vendor, or any investigation or
consideration of or decision made by the Vendor
concerning whether or not to
undertake any Recalls;
(w) to the best of the Vendor's
knowledge, there are no Environmental Deficiencies
other
than the outstanding issues of
potential concern disclosed in the ENSR Report which
may be Environmental
Deficiencies;
(x) without limiting the generality of
subsection (w), except for the outstanding issues of
potential concern disclosed in
the ENSR Report:
(i) to the best of the
Vendor's knowledge, there is no asbestos, asbestos-
containing
materials or
underground storage tanks or related piping located at, in,
on or
under the Owned Real
Property or any other real estate presently leased or used
by the Vendor in the
Business, that is required to be removed or remediated
under Environmental
Law,
(ii) the Vendor has
obtained all material licences, permits and other
governmental
and regulatory
authorizations required under Environmental Law in
order to
lawfully operate
the Business, and, to the best of the Vendor's
knowledge, all
such licences,
permits and authorizations are in full force and
effect,
(iii) to the best of the
Vendor's knowledge, the Vendor has complied in all
material
respects with all
of the material terms and conditions of the licences,
permits
and authorizations
referred to in clause (ii) of this subsection, and has
complied
in all material
respects with all Environmental Laws,
(iv) to the best of the
Vendor's knowledge, there have been no releases of the
kind
contemplated by
clause (i) of the definition of Environmental
Deficiency,
</PAGE>
<PAGE>
- 30 -
(v) to the best of the
Vendor's knowledge, except for Permitted Encumbrances,
there are no liens
against the Business or any of the Business Assets under
any Environmental
Law, and
(vi) to the best of the
Vendor's knowledge, no notice or other filing, consent or
approval is
required under any Environmental Law as a prerequisite to
the
completion of the
sale of the Business Assets pursuant to this Agreement;
(y) the Vendor has delivered or made
available to the Purchaser, true, correct and complete
copies of any reports, studies,
assessments, analyses, evaluations, tests or monitoring
results
prepared by the Vendor or by a
third party on behalf of the Vendor in respect of the
compliance or non-compliance of
the Business with Environmental Laws;
(z) the Vendor has not paid and will
not become obligated to pay any fee or commission to any
broker, finder, investment banker
or other intermediary in connection with the transactions
contemplated by this Agreement,
other than fees payable to Simmons & Company
International;
(aa) the Vendor is not aware of any
material information particular to the Business or the
Business Assets that is not
contained in the Vendor's Records;
(bb) the Vendor is not a non-resident of
Canada for the purposes of Section 116 of the Income
Tax Act (Canada); and
(cc) the Purchaser will not become
liable for any of the Vendor's Taxes of the kind
contemplated
by clause (i) of the definition
of Excluded Obligations as a result of the consummation
of the
transactions contemplated herein.
7.2 Limitation
Except as otherwise expressly set forth in Section
7.1 the Vendor makes no representations or warranties of any
nature whatsoever with respect to the Business Assets, and,
in particular, the Vendor makes no representation or
warranty, express or implied, statutory or otherwise, as to
the utility, quality, merchantability or fitness of the
Business Assets for any particular purpose or use, other
than as expressly set forth in Section 7.1, and the
Purchaser expressly acknowledges and agrees that it is being
given full opportunity to inspect and examine the Business
Assets, and is purchasing the same without right or recourse
against the Vendor for any defect or deficiency of any
nature therein, except insofar as the existence or
non-disclosure of such defect or deficiency constitutes
either Vendor's fraud or a breach or failure of a
representation and warranty expressly given in Section 7.1,
and except insofar as the Vendor has agreed to remain
responsible for product liability claims of the kind
described in clause (ix) of the definition of Excluded
Obligations.
</PAGE>
<PAGE>
- 31 -
7.3 Acknowledged Matters
The Purchaser acknowledges that it is aware of the
Acknowledged Matters, that it has taken them into account in
setting the Base Price, and that each of the representations
and warranties of the Vendor set forth in Section 7.1 is
expressly subject to the Acknowledged Matters. The
Purchaser's acknowledgement of the Acknowledged Matters
shall not prevent the Purchaser from exercising its rights
under Section 9.3 with respect to any problematic Assigned
Receivables that might be noted as Acknowledged Matters, or
from exercising its rights to seek indemnification from the
Vendor pursuant to Article 8 for the Vendor's
non-performance of any of its covenants or obligations under
Section 6.11, Section 8.5 or Section 8.6.
7.4 Disclosure to Vendor
If at any time on or before the Closing Date the
Purchaser becomes aware of any matter the occurrence or
existence of which would render any of the Vendor's
representations and warranties in Section 7.1 untrue, and if
the Vendor does not appear to be aware of such matter, the
Purchaser shall notify the Vendor of such matter as soon as
reasonably practicable. The disclosure of any such matter to
the Vendor prior to the Closing Date shall not prejudice or
limit any of the Purchaser's rights with respect thereto
under this Agreement (including the right to rely on the
representations, warranties and indemnities of the Vendor
and to seek damages in respect of any breach or failure
thereof), but the failure of the Purchaser to disclose any
such matter to the Vendor prior to the Closing Date shall
preclude the Purchaser from seeking recourse against the
Vendor in respect of such matter at any time thereafter.
7.5 Purchaser's Representations
The Purchaser represents and
warrants to the Vendor that:
(a) the Purchaser is a corporation duly
incorporated and validly subsisting under the laws of the
Province of Alberta, with full
capacity and authority to purchase the Business Assets, and
to
otherwise transact the affairs
contemplated by this Agreement, in accordance with the
provisions hereof;
(b) the Purchaser has taken all
corporate actions necessary to authorize the execution
and delivery
of this Agreement and will at the
Closing Date have taken all corporate actions necessary
to
authorize and complete the
purchase of the Business Assets in accordance with the
provisions
hereof, and this Agreement has
been validly executed and delivered, and it and all
other
documents executed and delivered
by or on behalf of the Purchaser pursuant hereto shall
constitute legal, valid and
binding obligations of the Purchaser enforceable in
accordance with
their respective terms and
conditions; and
(c) completion of the purchase of the
Business Assets in accordance with the provisions of this
Agreement will not constitute a
default under, or be in contravention or breach of, any
agreement or instrument to which
the Purchaser
</PAGE>
<PAGE>
- 32 -
is a party, or by which it is
bound, or any judgment, decree, order, statute, rule or
regulation
applicable to the Purchaser.
ARTICLE 8
LIABILITY AND INDEMNIFICATION
8.1 Vendor Liability and
Indemnification
Subject to the provisions of
Sections 7.4 and 8.3:
(a) the Vendor shall be liable to the
Purchaser for, and shall indemnify the Purchaser from
and against, any and all
liability, loss, costs, claims or damages of any nature
(including,
without limitation, legal costs on
a solicitor/client basis) suffered or incurred by the
Purchaser (whether directly or by
virtue of any third party claim) as a result of any
occurrence, matter or thing the
occurrence, existence or non-disclosure of which
constitutes or gives rise to a
breach or failure of any representation, warranty,
covenant,
agreement or other obligation of
the Vendor hereunder; and
(b) provided that the purchase and sale
contemplated hereby is completed, the Vendor shall
indemnify the Purchaser from and
against any and all liability, loss, costs, claims or
damages of any nature (including,
without limitation, legal costs on a solicitor/client basis)
suffered or incurred by the
Purchaser (whether directly or by virtue of any third party
claim) in connection with any of
the Excluded Obligations.
8.2 Purchaser Liability and
Indemnification
Subject to the provisions of
Section 8.3:
(a) the Purchaser shall be liable to
the Vendor for, and shall indemnify the Vendor from and
against, any and all liability,
loss, costs, claims or damages of any nature (including,
without limitation, legal costs on
a solicitor/client basis) suffered or incurred by the Vendor
(whether directly or by virtue of
any third party claim) as a result of any occurrence, matter
or thing the occurrence, existence
or non-disclosure of which constitutes or gives rise to a
breach or failure of any
representation, warranty, covenant, agreement or other
obligation
of the Purchaser hereunder; and
(b) provided that the purchase and sale
contemplated hereby is completed, the Purchaser shall
be liable to the Vendor for, and
shall indemnify the Vendor from and against, any and all
liability, loss, costs, claims or
damages of any nature (including, without limitation, and
legal costs on a solicitor/client
basis) suffered or incurred by the Vendor (whether directly
or by virtue of any third party
claim) (i) as a result of any occurrence, matter or thing
pertaining to the Business or the
</PAGE>
<PAGE>
- 33 -
Business Assets and arising or
occurring subsequent to the Closing Date, or (ii) in
connection with any of the Assumed
Obligations.
8.3 Limitations
Notwithstanding the provisions of Sections 8.1,
8.2 and 8.4, and notwithstanding any statutory or regulatory
provision, principle of law or rule of equity to the
contrary:
(a) neither party shall be entitled to
maintain a claim against the other party in respect of any
liability, loss, costs, claims or
damages of any nature suffered or incurred by the injured
party
as a result of its own negligence
or wilful misconduct, or that of its employees, agents or
contractors, or as a result of any
occurrence, matter or thing the occurrence, existence or
non-disclosure of which
constitutes a breach or failure of any representation,
warranty,
covenant or other obligation of
the injured party hereunder;
(b) except in the case of a matter
involving fraud on the part of the Vendor, the Purchaser
shall
not be entitled to initiate,
maintain or enforce any claim against the Vendor in respect
of any
matter related to this Agreement
or the subject matter hereof, whether asserted under this
Agreement or otherwise, unless:
(i) in the case of a
claim relating to a representation and warranty in respect
of the
Vendor's title to any
of the Business Assets, the Purchaser shall within ten years
of
the Closing Date have
given the Vendor notice in writing of such claim, including
full particulars of
the basis therefor,
(ii) in the case of a
claim relating to a representation and warranty in
respect of Taxes,
Environmental
Deficiencies, product liability, the Pension Plan, the
Benefits Plan or
Employee benefits
generally, the Purchaser shall within four years of the
Closing
Date have given the
Vendor notice in writing of such claim, including full
particulars
of the basis
therefor, or
(iii) in any other case,
the Purchaser shall within two years of the Closing
Date have given
the Vendor notice in
writing of such claim, including full particulars of
the basis
therefor;
(c) neither party shall be entitled to
recover any indirect, consequential or special damages
from
the other;
(d) each party shall be obligated to
use reasonable efforts to mitigate any liability, loss,
costs,
claims or damages sustained by it
in connection with any matter for which the other party
may have liability to it;
(e) the Purchaser shall not be
considered to have suffered any loss or damage with
respect to any
Inventory or warranty claim matter
unless and until the respective
</PAGE>
<PAGE>
- 34 -
Inventory and warranty claim
reserve amounts taken into account in determining the
Closing Net Worth have been
exceeded;
(f) the Purchaser shall not be entitled
to bring any claim against the Vendor unless and until
the aggregate amount recoverable
by the Purchaser in respect of all claims that it is
entitled to bring against the
Vendor equals or exceeds $100,000; provided, however, that
the foregoing limitation shall not
apply with respect to any claim that the Purchaser may
have against the Vendor as a
result of any loss or damage being suffered by the Purchaser
in connection with either:
(i) the "Rigsaver Device"
engine damage assertions set forth in the October 25, 1995
letter to the Vendor
with respect to such claim, or
(ii) the Vendor's
non-performance of its obligations under Section 6.11,
Section 8.5,
Section 8.6 or
Section 9.3,
and any amounts that the Purchaser
is entitled to recover from the Vendor in respect of
any such loss or damage shall
accordingly be excluded in determining whether the $100,000
threshold contemplated by this
subsection has been equalled or exceeded; and
(g) except for matters of the kind
contemplated by clause (ix) of the definition of
Excluded
obligations, the Vendor's liability
to the Purchaser for matters related to this Agreement
or the
subject matter hereof shall be
limited to an amount equal to the Purchase Price, and
the Vendor
shall not under any circumstances
be liable for any amount, whether alone or in
aggregate, in
excess of such amount.
8.4 Environmental Liability
Notwithstanding that the Vendor's representations
and warranties with respect to Environmental Deficiencies
speak only to Environmental Deficiencies of which the Vendor
has knowledge, the Vendor shall also remain responsible for
the remediation of any other Environmental Deficiencies
caused by the Vendor; provided, however, that:
(a) the Vendor's obligations in this
respect shall be subject to the provisions of Section 8.3;
(b) the provisions of Sections 8.6
through 8.9 shall apply with respect to the remediation of
any
such Environmental Deficiencies;
(c) subject to Section 8.5, except for
expenditures of a capital nature (determined in accordance
with
GAAP) required by Environmental
Law to be incurred to remediate any Environmental
Deficiencies that are of the kind
contemplated by clause (i) of the definition of
Environmental
Deficiencies, the Vendor shall not
be responsible for, and shall have no liability for, any
expenditures of a capital nature
</PAGE>
<PAGE>
- 35 -
(determined in accordance with
GAAP) required to cause the Business Assets or continued
operations of the Business to
comply with Environmental Law; and
(d) if the state, effect or cost of
remediation of any such Environmental Deficiency is
worsened
or otherwise adversely affected by
any act or omission of the Purchaser or any other
person
following Closing, the Vendor
shall not be responsible for, and shall have no
liability for, any
of the incremental cost or
liability associated therewith.
8.5 Environmental Report
The parties acknowledge that the Purchaser has
commissioned an environmental investigation of the Real
Property that has resulted in the preparation of the ENSR
Report. The ENSR Report describes certain outstanding issues
of potential concern which may or may no constitute
Environmental Deficiencies, but which the Vendor has
nonetheless agreed to remediate or otherwise cure, under
this Agreement, as though they were Environmental
Deficiencies of which the Purchaser gave the Vendor notice
pursuant to Section 8.6, and which the Vendor elected to
remediate pursuant to Sections 8.6 and 8.9. The limitation
set forth in subsection 8.4(c) shall not apply with respect
to the Vendor's obligation to remediate the outstanding
issues of potential concern described in the ENSR Report.
8.6 Environmental Remediation
If at any time after Closing the Purchaser
discovers any Environmental Deficiency for which the Vendor
may have any liability or indemnity obligations, having
regard to the provisions of Sections 8.3 and 8.4, the
Purchaser shall forthwith provide the Vendor with written
notice and particulars of such Environmental Deficiency and
the basis on which the Purchaser feels that the Vendor may
be liable therefor. The Vendor may, upon assessing the
Environmental Deficiency, elect to take carriage of the
remediation of the Environmental Deficiency by giving notice
of such election to the Purchaser within 45 days after
receiving the Purchaser's notice (provided that if weather
conditions impede the Vendor's ability to properly assess
the situation within such period, the Vendor shall be
allowed such additional time to respond as it may reasonably
require). If the Vendor does not give such notice, the
Vendor shall be deemed to have disputed any liability or
indemnity obligation for such Environmental Deficiencies.
8.7 Disputed Responsibility
If the Vendor disputes its responsibility for the
Environmental Deficiency, the Purchaser may proceed to
remediate the Environmental Deficiency in accordance with
Applicable Law and generally accepted industry practices and
standards in the relevant geographic area If a court
ultimately determines that the Vendor is liable for the
Environmental Deficiency, the Vendor shall be required to
indemnify the Purchaser for all liability, loss, costs,
claims or damages, including, without limitation, attorney's
fees, consultant's fees and costs of investigating and
remediating the Environmental Deficiency, subject to the
provisions of subsections 8.4(a), (c) and (d). If the
Environmental Deficiency is not completely remediated at the
time of the
</PAGE>
<PAGE>
- 36 -
court's determination, the Vendor shall have the right to
make the election described in Section 8.6 within 30 days
after such determination.
8.8 Environmental Emergency
Notwithstanding Section 8.6, the Purchaser shall
not be required to wait for the Vendor to make its election
under Section 8.6 if the Purchaser makes a good faith
determination that the Environmental Deficiency poses an
imminent danger to human health oconveyances, notices,
releases and other documents and instruments, as may
reasonably be required to more fully assure the conveyance
of the Business Assets to the Purchaser in accordance with
the provisions of this Agreement and otherwise to assure the
carrying out of the intent and purpose of this Agreement.
10.12 Waiver
No waiver by either party shall be
effective unless in writing, and a waiver shall affect only
the matter, and the occurrence thereof, specifically
identified in the writing granting such waiver and shall
not extend to any other matter or occurrence.
</PAGE>
<PAGE>
- 42 -
10.13 Non-Merger
The provisions contained in this Agreement shall
survive the Closing and shall not merge in any conveyance,
transfer, assignment, novation agreement or other document
or instrument issuing pursuant hereto or in connection
herewith.
10.14 Counterpart Execution
This Agreement may be executed in separate
counterparts, and the executed counterparts shall together
constitute one instrument and have the same force and effect
as if both of the parties had executed the same instrument.
IN WITNESS WHEREOF the parties have executed and
delivered this Agreement as of the date first above written.
BARBBER INDUSTRIES LTD.
Per: /s/ Len Galenza
Per: /s/ John Secrest
662200 ALBERTA LTD.
Per: /s/ Kathleen Mathews
Per:
</PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the Condensed
Consolidated Statement of Financial Position at December 31, 1996 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,960
<SECURITIES> 0
<RECEIVABLES> 36,957
<ALLOWANCES> 1,331
<INVENTORY> 65,941
<CURRENT-ASSETS> 117,532
<PP&E> 32,235
<DEPRECIATION> 1,936
<TOTAL-ASSETS> 396,393
<CURRENT-LIABILITIES> 59,082
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 396,393
<SALES> 236,241
<TOTAL-REVENUES> 236,241
<CGS> 161,535
<TOTAL-COSTS> 161,535
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,376
<INCOME-PRETAX> 14,903
<INCOME-TAX> 7,735
<INCOME-CONTINUING> 6,852
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,852
<EPS-PRIMARY> 67
<EPS-DILUTED> 67
</TABLE>
